Newly elected US President Donald Trump has threatened nine countries with tariffs of up to 100% if they choose a new currency for transactions instead of the US dollar.
On Saturday, Trump wrote on social media that “the idea that the BRICS countries will try to move away from the dollar and we will watch will no longer work.”
Notably, global powers China and Russia are part of the BRICS, which also includes Brazil, India, South Africa, Iran, Egypt, Ethiopia, and the United Arab Emirates.
During the campaign before the presidential election, Trump hinted at imposing broad tariffs, but in recent days he has increased his threats regarding this issue.
In a recent statement before his inauguration on January 20, Trump targeted the BRICS. It should be noted that leading politicians from Brazil and Russia have suggested that the organization create its own currency, with the aim of reducing dependence on the US dollar in global trade. But this matter has not progressed due to differences within the organization.
However, Trump wrote on his social media platform Truth Social, that “We will seek assurances from these countries that they will neither create a new BRICS currency nor support any other currency to replace the US dollar, otherwise they will face 100 percent tariffs and expect to see trade cut off from the US economy.”
“They can find someone else.”
Some Trump supporters believe that these announcements are a negotiating tactic intended to create an environment for dialogue rather than an announcement.
When asked about Trump’s recent announcement on CBS’s “The Trump Administration’s” show, Republican Senator Ted Cruz said, “Look, the threat of tariffs on Mexico and Canada had immediate results.”
What Is A Tariff?
Tariff is the internal tax of any country that is imposed on products entering the country. That is, if a car worth $50,000 is imported into the United States and a 25% tariff is imposed on it, an additional $12,500 will be spent.
Tariffs are a central part of Trump’s economic thinking, and he sees them as essential for growing the American economy, protecting local jobs, and increasing tax revenue.
He has claimed in the past that ‘these taxes will fall heavily on the pockets of another country, not on the local level.’
However, economists consider this claim misleading. This is because the surcharge is paid by the local company that imports the product, not the foreign company. In this sense, it is a tax that local companies pay to the US government.
Trump imposed several tariffs during his first term in office, which were later maintained by the Joe Biden administration.
Read Also:
Kremlin says Trump threat to BRICS nations over US dollar will backfire
So is an alternative to the US dollar possible? But before that, let’s know how the dollar became the world’s most powerful currency.
The Secret Negotiations That Made the Dollar the World’s Dominant Currency
As World War II drew to a close, the Allies began to realize that their own economies had been destroyed. They began to wonder what currency international trade would be in when the recovery process began.
At that time, representatives from 44 countries gathered for 22 days at the Mount Washington Hotel in the town of Bretton Woods, USA. Here, the future of global economy and trade was discussed after the war.
European countries were devastated by the war, while the United States had the largest gold reserves in the world.
Ed Conway writes in his book ‘The Summit’ that there were 22 days of intense political fighting and debate. During this time, there were also two pitched battles between two figures, in which the British John Keynes had the idea of a global currency, and on the other hand was Harry Dexter of the US Treasury Department.
After this conference, it was decided that the US dollar would be used for international trade and that the institutions created at this meeting, the IMF and the World Bank, would provide loans in US dollars to countries facing economic difficulties after the war.
Is There An Alternative To The Dollar?
The yuan may be the only alternative to Western currencies for holding reserves, but for that to happen, China will have to change a lot. Reform and transparency are needed, incentives for savings, the removal of controls on capital movements. Liquidity is a major problem because China restricts foreign investment in both its financial markets and capital exports.
Experts say that if these restrictions are lifted, private capital will flow into their jurisdiction.
However, economists acknowledge that the yuan could gradually become a reserve currency. According to a recent study by American and European economists, China is actively promoting trade settlements in its currency, thereby accumulating yuan in the central banks of its trading partners.
He wrote that “China’s attempt to internationalize its currency will not ensure the dominance of the yuan, but rather a multipolar currency world where the dollar, euro, and yuan coexist.”
That’s fine, but it’s still a long way off. Being able to hold money in yuan is one thing, wanting it is another.
The ability to buy and sell dollars worldwide is unlimited, while the yuan is traded only in Hong Kong and a few dozen smaller centers outside of China.
Historian Ferguson calls the race for dominance between the dollar, euro, and yuan a ‘turtle race.’
The second important point is that America’s rivals are the only ones looking for an alternative to the dollar. Developed democracies and America’s allies have absolutely no ‘allergy’ to the dollar.