Trump to the BRICS: “Don’t muscle in on my currency turf.”

The expansion of the BRICS alliance has been happening without any noticeable concern by the outgoing Biden-Harris administration. I heard no mention of BRICS by former Democratic presidential candidate Kamala Harris during her 2024 campaign. As potential de jure head of state, one would think that both her and the presumptive president-elect, Donald Trump, would have harped on the real Russia-China threat to the American state: a potential BRICS currency and/or a stepped up move toward de-dollarization where Brazil, Russia, India, China, South Africa, and other nations would opt to settle trade transactions via alternative baskets of currencies.

Mr. Trump appears to be making up for not discussing what to me is a major foreign policy issue by threatening 100% tariffs on BRICS nations who turn their backs on the US dollar as a settlement instrument [1,2]. With all the talk of de-globalization, the United States is not ready for any major de-linking by Asian and African nations from the USD. Demand for the US dollar is the same as saying demand for US goods and services or demand for US securities. The reserve dollar status has resulted in the United States being able to stick its straw in the milkshakes of various national economies by turning those economies into purchasers of US products. As a result, the United States is able to serve as a market for domestic labor and imported goods, given the dollar’s relative strength.

Critics argue that if this is Mr. Trump’s avenue to negotiating with China, then his approach, according to MSNBC’s Ali Velshi, is like using a sledgehammer when a stiletto would be more appropriate [3]. China, Mr. Velshi argues, is not interested in a trade fight.

I see no benefit from a trade war either and given China’s reputation for long term planning, it would behoove them to do two things while walking and chewing gum: continue with their investments in infrastructure in other areas of Asia and the African continent while maintaining an uneasy peace with the US. The US is still the world’s largest consumer of stuff and it makes no sense for China to leave that export money on the table.

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Meanwhile, Mr. Trump should consider making a concrete tie between his proposed 100% tariffs on BRICS and the benefits that may flow to the American consumer and worker. Critics will conclude that increased prices on imports will be passed to the consumer. I have heard arguments that wholesalers could absorb price increases before passing them down to retailers, but that argument may not hold water against the argument that a tariff, like inflation, is an additional tax on the consumer.

I expect Congressional Democrats to argue that Mr. Trump’s assertions that BRICS movement away from the dollar threatens the economy does not meet the threshold necessary for implementing 100% tariffs. I also expect Congressional Democrats during legal challenges to Mr. Trump’s actions to argue that pursuant to the statute Mr. Trump takes action under that a delegation of authority to him was not constitutional, that his proposed actions do not fall within the scope of specific powers delegated by Congress, or that his proposed actions are not reasonably related to any powers delegated to him [4].

Whether this is a negotiation ploy or a successful increase in tariffs, Mr. Trump would have taken action to protect the currency, a muscular approach that the State may appreciate.

Alton Drew

1 December 2024

Notes

If you are in need of a legal or political risk assessment regarding your trading environment, reach out to me on LinkedIn or email me at altondrew@altondrew.com.

DISCLAIMER: I am not a financial adviser. These blog posts are for educational purposes only. Investing of any kind involves risk. Your investment and other financial decisions are solely your responsibility. It is imperative that you conduct your own research and seek professional advice as necessary. I am merely sharing my opinions.

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