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Trump’s Warning To BRICS: An Empty Threat Or A Real Economic War?

BY Steve Biko Wafula · February 3, 2025 12:02 pm

KEY POINTS

Trump’s approach also risks alienating key U.S. allies. Brazil, South Africa, and India are all major democracies and have historical trade ties with the U.S.. Pushing them towards China and Russia by imposing extreme tariffs would be strategically unwise for U.S. foreign policy.

Donald Trump’s warning to BRICS nations about imposing 100% tariffs if they attempt to replace the U.S. dollar in international trade has sent shockwaves across the global financial landscape. The former U.S. president, known for his aggressive stance on economic policies, did not mince words in his Truth Social post, declaring that any country backing a BRICS currency should expect economic retaliation in the form of high tariffs. But is this a credible threat, or is it simply another populist outburst meant to reinforce America’s dominance in global trade?

For decades, the U.S. dollar has maintained its status as the world’s primary reserve currency, accounting for over 58% of global foreign exchange reserves according to the International Monetary Fund (IMF). This dominance has given the U.S. a unique advantage in global trade, allowing it to impose sanctions, influence financial flows, and dictate international economic policies. However, the BRICS bloc—Brazil, Russia, India, China, and South Africa—has been actively working on de-dollarization efforts, challenging U.S. economic supremacy.

BRICS nations have been exploring the creation of an alternative currency for years, largely driven by geopolitical and economic tensions with the U.S. Russia and China, in particular, have been leading the charge in reducing their dependence on the dollar, especially after U.S. sanctions on Russia over the Ukraine war and Washington’s broader economic rivalry with Beijing. According to reports, trade settlements in non-dollar currencies among BRICS members have increased by over 30% in the last five years.

Trump’s statement underscores the U.S. fear of losing its economic leverage. A successful BRICS currency would weaken the Federal Reserve’s control over global liquidity and potentially reduce demand for U.S. Treasury bonds, which are a key component of America’s debt financing strategy. This could spell disaster for the U.S. economy, which currently carries a national debt of over $34 trillion.

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But how realistic is a 100% tariff on BRICS countries? Such a move would have devastating consequences, not just for BRICS economies, but also for American businesses and consumers. China alone accounts for over 15% of total U.S. imports, with bilateral trade between the two nations exceeding $650 billion annually. A blanket tariff would trigger massive inflation in the U.S., as American consumers and industries rely heavily on cheap imports from BRICS nations.

Moreover, many U.S. multinational corporations operate in BRICS countries. Companies like Apple, Tesla, and Boeing source raw materials and manufacture products in China and India. A tariff war would force these companies to relocate supply chains, significantly increasing operational costs. Historically, tariff escalations have led to economic recessions—as seen in Trump’s 2018 trade war with China, which cost U.S. businesses and consumers an estimated $316 billion over two years.

Another challenge to Trump’s threat is the growing influence of BRICS in global trade. The bloc is expanding, with countries like Saudi Arabia, Iran, UAE, Egypt, and Argentina expressing interest in joining. This expansion could create a strong economic alliance controlling over 45% of global oil production, 35% of world GDP, and half of the world’s population. A BRICS currency backed by gold, rare earth metals, or commodities could pose a serious challenge to the petrodollar system.

While Trump insists that no country can replace the U.S. dollar in international trade, the reality is more nuanced. The Chinese yuan is already gaining traction in global trade settlements, with over $7 trillion worth of transactions settled in yuan in 2023 alone. Russia and China have increased their bilateral trade in rubles and yuan by 80% in the last two years, significantly reducing their reliance on the dollar.

Furthermore, the rise of digital currencies and blockchain technology could accelerate de-dollarization efforts. China’s digital yuan (e-CNY) is already being tested in cross-border payments, and other BRICS nations are exploring Central Bank Digital Currencies (CBDCs). If BRICS can create a secure, efficient, and widely accepted digital currency, it could bypass the SWIFT system, limiting U.S. financial influence.

Trump’s rhetoric about “hostile countries” betrays a fundamental misunderstanding of global economics. The world is increasingly multipolar, with China, India, and Russia emerging as dominant economic players. The assumption that the U.S. can dictate global trade terms unilaterally is outdated. Even European countries, traditionally aligned with the U.S., are exploring trade in non-dollar currencies due to Washington’s unpredictable economic policies.

If Trump follows through on his 100% tariff threat, it could trigger a major global economic crisis. The World Trade Organization (WTO) and International Chamber of Commerce would likely challenge such tariffs as illegal trade barriers, leading to diplomatic disputes. Moreover, BRICS nations could retaliate by slashing investments in U.S. assets, further destabilizing Wall Street and the dollar.

The biggest question is whether a BRICS currency can succeed. While the idea is ambitious, internal differences within BRICS could pose challenges. China and India, for example, have territorial disputes, and economic policies among BRICS nations are not harmonized. Creating a common monetary policy, exchange rate mechanism, and financial infrastructure requires deep cooperation, which remains uncertain.

However, even if a unified BRICS currency doesn’t materialize, the trend towards de-dollarization is irreversible. Countries are diversifying foreign reserves away from the dollar, and bilateral trade agreements in local currencies are increasing. The dollar’s dominance is shrinking, and Trump’s threats—whether enacted or not—will likely accelerate the global move away from dollar dependency.

Trump’s approach also risks alienating key U.S. allies. Brazil, South Africa, and India are all major democracies and have historical trade ties with the U.S.. Pushing them towards China and Russia by imposing extreme tariffs would be strategically unwise for U.S. foreign policy.

Ultimately, Trump’s statement is a classic example of economic nationalism that may play well to his domestic base, but it overlooks the realities of global trade. The world has changed, and economic coercion is no longer as effective as it once was. BRICS nations are too economically significant to be bullied into submission. Instead of issuing threats, the U.S. should be exploring economic diplomacy and collaborating on trade policies that ensure mutual benefit.

Whether Trump’s 100% tariff threat is just campaign rhetoric or a genuine policy remains to be seen. However, one thing is clear: the global economic order is shifting, and the days of U.S. dollar supremacy being unchallenged are rapidly fading.

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Steve Biko is the CEO OF Soko Directory and the founder of Hidalgo Group of Companies. Steve is currently developing his career in law, finance, entrepreneurship and digital consultancy; and has been implementing consultancy assignments for client organizations comprising of trainings besides capacity building in entrepreneurial matters. He can be reached on: +254 20 510 1124 or Email: info@sokodirectory.com

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