World Trade War II: “Go find another sucker” Trump warns the BRICS crew

The global trade arena is bracing for impact as Donald Trump gears up to take the presidential oath this January, heralding what many fear could be the dawn of World Trade War II. The incoming U.S. President has laid down the gauntlet with a blistering proposal—a staggering 100% tariff on BRICS nations, including India, should they dare to sidestep the U.S. dollar in international dealings. This bombshell follows hot on the heels of a pivotal BRICS summit in October, where the bloc—now boasting new members like Egypt, Iran, and UAE alongside stalwarts Brazil, Russia, India, China, and South Africa—debated a bold pivot towards non-dollar transactions and bolstering local currencies.

Trump’s scorching rebuke came via a fiery social media blast: "The idea that the BRICS countries are trying to move away from the Dollar while we stand by and watch is OVER. We require a commitment from these countries that they will neither create a new BRICS currency nor back any other currency to replace the mighty U.S. Dollar, or they will face 100% tariffs and should expect to say goodbye to selling into the wonderful US economy."

At the core of Trump's aggressive trade doctrine is the principle of reciprocity, which he vows to wield like a weapon against nations he views as trade manipulators. In a recent fiery oration, Trump vented, "Reciprocity is a word that's very important in my plan because we generally don't charge tariffs," lambasting countries like India for what he perceives as disproportionately high tariffs. Yet, despite his vehement criticisms, Trump acknowledged the more gracious manner of India’s trade interactions, commenting wryly, "They do it... Sort of a nicer charge. They said thank you so much for purchasing from India," underscoring the intricate dance of diplomacy and commerce.

In a striking display at the BRICS summit in Kazan this October, Russian President Vladimir Putin levelled a severe accusation against Western powers, claiming they had "weaponized" the dollar. He criticized the sanctions imposed on Russia following its Ukraine invasion, stating they "undermine the trust in this currency and diminish its powers." This assertion underscores the escalating tensions surrounding global financial systems and currency dominance.

President-elect Donald Trump escalated his tariff rhetoric last week, echoing his assertive stance on trade. He has made clear his intent to leverage hefty tariffs as a tool to bend US trading partners to his will. Trump announced a sweeping tariff imposition of 25% on all imports from Canada and Mexico, alongside an additional 10% on Chinese goods, citing these countries' roles in enabling illegal migration and drug trafficking.

These declarations have stirred significant international tension, with potential countermeasures from Mexico already being speculated and a rush diplomatic effort by Canadian Prime Minister Justin Trudeau, who made a swift visit to Trump’s Mar-a-Lago estate on Friday evening.

Trump’s recent electoral triumph was heavily fortified by his promise to impose harsh tariffs on foreign imports to the US, advocating for an aggressive 60% tariff on Chinese goods. This hardline approach on trade reflects Trump's broader "America First" economic policy, which aims to recalibrate global trade dynamics and reinforce US economic sovereignty. As the world watches, the potential for a global trade upheaval looms, setting the stage for a contentious start to Trump's administration.

By the numbers

It’s a straightforward exercise to work out the impact of the threatened tariffs on U.S. inflation, assuming all else is held equal. The three countries (China was also threatened with an additional 10% tariff) account for 42% of U.S. goods imports (15.6% Mexico, 13.5% China, and 13.0% Canada, based on the most recent 12-month tally). Thus, the weighted tariff increase amounts to 8.5%. About 11% of consumer expenditures are on imported goods (according to an older San Francisco Fed study), so the direct lift for consumer prices would be 0.9%. However, as discussed in last week's commentary, the eventual impact on inflation would be smaller due to changes arising from the tariff, such as a stronger U.S. dollar and price cuts by foreign producers. So, prices would likely rise less than 0.9%. The Budget Lab at Yale University estimates the tariffs (and retaliation) could lift U.S. consumer prices by 0.75% in 2025.