On November 30, 2024, US President-elect Donald Trump threatened the BRICS nations – Brazil, Russia, India, China, South Africa, Iran, Ethiopia, Egypt and the United Arab Emirates, as well as other states in the process of joining – with 100% tariffs on their exports to the US if they dare to attempt to replace the US dollar as the currency for conducting international trade. Specifically,
“The idea that the BRICS countries are trying to move away from the dollar while we simply watch is over. We demand a commitment from these countries that they will not create a new BRICS currency, nor will they support any other currency to replace the mighty dollar or they will face 100% tariffs and will have to wait to say goodbye to sales to the great US economy. They can find another “sucker!” There is no chance that the BRICS will replace the dollar in international trade and any country that attempts to do so will have to say goodbye to America.”
The gaps in Trump’s Logic and the Unreliability of the American Economy
However, when one examines the international trade data in detail, some gaps in Trump’s statements become apparent.
1. The global economy needs the BRICS economies for both exports and imports of goods much more than it does America. China (including Hong Kong) itself is a larger importer (and a much larger exporter of goods than America). America accounts for only 13% of global merchandise imports and less than 9% of merchandise exports.
If the global economy were fragmented into competing trading and monetary blocs, most countries outside North America would consider access to BRICS markets rather than America’s markets a higher priority.
A bloc based on NAFTA and the dollar will compete unfavorably with the BRICS bloc, the euro bloc, and perhaps a Japanese-led bloc for access to the natural resources and other raw materials of the less industrialized countries. The fear of being cut off from access to natural resources, in turn, motivates the competing blocs to turn into hostile military alliances and their trade and currency wars to turn into world wars.
On the other hand, Trump’s threats mean nothing to states already under severe sanctions like Russia and Iran. They export almost nothing to America.
2. Chinese producers have the most to lose from the Trump-opposing BRICS bloc, with annual export revenues at stake of the order of $450 billion (about three-quarters of all BRICS exports to America).
However, Xi has undoubtedly calculated that China’s economy is likely to be targeted anyway by the US shift to protectionism, so he has every incentive to proactively create an international trading instrument that protects against sanctions, despite the risks to export markets, just as the BRICS have done. He has already created an independent banking system and an independent multinational credit institution to bypass US-aligned financial institutions.
Trump’s threat provides further evidence that the US government is not a reliable steward of an international monetary system, and thus makes the migration away from a dollar-dominated system toward some kind of alternative monetary system all the more urgent and compelling for any state that fears incurring Washington’s wrath.
Another paradox about Trump’s threat is that trade barriers hurt Americans as well as foreigners. It’s not just a case of big retailers filling their warehouses with cheap Chinese-made consumer goods that Americans seem unwilling to stop consuming. The evidence shows that China is also a critical supplier of electronics and machinery, on which American businesses depend heavily for their own productivity.
Tariffs do not address the root causes of America’s deindustrialization, but the sudden disruption of access to Chinese capital goods and the forced diversion of scarce inputs to sectors where America lacks comparative advantages to make up for lost imports, which means huge losses in productivity and real incomes for American workers.
MAGA will pay for it…
Tariffs could certainly accelerate deindustrialization and the decline of the middle class, and make dollar-denominated investments and assets even more unattractive to foreigners. Carrying out Trump’s threat would be spectacularly counterproductive for the Americans who voted for him.
Of course, the fragmentation of the global economy into competing blocs hurts everyone, not just Americans, so Trump’s threat may simply be a bluff to gain leverage in trade negotiations and will do no real harm. Even as a simple bargaining chip, Trump’s demands make no sense. What Trump doesn’t seem to understand is that the constant printing of fiat dollars and other inflationary currencies also hurts everyone.
The world’s continued dependence on fiat dollars is not an acceptable regime, not even for Americans. Using threats of economic chaos to keep the current failed system in place is paranoid. It’s not just America’s predatory elites (who happen to be fiercely anti-Trump). Unabashedly exploiting the entire world with what former French President Valéry Giscard d’Estaing called the U.S. government’s “excessive monetary privilege” to create fiat dollars to control the productivity of others, the use of U.S. Treasury bonds in dollars as the primary reserve asset for the global banking system means that this system is at risk of catastrophic collapse in the event of an oversupply of dollars.
The dollar’s role as the leading trade currency is simply a byproduct of foreign demand for dollar-denominated U.S. Treasury bonds.
The Hyperinflationary Threat
It is this dubious choice of reserve assets as a substitute for gold that poses an existential hyperinflationary threat to the entire global monetary system.
With the fiat dollar (printed by the Central Bank) having lost over 98% of its purchasing power in gold since President Richard Nixon severed the last ties to gold in 1971, calling it “strong” as Trump has done is a gross exaggeration. The dollar in its current form is not all-powerful, it is in absolute decline.
It is doomed to fail even without an overt challenge from the BRICS states. Some serious fiscal distress followed by a sudden loss of confidence in our ever-expanding dollar would be enough to bring it down and all dollar-pegged currencies with it. The oversupply of the dollar under the present system is the single greatest man-made danger to the continuation of civilization short of nuclear war.
Imagine a world where all supply chains are broken and even “essential businesses” are shutting down everywhere because all money has become worthless.
Instead of futilely defending the fragile monetary status quo with threats of economic disaster, Trump should be leading America—and as much of the rest of the world as he can—away from the fiat dollar and back toward a decentralized gold standard, or better yet, toward an improved, decentralized gold standard combined with a 100 percent reserve requirement for all risk-free money substitutes.
Americans also need a better form of money than the fiat dollar. To the extent that America’s enemies can find a way to escape a failed fiat dollar by turning to some kind of basket of gold and fiat currencies, is it wise for America not to implement an even better gold-based monetary reform and encourage its allies to do the same?
Instead of fearing an international currency war and trying to hide from it, why not try to beat the competition by creating an even better form of money?
Failed Experiments and the Lessons of History
While many economists may scoff at calls for reliable monetary units and concerns about the dangers of hyperinflation, it is curious that their misguided faith in “empirical” and econometric methods has not led them to reflect on the terrible history of the hundreds of experiments with fiat money that have been tried and failed over the past millennium, starting with the first example of a fiat currency dating back exactly 1,000 years in China.
Surely even those immune to the unquestionable logic of purposeful action must admit that, in all the historical records at our disposal, tariffs and other economic protectionist proposals have never succeeded in saving money from the scourge of continuous devaluations (usually lasting decades) followed by utter oblivion and chaos throughout the economy.
Only a move back to precious metals will prevent a hyperinflationary catastrophe. There is not the slightest indication that the dollar differs from these historical antecedents in any significant way, except that the threat of monetary catastrophe is now universal. Restoring the gold backing of the dollar, not tariffs, is the only viable plan for the dollar to regain some of its luster.
