Tariffs, Tensions & the Dollar: Trump’s Economic Showdown with BRICS; By Annunthra Rangan

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As geopolitical tensions mount, U.S. President Donald Trump had earlier threatened to impose 100 percent tariffs on countries that seek to challenge the U.S. dollar’s dominance in global finance. This move is largely aimed at members of the BRICS bloc—Brazil, Russia, India, China, and South Africa—alongside recent additions such as Egypt, Ethiopia, and Iran. While the intention is to deter de-dollarization efforts, such tariffs could significantly impact global economic stability, leading to lower GDP growth and heightened inflation both in the United States and in the targeted countries.

China, the most influential BRICS member, has been actively promoting the internationalization of the renminbi (RMB) as part of its broader strategy to reduce dependence on the U.S. dollar. Russia, heavily sanctioned by the West, also has a strong incentive to further distance itself from dollar-denominated transactions. Nevertheless, despite these ambitions, BRICS still falls short of posing a serious challenge to the dollar’s global primacy.

Should the U.S. proceed with a 100 percent tariff on imports from BRICS nations, China would bear the brunt of the economic blow due to its deep trade ties with the American market. While all affected countries would likely experience a surge in inflation, China could temporarily buck this trend. A potential policy response by the People’s Bank of China—tightening monetary conditions to stabilize the renminbi—might initially curb inflationary pressures. 

Meanwhile in Asia…

The Chinese Embassy in India has strongly criticized the United States' recent escalation of tariff measures, calling them a form of "unilateralism and protectionism" that disproportionately impacts developing economies. In a public statement, China urged India to join forces in resisting what it views as Washington's abuse of trade policy, emphasizing the need for cooperation among major developing nations.

Yu Jing, spokesperson for the Chinese Embassy in New Delhi, highlighted  the mutual benefits of the India-China economic relationship, describing it as one built on complementarity and shared interests. Through a post on the social media platform X, Yu stated that both countries—home to the largest populations in the Global South—should unite in confronting external economic pressures that threaten their right to development.

This diplomatic appeal follows U.S. President Donald Trump's latest move to intensify trade pressure on China by raising cumulative tariffs on Chinese goods to 104 percent. These new duties came after Beijing responded with a 34 percent retaliatory tariff. The U.S. administration has also signaled further tariff expansions, including a planned crackdown on pharmaceuticals—an industry in which both India and China are global leaders.

India, while not the primary target of the tariff escalation, has not been spared. Washington has imposed a 26 percent duty on Indian exports, part of a broader policy aimed at countries with which the U.S. maintains significant trade deficits. Key Indian sectors, particularly manufacturing, pharmaceuticals, and technology, face growing uncertainty as global trade dynamics become increasingly volatile.

Meanwhile, as of 10th April, India is moving swiftly to accelerate the finalization of a trade agreement with the United States, following Trump's recent decision to temporarily suspend the implementation of reciprocal tariffs for many countries while simultaneously raising duties on Chinese imports. The U.S. has now imposed a 125% tariff on Chinese goods, maintaining pressure on Beijing, while India's reciprocal tariff remains at a relatively modest 10%.

The development comes as a welcome relief to Indian exporters, particularly in sectors like seafood, with one government official noting that shrimp exports, among others, would benefit significantly from the 90-day pause on new tariffs. India had been among the first nations to initiate formal trade negotiations with Washington, with both sides targeting the completion of an initial agreement phase by October 2025. The broader ambition is to scale bilateral trade to $500 billion by the end of the decade.

The United States' decision to temporarily ease tariffs on some of its trading partners, including India, came just a day after the announcement of sweeping tariff hikes that caused major disruptions in global financial markets—marking one of the sharpest downturns since the onset of the COVID-19 pandemic.

In response, India has expressed a willingness to offer duty-free access to a range of American goods, including products covered under the Production-Linked Incentive (PLI) scheme. This move is seen as a strategic gesture to advance the bilateral trade pact. The PLI scheme currently spans 14 key sectors with a total allocation of ₹1.97 lakh crore, covering industries such as mobile phones, drones, white goods, textiles, telecom, automobiles, specialty steel, and pharmaceuticals.

Amid heightened geopolitical tensions and an increasingly uncertain global trade environment, India is also shifting its macroeconomic priorities. With inflation on a downward trend, the Reserve Bank of India (RBI) has cut the benchmark repo rate by 25 basis points to 6 percent in an effort to support growth. However, RBI Governor Sanjay Malhotra has cautioned that escalating global trade frictions—particularly between the U.S. and China—pose significant risks to India's economic outlook.

BRICS Currency - A need? 

The U.S. dollar retains a dominant position in the global economy, underpinning both central bank reserves and the vast majority of international trade. Despite periodic challenges, no other currency has managed to rival its influence. In contrast, BRICS nations have been exploring ways to shift away from dollar dependency. China has taken a leading role by pursuing a broader use of its currency in global markets and strengthening its financial infrastructure. Recent geopolitical developments—such as sanctions targeting Russia and growing strategic friction with the United States—have accelerated these efforts, as BRICS members seek to insulate themselves from vulnerabilities tied to the Western financial system.

Periodic speculation about an impending shift away from the dollar has surfaced over the years—first favoring the Japanese yen, later the euro, and most recently the RMB. However, none have managed to replicate the foundational strengths of the U.S. economic and financial system. These include the scale and depth of U.S. financial markets, the absence of capital controls, macroeconomic stability, and a regulatory environment that is transparent, rules-based, and open to foreign financial institutions on an equal footing. Even if another nation were to match these attributes, it is unlikely that the dollar would be unseated. History suggests the global economy is capable of accommodating multiple influential currencies without a single dominant successor. Nonetheless, evolving financial technologies may weaken the advantages enjoyed by established currencies, potentially allowing for greater currency diversification in global portfolios.

Meanwhile, in response to renewed tariff threats from Trump, India has reiterated its opposition to the idea of a common BRICS currency and reaffirmed that weakening the U.S. dollar is not part of its strategic or economic agenda. While maintaining its commitment to the BRICS partnership, India has firmly clarified that it does not support or participate in any initiative within the grouping aimed at reducing reliance on the dollar.

External Affairs Minister S. Jaishankar, addressing concerns raised in light of Trump's proposed 100 percent tariff on BRICS imports, emphasized that India’s position on this matter has been transparent and consistent. He stated that New Delhi has communicated directly with U.S. counterparts to convey that India does not endorse any move to challenge the dollar’s role in global finance through BRICS mechanisms. 

India has taken a pragmatic stance in navigating the evolving global financial landscape, choosing to prioritize its strategic alignment with the United States while maintaining a cooperative posture within BRICS. Trump, meanwhile, declared that BRICS had "broken up" under the weight of his tariff threats—an exaggeration, but one that underscores the growing rift between Washington and emerging economies exploring alternatives to the dollar-dominated system. These tensions intensified following the 2024 BRICS Summit held in Kazan, Russia, where leaders revisited the idea of a shared currency, tentatively named the "Unit," potentially backed by gold.

The concept of a BRICS currency is driven by the bloc’s desire for economic sovereignty and a more balanced international monetary system. With the U.S. dollar accounting for nearly 90 percent of global currency trading and a similar share in oil transactions until recently, BRICS leaders argue that an alternative could promote greater autonomy and shield them from external shocks—particularly sanctions and trade disruptions.

Although Russian President Vladimir Putin presented a prototype BRICS banknote during the summit, his rhetoric suggested a moderated approach. Rather than aggressively pursuing de-dollarization, Putin emphasized the need to build financial tools that can counteract the politicization of global finance—specifically, alternatives to the SWIFT system that rely on local currencies.

Among the most ambitious proposals is the development of a BRICS blockchain-based payment network, dubbed the “BRICS Bridge.” This platform aims to facilitate cross-border settlements using central bank digital currencies (CBDCs), offering an independent mechanism outside the dollar-led financial architecture. If successful, it could reduce transaction costs, enhance transparency, and boost financial inclusion within BRICS and among their trading partners.

Such a shift, however, would require considerable coordination and trust among BRICS members—each with differing economic models, monetary policies, and geopolitical interests. The new system would also need to prove its stability and scalability before it could meaningfully challenge the U.S. dollar's dominance.

Nonetheless, the idea of de-dollarization is gaining traction globally. Several countries, including China and Russia, have already begun trading in their own currencies. Others, like India, Kenya, and Malaysia, are signing agreements to promote local currency settlements. These moves reflect a growing desire to reduce vulnerability to external financial pressures and currency volatility.

Despite this trend, the U.S. dollar remains deeply entrenched in the global economy. It still accounts for around 88 percent of foreign exchange trades and over half of global central bank reserves. As long as the dollar retains its reputation for liquidity, stability, and convertibility, it will continue to be the currency of choice for international trade and reserve holdings. Experts remain divided on whether a BRICS currency could significantly weaken the dollar. Much depends on how widely it is adopted, the strength of the underlying economies, and the political will to pursue true monetary integration. Should the BRICS currency gain traction, it could blunt the effectiveness of U.S. sanctions and contribute to a gradual shift in global financial power—a process likely to unfold over years rather than months.

The proposed BRICS currency is unlikely to displace the U.S. dollar as the dominant global reserve and trade currency. While China and Russia have initiated bilateral trade using their national currencies, any serious discussion on a unified BRICS currency could quickly become contentious—particularly due to China’s strategic interest in promoting the renminbi (RMB) as a global alternative to the dollar. China has long pursued a clear agenda of elevating the international standing of the RMB. In the context of BRICS, Beijing may attempt to position its currency as either the foundation of a common BRICS currency or, more directly, as the currency to replace the dollar within intra-BRICS trade. Such a move would likely be met with resistance from other member states, who may view it as a challenge to the group's foundational principle of equality and multilateralism.

This internal competition could stall or derail efforts toward monetary integration within BRICS, leading the bloc to continue relying on the U.S. dollar for trade and settlements—at least in the foreseeable future.

Despite these initiatives, BRICS remains far from mounting a credible challenge to the dollar. While the bloc has established institutions such as the New Development Bank and the Contingent Reserve Arrangement, discussions around a shared BRICS currency, a joint payment system, or a common digital currency have made little concrete progress. Analysts remain skeptical of the feasibility and cohesiveness of such projects, particularly given the divergent interests of member states.

Economically, a blanket 100 percent U.S. tariff on BRICS nations, as repeatedly threatened by Trump, would have far-reaching consequences. China would likely face the steepest GDP losses due to its heavy dependence on exports to the U.S., while inflation would rise across all BRICS countries—though China might temporarily avoid this spike through monetary tightening to defend its currency. For the U.S., the consequences would also be severe: GDP could shrink by hundreds of billions of dollars and consumer prices could rise notably, making such a policy counterproductive.

Meanwhile, through all this, for the United States, however, the economic costs would be substantial. By the end of a potential second Trump administration, U.S. GDP could be $432 billion lower than baseline projections, with consumer prices rising by an estimated 1.6 percent. In light of current global dynamics and the limited threat posed by BRICS monetary ambitions, imposing sweeping tariffs would not only be economically damaging but also strategically misguided.

(Annunthra Rangan is a Senior Research Officer at C3S. The views expressed here does are of the author's and do not reflect the views of C3S.)