Donald Trump warns Brics it will lose access to US if it dumps dollar
TOI Correspondent from Washington: US President-elect Donald Trump on Saturday demanded a “commitment” from Brics nations, which includes China, India, and Russia, that they will not seek to create a new currency or back any other currency to replace the “mighty” US dollar, failing which he warned they would face 100 per cent tariffs and be denied access to the “wonderful” US economy.
The provocation for Trump’s sudden tirade was not immediately clear, but several skeptics of the long-term viability of the US economy based on the dollar’s dominance have discreetly begun exploring other currencies and methods for global trade. The move is driven by Russia, which is suffering from crippling US sanctions, and China, which hopes to displace the US as the pre-eminent power in the world.
The enlarged Brics alliance comprises Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran & United Arab Emirates.
Turkey, Azerbaijan and Malaysia have sought membership while several other countries have indicated interest in joining the bloc which now accounts for 35 per cent of the global economy based on purchasing power parity, surpassing the 30 per cent share of the G7 developed nations in recent months.
In an abrupt social media post without preamble, Trump appeared to fire a warning shot at the group’s recent deliberations over “de-dollarisation,” saying that “the idea that the Brics Countries are trying to move away from the Dollar while we stand by and watch is OVER.”
“They can go find another “sucker!” There is no chance that the Brics will replace the US Dollar in International Trade, and any Country that tries should wave goodbye to America,” Trump said, adding that the US requires “a commitment from these Countries that they will neither create a new Brics Currency, nor back any other Currency to replace the mighty US Dollar or, they will face 100% Tariffs, and should expect to say goodbye to selling into the wonderful US Economy.”
The dollar’s unique status and preeminence rests on perceptions of America as a stable, dependable bedrock of global politics and business, something that recent years have increasingly called into question with mounting US debts and deficits and political uncertainty and gridlock. Despite the obstacles, the dollar remains atop because of the scale and liquidity it carries, besides the perception of the US as a stable society with a mature economy. Thus, more than 58.36% of official foreign exchange reserves in the world are held in dollars.
Euro is the next most commonly held reserve currency and stands at about 20% of the international foreign currency reserves.
Most US experts believe there is no imminent danger to the dollar. The last time the world swapped its reserve currency – British pound to American dollar, as far back as 80 years ago, the transition went on quite smoothly because the United States and the United Kingdom were partners; however, even with the opposing relation that Washington has with both Beijing and Moscow, they consider that the dollar is sure to be safe, although sudden fermentation from Trump suggests he also thinks some discomfort as he assumes office for a second term.
What are the potential economic impacts of Trump’s tariffs on BRICS nations?
Trump’s threat of 100% tariffs on BRICS nations could have significant economic repercussions. Such tariffs would effectively embargo imports from these countries, making their exports to the U.S. economically unviable, as noted by economist Sharad Kohli2. This could force the BRICS countries to evolve alternative modes of international trade and currency forms, thereby speeding up economic fragmentation and dollar extrication14. China can devalue its currency or impose export restrictions on key materials, further complicating global trade relationships.
What implications do Trump’s tariffs have on the global supply chain?
These proposed tariffs by Trump would bring enormous shock in the global supply chain because of increased cost and uncertainty. Such impacts include:
Higher Costs: Importing products, particularly those from China, will increase the prices of household things, from electronics to other well-being products. It can lead to inflation and reduce spending by the consumers12.
Supply Chain Restructuring: Companies are forced to restructure their supply chains, including reshoring production or finding alternative suppliers in Vietnam or India. However, none of these alternatives will completely make up for the lost Chinese capacity13.
Global Economic Slowdown: The tariffs are likely to provoke retaliatory measures and thus slow down world economic growth, with GDP depreciations predicted in the affected countries24.
Logistical Challenges: Higher tariffs may lead to shipment disruptions and higher freight rates because of a decline in import volumes and altered trade patterns
What measures are companies implementing to cushion the effects of Trump’s tariffs?
Companies are taking the following measures to cushion the effects of Trump’s tariffs:
Pulling Forward Orders: Companies accelerate orders to stockpile goods before tariffs cut in to maintain cash flow and stabilize prices temporarily.
Diversifying supply chains: Companies are trying to source raw materials from countries that have low tariffs or good trade arrangements, for instance, Mexico or Vietnam, to reduce dependence on high-tariff zones such as China .
Nearshoring: Companies are shifting production to near shore locations to avoid the tariffs; they are using North American facilities or free-trade zone facility .
Lobbying for Exemptions: Many are seeking exemptions from the government by lobbying as a way of reducing cost burdens.
Adjusting Pricing Strategies: Other companies might just increase their prices, but this would compromise the competitiveness of the business in the market.
READ ALSO: 15 Best places in Europe for a perfect family trip
READ ALSO: Top 15 best things to do in Seattle (2024)
How are companies diversifying their supply chains to avoid tariffs?
Companies are diversifying their supply chains to avoid tariffs through the following strategies:
Changing Production Locations: A lot of companies are shifting their production units to non-tariff-hit nations, such as Vietnam, Mexico, and India, so they do not continue to rely on China and the shock of tariffs does not hit them .
Procuring from Diverse Nations: Companies are now diversifying their supplier base in various countries to minimize reliance on one market and thus become more robust against changes in the trade policies .
Partial Reshoring: Some firms import parts to the United States and assemble them into finished products, which minimizes the effect of tariffs .
Taking Advantage of Free Trade Agreements: Organizations take advantage of trade agreements with the United States to import raw materials from countries whose tariffs are low, helping organizations manage costs .
These strategies attempt to provide more flexibility in the operational dimension while reducing the risk that accrues from the volatility of tariffs.
What are some common pitfalls companies encounter in terms of supply chain diversification?
Companies diversifying their supply chains face several critical issues:.
Product Quality Assurance: Ensuring consistent product quality becomes difficult as companies expand their supplier base, especially when sourcing from countries with varying quality standards. A significant percentage of businesses report increased defect rates when changing suppliers.
Increased Complexity: Managing multiple suppliers and locations complicates logistics and coordination, requiring more resources to ensure compliance with quality, cost, and delivery standards.
Higher Costs: Diversification may result in increased operation expenses, such as transport cost, warehousing costs and the requirement of novel technology to handle multiple diverse vendors.
Supply Chain Disruption: Multiple suppliers are no insulation against disruption; instead it exacerbates the issue response if there is a disaster resulting from natural or geo political tensions.
Cultural and Communication Barriers: Interacting with suppliers of other cultural backgrounds can result in the risk of miscommunication and negotiation challenges, which require awareness of the culture and effective communication strategies
What are the strategies that businesses can utilize to manage increased complexity in diversified supply chains?
Some effective strategies that businesses can utilize to manage increased complexity in diversified supply chains include:
Improve Visibility: The integration of end-to-end visibility solutions enables companies to track the supply chain, detect blockages, and monitor suppliers’ performance in real time, thus making better decisions .
Simplify Operations: Standardizing processes and automating repetitive tasks can reduce unnecessary complexities. This includes the simplification of purchase orders and onboarding procedures for new suppliers .
Leverage Technology: Supply chain management software integrated with ERP systems helps to coordinate better between departments and suppliers, improving communication and data sharing .
Supplier Base Consolidation: The rationalization of the supplier base can make management easier without sacrificing adequate supply. Fewer suppliers can mean more strategic partnerships and better quality control .
Conduct Regular Stress Tests: Mapping the supply chain and performing stress tests help to identify vulnerabilities and prepare for potential disruptions .
These strategies aim at operational efficiency balance with the need for flexibility in complex supply chain environment.
What role does supplier base consolidation play in managing complexity?
Supplier base consolidation is an essential tool to manage complexity within supply chains, since it makes operations streamlined and enhances efficiency. Some of the most important advantages are:
Increased Buying Power: There are fewer suppliers, hence one can order in bulk, which brings in better negotiating power and more favorable contract terms because of purchasing in bulk .
Easy Logistics: With few suppliers, there are less shipment and contact points to keep track of. Therefore, it is easier to control logistics, which means lesser transport costs and better coordination of delivery times .
Better Quality Control: By reducing the number of suppliers, the company can build deeper relationships and improve quality management practices. This will eliminate chances of defects and will also ensure that the products have good quality .
Reduced Risk: A streamlined supplier base reduces the complexity associated with managing multiple relationships that often leads to better visibility and control over the supply chain and, therefore, reduces operational risks .
Overall, supplier consolidation enables a leaner, more cost-effective, and more resilient supply chain.