The war of tariffs: BRICS versus the US
This article is authored by Sriparna Pathak.
President Donald Trump came back to power for his second term on the promises of ‘Make America Great Again’, or MAGA. Immediately upon taking office, Trump started using the threats of tariffs to address contentious issues with other countries--ranging from illegal migration to fentanyl smuggling into the United States (US) from Canada, Mexico, and China, for the purposes of MAGA. In the realm of trade, Trump has again used the tariff tool to ensure a more balanced trade for MAGA. One of the first countries during Trump 2.0, to get threatened by tariffs, was also Japan, and Trump threatened tariffs on Japanese goods if the US trade deficit with Tokyo was not equalised. Japan is a treaty ally of the US Trump has used the threats of tariffs irrespective of whether the country in question is a treaty ally or not, with the differences being in the severity of tariffs. A case with threats of 100% tariffs lies in the BRICS grouping. Trump threatened 100% tariffs if the group went ahead with the plans on common currency, and tried to ditch the US dollar for trade and transaction settlements.
China has actively advocated for the creation of a shared currency among the BRICS countries, with an aim to reduce reliance on the US dollar in international trade, and to challenge to dominance of the Western financial system by promoting the use of local currencies, particularly the Chinese yuan, and the push is part of the larger Chinese strategy to increase its economic influence globally. In 2024, Brazilian President Inacio Luiz called on the BRICS countries to develop an alternative to the dollar in foreign trade, adding that countries which do not use the dollar should not be forced to use the currency. He added, that a BRICS-supported currency increases Brazil’s payment options and reduces our vulnerabilities. The rationale behind the statement needs a deeper understanding. By the end of 2022, the Chinese yuan had surpassed the euro to become the second-largest currency in Brazil’s foreign reserves. Also, Brazil is more dependent on China for its foreign trade, than it is on the US China has been Brazil’s largest trading partner since 2012.
At the BRICS summit in 2024, in Kazan, Russian President Vladimir Putin opened the summit by issuing a call for an alternative international payments system that could prevent the US from using the dollar as a political weapon. Russia’s motivations for de-dollarisation are not difficult to understand. Because of the western ban, owing to the ongoing Russia-Ukraine war, Russia now uses the Yuan almost exclusively in its exchanges with China. As per Chinese customs data, trade between Russia and China reached around $ 240 billion in 2023, an increase of over 26% year-on-year. India and South Africa out of the pre-expansion group members of the BRICS have a different stance to a common BRICS currency. South Africa’s department of international relations and cooperation has stated that the notion of a BRICS currency is incorrect. After Trump’s tariff threats of 100%, the South African government stated that there are no plans to create a so-called BRICS currency. Even though China is the largest trading partner for South Africa, fact also is that the bilateral trade that South Africa has with the US is only marginally lesser than the bilateral trade that South Africa has with China. China, in as early as 2016 launched direct trading between the yuan and the South African rand.
India, immediately after the BRICS summit last year, in 2024, had stated that it never has had any plan for de-dollarisation. India’s external affairs minister, S Jaishankar, had made it clear that India neither has any such policy or strategy. The governor of India’s Reserve Bank, Shaktikanta Das had also stated that de-dollarisation is not India’s objective. Union minister Piyush Goyal also made it amply clear that India firmly rejects any proposal for a BRICS currency, and went on record to state that India cannot have a shared currency with China. As such, India has been desperately trying to shift its trade reliance away from China to like-minded partners, particularly the US While in 2024, India’s bilateral trade with China was only marginally higher than its bilateral trade with the U.S. by roughly USD 0.2 billion, the US was India’s largest trading partner in the last two preceding years. India is heavily reliant on the US dollar for trade and does not want it to change, particularly not to the Chinese yuan.
While the idea of a common BRICS currency might have been sugar-coated with dreams of greater economic benefits, for countries of the grouping, fact is, that it is a push for China to increase its dominance in trade and to reduce the economic preponderance of the US in the international system. However, a yuan-led trading system does not augur well for most countries of the world which already suffer heavy trade imbalances with China. The threat of tariffs from Trump seems to be working out so far, in achieving whatever goals have been stated by Trump. As the hegemon of the current international system, the US will try everything within its means to remain the hegemon. While Trump’s transactional approach and tariff threats create immense shocks across the world, countries need to rationally understand how to manoeuvre and keep their national interests at the forefront. Relying on China under the garb of a common currency does not solve the purpose, and can clearly invite more tariff wrath from the US.
This article is authored by Sriparna Pathak, associate professor, Chinese Studies and International Relations, Jindal School of International Affairs, OP Jindal Global University, Sonipat.
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