Will China Throw BRICS at the Dollar?

To no one’s surprise, the America First policies include imposing tariffs on Chinese goods aimed at reducing the U.S. trade deficit with China and Europe, as well as broader policies prioritizing U.S. interests over international cooperation.

Trump’s Tariffs Trigger Trade War?

But that’s not the whole story. The administration’s high tariffs, specifically on Chinese imports, are not only meant to protect U.S. industries but are also intended to pressure China economically. By extension, as the Chinese economy continues to struggle, the Chinese Communist Party (CCP) will be under pressure at home.

Predictably, U.S. tariffs have led to retaliatory tariffs from China against American products. Initial actions by Beijing include levying 15 percent tariffs on imports of U.S. liquid natural gas (LNG) and coal, as well as 10 percent tariffs on oil, farm equipment, and certain automobiles.

Tension Escalation and BRICS

The immediate effect has been escalating tensions between the two nations across geopolitical and economic spectrums. If the trade war continues to ramp up, the friction between Washington and Beijing will likely increase, with potentially more provocative actions and responses to follow.

One specific response could be for China to find a quicker path toward a BRICS-based trading system. BRICS, which is an acronym for the first five participating countries—Brazil, Russia, India, China, and South Africa—was founded in 2009 and is currently considering an alternative currency that would be used primarily to replace the dollar for trading between member countries.

Establishing a functioning BRICS-based trade bloc isn’t a new proposal; it’s been talked about for years or even decades. Avoiding U.S. financial dominance is the reason the BRICS nations came together in the first place. The idea has always been to insulate BRICS economies, which constitute 35 percent of global GDP, from U.S. financial pressures.

But skeptics point out that there’s no substitute for the dollar, at least not from Europe, Japan, or China. By some estimates, the U.S. dollar is used in 84.3 percent of international trade—compared to just 4.5 percent for the Chinese yuan.