US threatens 100% Tariff on BRICS Bloc

Fears of a global trade war have risen after Donald Trump threatened to impose 100% tariffs on countries in the Brics group if they create a new currency to rival the US dollar. The warning came less than a week after Trump declared he would impose tariffs on Canada, Mexico and China once he was inaugurated as president.

Where BRICS’s ‘de-dollarisation’ call is leading?

• The Brics group was originally made up of Brazil, Russia, India, China and South Africa and has been joined by Egypt, the United Arab Emirates, Ethiopia and Iran.
  • Turkey, Azerbaijan and Malaysia have applied to become members, and several other countries have expressed interest in joining.
• Some Brics members have shown interest in de-dollarising the world economy. In October, Vladimir Putin called for an alternative international payments systemthat could prevent the US from using the dollar as a political weapon. Others, though, fear the consequences of severing relations with the US and other western countries by breaking away from the dollar, which underpins world finance.
• While the U.S. dollar is by far the most-used currency in global business and has survived past challenges to its pre-eminence, members of the alliance and other developing nations say they are fed up with America’s dominance of the global financial system.

What gives the US dollar the power in international trade?

• The U.S. dollar is not forced on anyone to be accepted as a medium of exchange for cross-border transactions.
• It is widely used in international transactions because people actually prefer to use American currency over others for various economic reasons.
• Other currencies that have tried to compete against the U.S. dollar are not as popular as the greenback for carrying out international transactions.
• The global acceptability of the U.S. dollar has primarily been attributed to the
• the popularity of U.S. assets among investors
• high level of trust of global investors in the US

India's Pursuit of De-dollarisation:

India, as a BRICS member, is challenging traditional financial systems through de-dollarisation efforts.

• Shift in Trade Dynamics:Increased trade in local currencies, like the Indian Rupee, grants India more control over monetary policy and shields it from external shocks.
• Monetary Policy Autonomy:Reduced reliance on the U.S. dollar empowers India to set independent monetary policies, enhancing economic stability.
• Enhanced Trade Relations:Trade in local currencies fosters stronger economic ties, streamlines transactions, and reduces costs.
• Strengthened Indian Rupee: De-dollarisation can lead to a stronger rupee, boosting purchasing power and reducing inflationary pressures.
• Economic Independence: By diversifying away from the dollar, India reduces vulnerability to U.S.-led sanctions, enhancing economic independence.

Impact of 100% tariff

• A 100% tariff at the US border, if implemented, would drive up sharply the cost of goods from Brics members, fuelling US inflation and destabilising global trade flows.
• This hardline approach on trade reflects Trump’s broader ‘America First’ economic policy, which aims to recalibrate global trade dynamics and reinforce US economic sovereignty.