Any sense that India was perhaps spared when US President-elect Donald Trump threatened a 25% tariff on Canada, Mexico, and China on day one of his presidency has been dispelled by his latest bluster of a 100% tariff on the Brazil, Russia, India, and South Africa (BRICS) grouping. This is the first time he has indicated any adverse tariff against New Delhi on the grounds that BRICS are planning to create a currency rivalling the almighty US dollar. Trump’s concerns in this regard are more than to protect American jobs — to ensure the continued dominance of the greenback even when the US’s global influence is in relative decline. India’s policy establishment for the record allays any adverse implications of Trump’s America First tariff policies but is taking these threats seriously and working on various strategies to cope with the potential challenges that higher duties could pose to the economy. On de-dollarisation, external affairs minister S Jaishankar, while recently addressing the Carnegie Endowment for International Peace, has clarified that India has no “malicious intent vis-à-vis the dollar” and does not target it through economic or strategic policies.
More than the targeted countries or groupings, Trump’s tariff bluster adversely impacts the American consumer through much higher prices as also its leading companies. The threat of a 25% tariff on Mexico and Canada, for instance, affects auto giants like General Motors, Ford, and Chrysler-owned Stellantis who extensively use these countries as manufacturing hubs to sell vehicles in the US. The tirade against BRICS is more directed against Russia and China for seeking to undermine US-led western influence and replace the US dollar. America’s policies, especially the growing ambit of financial sanctions against Moscow for its war in Ukraine, have contributed in great measure to this state of affairs, as has been underscored by Jaishankar. Due to sanctions-related complications in dollar-based trade, this has necessitated “workarounds” to settle trade payments. Instead of supporting moves to head towards a yuan-anchored BRICS currency to challenge the US dollar, India as a founding member of the grouping instead favours trade in local currencies and cross-border payment systems like its Unified Payments Interface.
BRICS nations are therefore far from unified on evolving a currency to challenge the dollar. Contrary to Trump’s concerns, the dollar is also in no danger of losing its global hegemony. The greenback accounts for 90% of global trade transactions and 58% of official foreign exchange reserves across the world. The threat of the yuan emerging as a rival to the dollar is a distant prospect even though China is rapidly rising as an economic power to rival the US’s global economic influence. The last time the world experienced a change in reserve currency from the British pound to the dollar was almost 80 years ago. But what can make matters worse is if Trump’s bluster translates into policy. This will most certainly invite retaliation by US’s trading partners, triggering trade wars that can diminish the dollar’s influence. As has been pointed out by Michael Pettis, a senior fellow at the Carnegie Endowment for International Peace, “The US cannot both reduce its trade deficit and increase the global dominance of the US dollar because these impose diametrically opposed conditions.” The threat of Trump’s tariffs is unlikely to deter India from pursuing policies to promote the internationalisation of the rupee and settle trade in local currencies.