The Return of Trump: Tariff Threats in the Spotlight over the Weekend

The Return of Trump: Tariff Threats in the Spotlight over the Weekend

US President-elect Donald Trump claimed the limelight over the weekend, threatening 100% tariffs against BRICS countries (Brazil, Russia, India, China, and South Africa) unless their governments commit to the US dollar (USD). BRICS is an informal international group founded in 2006 and comprises the world’s leading emerging market countries. The main purpose of the group is to improve the economies of its member countries and the global socio-economic situation.

Via his Truth Social platform on Saturday, Trump wrote the following:

‘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 U.S. Economy. They can go find another “sucker!” There is no chance that the BRICS will replace the U.S. Dollar in International Trade, and any Country that tries should wave goodbye to America’.

You will likely recall some BRICS members have called for a de-dollarisation. Last year, Brazil’s president, Inacio Luiz, supported an alternative to the USD. In October this year, Russia’s president, Vladimir Putin, also issued a call for an alternative international payment system. At the latest BRICS Summit, Putin said, ‘The USD is being used as a weapon. We really see that this is so. I think that this is a big mistake by those who do this’.

I don’t believe I need to emphasise that if Trump were to follow through with these threats and implement 100% tariffs – something I consider highly unlikely – it would raise the cost of goods from those countries and potentially ramp up inflation in the US. However, it's important to note that Trump had previously used tariff threats as a negotiation tactic, and a compromise is likely to be achieved.

Unquestionably, these latest tariff threats are huge numbers, and this underpinned a dollar bid and weighed on BRICS currencies at the open this morning. The US Dollar Index rebounded from a clean area of technical support on the daily timeframe between 105.48 and 105.80. As you can see from the chart below, the USD is up across the board versus G10 currencies.

This follows tariff threats against Canada, China, and Mexico last week. Trump voiced intentions of introducing 25% tariffs on goods from Canada and Mexico and adding an additional 10% tariff on goods from China. Since then, Trump has met with Canada’s Prime Minister Justin Trudeau and Mexico’s President Claudia Sheinbaum Pardo. Here is what Trump had to say about the meetings via his Truth Social platform last week:

‘I just had a very productive meeting with Prime Minister Justin Trudeau of Canada, where we discussed many important topics that will require both Countries to work together to address, like the Fentanyl and Drug Crisis that has decimated so many lives as a result of Illegal Immigration, Fair Trade Deals that do not jeopardize American Workers, and the massive Trade Deficit the U.S. has with Canada. I made it very clear that the United States will no longer sit idly by as our Citizens become victims to the scourge of this Drug Epidemic, caused mainly by the Drug Cartels, and Fentanyl pouring in from China. Too much death and hardship! Prime Minister Trudeau has made a commitment to work with us to end this terrible devastation of U.S. Families. We also spoke about many other important topics like Energy, Trade, and the Arctic. All are vital issues that I will be addressing on my first days back in Office, and before’.

‘Just had a wonderful conversation with the new President of Mexico, Claudia Sheinbaum Pardo. She has agreed to stop Migration through Mexico, and into the United States, effectively closing our Southern Border. We also talked about what can be done to stop the massive drug inflow into the United States, and also, U.S. consumption of these drugs. It was a very productive conversation’!

Written by FP Markets Market Analyst Aaron Hill

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