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Family photo of leaders taken at the 16th BRICS Summit in Kazan, Russia on October 24, 2024.
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President-elect Donald Trump has promised a 100% tariff against the BRICS nations if they continue to undermine the US dollar — but the threat won’t stop the group’s expansion, analysts tell CNBC.
The most recent, Brazil announced the admission of Indonesia in the block as a member last Monday.
Under the administration of outgoing President Joe Biden, Washington has been relatively dismissive of the 10-member coalition, with White House National Security Communications Adviser John Kirby saying during a press conference on last October that the United States does not see the BRICS – an economic coalition of emerging markets – as “threat“Sentiment could change once Trump enters the White House later this month, following early indications that he could impose tariffs on alliance members if he subverts the US dollar.
“A key policy change with the incoming Trump administration is its explicit treatment of BRICS as an entity,” Mihaela Papa, director of research at the MIT Center for International Studies, told CNBC by email.
China will soothe the tariff pain
Originally established by Brazil, Russia, India and China in 2009, then joined by South Africa in 2010, the BRICS led by Beijing was created as a force to rival the Western dominance in the scene international
The 16th annual summit of the alliance in Kazan saw Egypt, Ethiopia, Iran and the United Arab Emirates officially admitted to the group. According to Russian officials and official card of the Central Committee of the Chinese Communist Party, more than 30 countries have expressed interest in joining the coalition in 2024. CNBC could not independently verify this estimate.
The size of the bloc makes it increasingly unlikely that the US will apply 100% punitive tariffs to the BRICS countries, according to Duncan Wrigley, chief China+ economist at Pantheon Macroeconomics. Doing so risks leading neutral nations into the US-China rivalry toward Beijing and interfering with US interests, Wrigley told CNBC by email.
The world’s second largest economy could also step in to ease the pain of any potential US trade measures against BRICS members, according to David Lubin, senior researcher at Chatham House.
“From Beijing’s point of view, establishing China as an alternative pillar of the global order is a critically important goal and cannot be achieved without the support of the developing world,” Lubin said in comments by email. “And since about 120 countries count China as their main trading partner, this shouldn’t be too difficult.”
China has already begun to do this, putting forward a zero rate policy for less developed countries with diplomatic ties with Beijing, which came into force in December last year and is based on similar measures extended to less developed African countries.
The dollar is king
Trump’s tariff threat is conditional on the BRICS dethroning the US dollar as the world’s most used trading currency – which could be a tall order for the alliance.
Russia has pushed for dedollarization in an attempt to ditch the SWIFT network, a globally recognized standard for banking transactions, and limit the impact of US sanctions against Moscow. In the Kazan speeches, Vladimir Putin reiterated the use of the dollar as a “weapon” and “big mistake“, reports The Guardian.
One of the group’s options for ousting the dollar was to create a unified BRICS currency – a proposal led by Brazil, which has yet to gain traction.
Another possibility was the creation of multi-currency trade, which is already done between several members: some Chinese and Russian trade is done through the yuan and the ruble. The Nations also agreed to continue to strengthen trade through local currencies and expressed support for the idea of an independent cross-border settlement infrastructure for payments.
Chatham House’s Lubin notes that the Chinese currency is “much less usable internationally than dollars,” given that financial markets are largely denominated in the greenback.
Just a “talking shop”
The lack of a concrete alliance strategy and action by BRICS members raises doubts about whether it will be considered a threat to the United States, with Wrigley of Pantheon Macroeconomics saying that the emerging market alliance is not not much more than a “talking shop”.
The bloc is still too broad and disorganized to create any substantive change, with the Kazan 2024 summit resulting in “nothing really concrete,” according to Cecilia Malmström, non-resident senior fellow at the Peterson Institute for International Economics.
This could only insulate BRICS members and partner countries from a trade war with the US – which has China as one of its main targets.
While Beijing holds a significant position in the group, there is still much domestic wariness among other member nations about Beijing’s dominance and potential trade imbalances, according to MIT’s Papas.
“Although China is looking to leverage its position, domestic wariness among members is likely to be a limiting factor,” he adds.
Many BRICS members also maintain friendly relations with the United States as a “crucial trading partner,” Gustavo Medeiros, head of research at Ashmore Group told CNBC by email.
“There is no reason to believe that members of the bloc will automatically be at economic or geopolitical risk in the event of a trade war between the United States and China,” says Medeiros.
Correction: This article has been updated to accurately reflect the name of Mihaela Papa, director of research at the MIT Center for International Studies.
