Zafar Iqbal

Former US President Donald Trump’s recent statement on Truth Social, declaring that the United States would impose 100% tariffs on BRICS nations—Brazil, Russia, India, China, and South Africa—if they abandon the US dollar as their reserve currency, reflects a provocative stance on global economic power. This bold assertion overlooks the complexities surrounding the global financial system and fails to account for shifting geopolitical dynamics and the evolving role of the US dollar. As BRICS expands its membership and increasingly challenges the dollar’s supremacy, the contours of global trade and finance are undergoing significant transformations.

The Decline of US Economic Dominance

Trump’s assertion reflects a longstanding concern in US foreign policy: the continued dominance of the US dollar in global trade, investment, and reserves. However, his declaration fails to acknowledge three critical factors that are reshaping the global economic landscape.

First, the share of the US in global Gross Domestic Product (GDP) has steadily declined from 45% after World War II to 25% today. This decline can be attributed to globalization, which has shifted manufacturing from the US to countries with cheaper labor and resources. China’s rise as an economic powerhouse has been a significant driver of this shift, further diminishing the relative influence of the US in the global economic order. While the US dollar still plays a dominant role in international trade, the waning economic influence of the US could weaken its ability to enforce such demands.

Second, as highlighted by Yuefen Li, an economist and Special Adviser on South-South Cooperation and Development Finance, the dollar’s supremacy creates an enduring global demand for it as a reserve currency. This “exorbitant privilege” allows the US to import goods and services more cheaply, as foreign countries are effectively required to hold dollars for trade and investment. This arrangement benefits the US by enabling it to run large trade deficits, while the rest of the world bears the cost of holding US dollars. However, the fact that this system is increasingly being questioned by countries like China, Russia, and Iran suggests that the era of unquestioned dollar dominance may be coming to an end.

Li also references research by economists Gourinchas and Rey, which demonstrates that US foreign liabilities are overwhelmingly in dollars, while its foreign assets are largely in other currencies. This imbalance means that even a modest depreciation of the dollar could represent a substantial transfer of wealth from the rest of the world to the US. This “exorbitant advantage” is one of the primary reasons for the persistence of the dollar’s dominance. Nonetheless, the increased efforts by countries to diversify their reserves away from the dollar, particularly within the BRICS grouping, signal that this system is facing growing challenges.

The Weaponization of the Dollar

A key factor that Trump fails to address is the weaponization of the dollar through sanctions. The US has increasingly used its control over the dollar-based financial system to impose economic sanctions on countries such as Russia, Iran, and Venezuela, seeking to achieve foreign policy objectives. The recent passage of the ‘Rebuilding Economic Prosperity and Opportunity (REPO) for Ukrainians Act’ by the US Congress, which allows the confiscation of Russian sovereign assets under US jurisdiction, serves as a case in point. This move not only targeted Russia’s assets but also highlighted the US’s ability to leverage the dollar system to pursue its geopolitical goals.

This use of economic sanctions has prompted countries like Russia to seek alternatives to the dollar. In response to sanctions, Russia has ramped up efforts to de-dollarize its economy, relying increasingly on the Chinese yuan and other currencies in trade and investment. This shift is part of a broader trend, particularly within BRICS, where countries are exploring ways to reduce their dependence on the dollar. While Trump’s threat of 100% tariffs may seem to reinforce the dollar’s supremacy, it may instead accelerate the process of de-dollarization among BRICS nations and others seeking to mitigate the risks associated with reliance on the US financial system.

BRICS Expansion and Strategic Alliances

The expansion of BRICS, with new members such as Iran, Egypt, Ethiopia, and the UAE, underscores the growing desire among emerging markets to establish an alternative economic bloc that is not as tightly bound to US-dominated institutions. While Saudi Arabia has yet to accept an invitation to join BRICS, its refusal to allow Israeli airstrikes to use its airspace in recent months illustrates a shift in Middle Eastern foreign policy. This change, coupled with the increasingly close relationship between Saudi Arabia and China, reflects the broader realignment of alliances in the region.

The BRICS nations, particularly China, have made significant strides in reducing their reliance on the dollar in international trade. For example, China has developed a yuan-based payment system that allows it to bypass the US-dominated SWIFT network for cross-border payments. The growing use of the Chinese yuan in trade with countries like Russia, Iran, and even Saudi Arabia is a direct challenge to the dollar’s hegemony. With China’s economy poised to overtake the US’s in the coming decades, the BRICS bloc’s strategic alignment with China positions it to play a key role in shaping the future of the global financial system.

The Changing Geopolitical Landscape

Trump’s comments also fail to account for the evolving geopolitical realities that are reshaping global power dynamics. The ongoing conflict in Gaza and Israel’s inability to achieve a decisive military victory reflect a shift in the balance of power in the Middle East. As traditional alliances fray, new alliances are emerging, particularly between countries that have long been adversaries, such as Saudi Arabia and Iran. This shift has been further facilitated by China’s diplomatic efforts, including brokering a truce between Saudi Arabia and Iran. These geopolitical changes are reshaping the ways in which countries approach their foreign policy, including their economic and financial relationships.

Moreover, the increasing use of sanctions by the US has prompted many countries to develop strategies to mitigate their impact. For example, Russia has turned to China as an economic partner, creating a BRICS corridor that facilitates access to Iranian oil, which has been severely sanctioned by the West. This growing network of alternative trade routes and payment systems is eroding the US’s ability to exert unilateral economic influence, and Trump’s threats may only accelerate this trend.

Trump’s threat to impose 100% tariffs on BRICS nations that abandon the US dollar overlooks the complexity of global economic trends and geopolitical shifts. While the dollar still dominates global trade and finance, its supremacy is increasingly being challenged by countries seeking to diversify their reserves and reduce their dependence on the US. The decline of US economic power, the weaponization of the dollar through sanctions, and the expansion of BRICS all contribute to the growing momentum for de-dollarization. Trump’s stance, far from reinforcing the dollar’s dominance, may inadvertently accelerate the transition toward a more multipolar global financial system.