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title="Latest and Breaking News on News Agency" />US President-elect Donald Trump has been throwing up surprises long before his inauguration. Now the heat is on BRICS. Trump has threatened to impose 100% tariffs on BRICS countries if they undercut the US dollar. It was Trump's not-so-veiled warning to Russia, China and India, along with countries like Brazil, South Africa, Iran, Egypt, Ethiopia and the UAE, which are part of the BRICS alliance. Trump has cautioned against creating a rival currency to the US dollar or backing any other option as the world's reserve.
"The idea that BRICS Countries are trying to move away from the Dollar while we stand by and watch is OVER," Trump wrote on his social media recently. "We require a commitment from these countries that they will neither create a new BRICS currency nor back any other currency to replace the mighty US dollar, or they will face 100 per cent tariffs and should expect to say goodbye to selling into the wonderful US economy. They can go find another 'sucker!' There is no chance that the BRICS will replace the US dollar in international trade, and any country that tries should wave goodbye to America," Trump posted.
BRICS, formed in 2009, is the only major global alliance of which the US is not a part.
The BRICS countries, in their recent meetings, have been mooting policies to decrease dependence on the US dollar, including the possible creation of a shared currency to enable trade within the alliance. At the BRICS summit in Russia in October, Russian President Vladimir Putin had cautioned about "the dollar being used as a weapon".
There is a line of thought that such a currency will buffer the nations' economy from the uncertainties of US sanctions and monetary policies.
Dominating dollar
The US dollar has been the mainstay of the global financial system post-World War II - held by central banks globally for its stability and exchangeability. More than 58% of the world's foreign exchange reserves are denominated in US dollars, explaining its nickname as "the world's reserve currency". Institutions like the IMF (International Monetary Fund) and World Bank conduct most operations in dollars.
To spread its economic might in the 1970s, the US convinced the oil-rich UAE countries, especially Saudi Arabia, to trade oil exclusively in US dollars, thus creating the 'petrodollar' system, helping keep consistent global demand for US dollars to buy oil.
Many countries have been looking for an alternative to the dollar after the US "weaponised the global financial infrastructure" by expelling Iran and Russia out of the SWIFT (Society for Worldwide Interbank Financial Telecommunication) network. This blocked them from carrying out international transactions for valid trade.
Over the last decade, China has been fairly successful in internationalising the RMB (its currency), and a substantial part of Chinese trade is invoiced and settled in its own currency.
At the recent BRICS meeting in Russia, a figurative note exhibiting the flags of BRICS countries was presented, leading to discussions about the future of global finance. But Putin had explained that the alliance was neither looking at floating a unified BRICS currency nor considering a substitute to the SWIFT payment system.
Will Trump's threat work?
During the US election, Trump canvassed on executing extensive tariffs. He has intensified the threats of sharp tariffs, of late.
Tariffs are a vital part of Trump's economic vision. He thinks of them as a means to develop the US economy, securing jobs and augmenting tax income.
He is often trying to convince Americans that these taxes are "not going to be a cost to you, it's a cost to another country".
However, experts worldwide are calling Trump's bluff, pointing out that the economic burden is ultimately borne by US consumers. Imposing a 100% tariff on BRICS countries will be an economic fail.
"If Trump increases tariffs by 100%, then the cost of goods for his citizens would also go up. It would be a tax on American citizens, if the tariffs are increased, worsening the cost-of-living issue in the US," says Jaijit Bhattacharya, president, Centre for Digital Economy Policy Research.
Nations will have to work around Trump's economic policy of protectionism, higher tariffs, and a focus on local manufacturing, which is set to create challenges in global trade dynamics. "The world is deeply integrated and it is challenging to unplug an economy from other major economies without hurting themselves. However, given the past record, one should not take the utterances of the President elect lightly, given that not all world leaders are rational," says Bhattacharya.
As for India, it has to adopt a balanced line by consenting to financial reforms within BRICS, which are beneficial to the country, while at the same time sustaining robust relations with the US to protect its larger strategic and economic priorities.
Perhaps apprehending a retaliation from the US, Prime Minister Narendra Modi in the BRICS summit in Russia warned that the bloc should not labour under the perception that it is trying to change global organisations.
In India, an attempt to decrease dependence on the US dollar and internationalise the rupee saw the RBI allowing invoicing and payments for global trade in rupees in 2022. This happened after sanctions were imposed on Russia in the ongoing Ukraine war. But India would be naïve to give up its monetary policy sovereignty for the uncertainties of a common BRICS currency
India has displayed an inclination to offer an easier market entry to US companies, on condition that the US reciprocates. During Trump's earlier tenure, both India and the US had toiled hard towards a limited trade accord, setting the pace for deeper economic association.
"Our trade institutions should not be diffident or get caught up in the western narrative of being protectionist, else the domestic industry will not get market access to either global markets or the Indian markets," says Bhattacharya.
India is the one country in BRICS that has seen its economy on the growth path. It may maintain status quo until there is a compelling reason to do otherwise.
(The author is Contributing Editor, News Agency)