Description
President Donald J. Trump has threatened to impose 100 percent tariffs on countries that seek to reduce the US dollar’s dominant role in global finance. But, if he does, the tariffs could result in lower GDP and higher inflation than otherwise in the US and most of the targeted countries—which could include the BRICS countries (original members Brazil, Russia, India, China, and South Africa plus newcomers including Egypt, Ethiopia, and Iran).
China, the dominant member of the BRICS, is looking to reduce its reliance on the dollar by encouraging greater use of the renminbi (RMB) through promoting RMB exchanges. Russia might seek to further decouple from the dollar as well because of Western financial sanctions. Even so, the BRICS don’t pose a serious threat to the dollar’s dominance.
If the US imposed a 100 percent tariff on imports from BRICS countries, China’s GDP would be hit the worst because of its exposure to the US. Analysis finds that all the countries would experience accelerated inflation except China, which would instead see inflation initially slowing as its central bank tightens monetary policy to reduce the depreciation of the Chinese currency.
For the US, by the end of the second Trump administration, GDP would be $432 billion lower than it would be without the tariffs, and the overall price level would be 1.6 percent higher.
This PIIE Chart is adapted from Warwick J. McKibbin and Marcus Noland’s blog post, “Trump's threatened tariffs projected to harm economies of US and the BRICS.”
