Donald Trump pledges a 100% tariff on countries who abandon the dollar.
Former President Donald Trump announced at a campaign event in Wisconsin that any country that dares to trade without the US dollar would suffer a 100% tariff on their goods.
He believes the dollar has been “under major siege” for the last eight years. He wants to halt the de-dollarization drive, which has gained traction among countries throughout the world thanks to the BRICS.
Though the dollar’s dominance has declined in recent years, it still accounts for 59% of government foreign-exchange reserves, according to the IMF. And Trump, being Trump, isn’t willing to let that number drop further.
Now, Wisconsin, where Trump delivered his address, is a major battlefield in the race for the presidency between him and Kamala Harris, who leads by 8 points in a Bloomberg/Morning Consult poll.
Global Trade and Economic Fallout
A 100% tariff is not a modest amount. If Trump follows through on his promise, the cost of goods imported from countries moving away from the dollar will skyrocket.
This means increased pricing for US consumers and businesses that rely on imported goods. Consider this: your $800 smartphone may suddenly cost $1,500.
According to studies, these tariffs could increase inflation by about 0.75 percentage points, further damaging the economy.
Tariffs in retaliation may potentially be in the works. Countries facing these 100% tariffs will not sit quietly. They might levy their own tariffs on US exports, sparking a full-fledged trade war.
History demonstrates how awful this may get; just look at the US-China trade war a few years ago. Exports plummeted, and the US economy suffered.
According to the Tax Foundation, retaliatory tariffs might reduce US GDP by 0.05% while eliminating around 27,000 jobs.
Effect on the US dollar and worldwide commercial relations.
The longer-term impact could be to the dollar. Trump’s tariffs may backfire by discouraging countries from trading in US dollars, hastening the trend of dedollarization.
Countries tired of dealing with punitive measures like these may eventually opt to abandon the dollar outright, leaving its reserve currency position dangling by a thread. Tariffs would also result in a sharp fall in trade volumes. Let us look at the numbers.
In 2023, the United States exchanged $254.4 billion with China, $100.4 billion with India, $58.3 billion with Brazil, $48.2 billion with Russia, and $21.4 billion with South Africa. A 100% tariff might bring these figures crashing down as both sides draw back.
Back home, Trump’s approach might affect both American and foreign industries.
The longer-term impact could be to the dollar. Trump’s tariffs may backfire by discouraging countries from trading in US dollars, hastening the trend of dedollarization.
Countries tired of dealing with punitive measures like these may eventually opt to abandon the dollar outright, leaving its reserve currency position dangling by a thread. Tariffs would also result in a sharp fall in trade volumes. Let us look at the numbers.
In 2023, the United States exchanged $254.4 billion with China, $100.4 billion with India, $58.3 billion with Brazil, $48.2 billion with Russia, and $21.4 billion with South Africa. A 100% tariff might bring these figures crashing down as both sides draw back.
Back home, Trump’s approach might affect both American and foreign industries ones.
Companies that rely on imported materials or parts from de-dollarizing countries would incur higher costs, increasing manufacturing costs.
This could result in decreased production, higher consumer prices, and, in the worst-case scenario, layoffs. Economic analysts believe that tariffs of this scale might reduce long-term GDP growth by 0.2% to 0.8%.
Even stranger is that they will not target everyone evenly. Lower-income households would suffer the most.
A study demonstrates that even a 10% tariff automobile squeezes the budgets of poorer households, costing them a larger percentage of their income than wealthy
households.
Consider what a 100% tariff would do. The gap between rich and poor could increase even more.
Retaliation from the BRICS?
The BRICS countries are most likely already planning their countermoves. In reaction to Trump’s 100% tariff threat, these countries may accelerate attempts to develop their own financial systems, eventually eliminating the US dollar totally.
China, for example, has promoted the digital yuan in global trade, but Russia has traded oil in rubles rather than dollars. Brazil and India have been investigating the usage of their indigenous currencies in foreign transactions.
The BRICS countries may also increase their internal cooperation, strengthening trade relations with one another and with countries outside the US’s sphere of influence.
New alliances could arise as countries seek to avoid US tariffs and trade in their own currencies. They already have. Countries such as the UAE, Iran, and even NATO member Turkey have shown an economic preference for the BRICS.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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