Will Trump’s tariff threat slow down BRICS’ de-dollarization move?

The original BRICS’ member nations—Brazil, Russia, India, China, and South Africa—are exploring the possibility of launching a common currency, stirring discussions about the potential impact on the US dollar's status as the world's primary reserve currency.

This initiative reflects a broader ambition to reduce reliance on the dollar, diversify global financial systems, and potentially establish a multipolar world order. However, the proposal has faced various challenges and raised questions about feasibility, geopolitical implications, and even the future of global trade.

Motivation for a new BRICS currency

Global trade continues to be dominated by the US dollar, which also accounts for a significant share of currency reserves. This dollar has granted the US substantial influence, particularly through its ability to impose economic sanctions and control access to international financial networks.

Now, the addition of Egypt, Iran, Ethiopia and the UAE in the BRICS bloc represents a strategic step, opening new opportunities for trade and investment with the bloc’s founders.

Russia and China, in particular, are strong advocates of de-dollarisation, a strategy that aims to reduce their dependency on the dollar and lessen their vulnerability to US economic measures. Other BRICS members also want more monetary control to shield themselves from US interest rate changes and inflation adjustments.

Economic and political challenges

Despite the confirmed interest, launching a BRICS currency is complex. The bloc’s economic diversity—varying development levels, inflation rates, and fiscal priorities—complicates creating a shared economic strategy. Unlike the EU, BRICS lacks a cohesive political framework akin to European Union to enforce financial rules, making it hard to ensure stability for a common currency. This fragmentation raises doubts about the feasibility of a joint currency and its potential long-term sustainability.

Impact on the US dollar and global trade

If BRICS were to launch a common currency, it could alter the dynamics of global trade, though analysts remain skeptical about the immediate impact. The dollar’s dominance is deeply rooted in global finance, with established trust and infrastructure supporting its use. Despite the desire for de-dollarisation, there is no clear alternative with the same level of stability and acceptance.

Alternative paths

Rather than a unified currency, BRICS nations might focus on expanding local currency trade. Russia and China have already increased bilateral trade in their own currencies, reducing dollar dependency. This strategy supports broader financial independence without the difficulties of managing a shared currency. Strengthening financial cooperation, currency swaps, and regional trade partnerships might be more practical steps.

Trump’s tariff threat

President-elect Donald Trump has threatened to impose 100% tariffs on BRICS members if they pursue creating a new currency to challenge the US dollar's global dominance. Trump's ultimatum demands these countries commit to maintaining the dollar's status or face severe trade penalties, signaling a firm stance against any efforts to undermine the dollar's role in international trade. This move aligns with Trump's broader trade policy approach, which includes proposed tariffs on Mexico, Canada, and China over issues such as illegal migration and drug trafficking.

A gradual shift

Thus, any push for de-dollarisation will likely proceed gradually rather than in a sudden shift. For now, the BRICS’ efforts point to a changing landscape that may redefine financial power over time. However, Trump’s aggressive trade stance could intensify the geopolitical stakes, complicating the path forward for the BRICS bloc.