Market News

BY  Abby Ryanto

Key Points

• China could step in to ease the pain of any potential U.S. trade measures against BRICS members, according to David Lubin, senior research fellow at Chatham House.
• Trump’s tariff threat is conditional on BRICS dethroning the U.S. dollar as the world’s most widely used trade currency — which could prove to be a tall order for the alliance.
• The lack of a concrete allied strategy and action from BRICS members raises doubts over whether it will be considered a threat to the U.S., with Pantheon Macroeconomics’ Duncan Wrigley.

The world’s second-largest economy could even step in to ease the pain of any potential U.S. trade measures against BRICS members, according to David Lubin, senior research fellow at Chatham House.

“From Beijing’s point of view, establishing China as an alternative pillar of global order is a critically important objective and it can’t be met without the support of the developing world,” Lubin said in emailed comments. “And since some 120 countries count China as their main trading partner, this shouldn’t be too difficult.”

China is already starting to do this, putting forward a zero-tariff policy for least developed countries with diplomatic ties with Beijing, which came into effect from December last year and builds on similar measures extended to the least developed African countries.

Dollar is king 

Trump’s tariff threat is conditional on BRICS dethroning the U.S. dollar as the world’s most widely used trade currency — which could prove to be a tall order for the alliance.

Russia has been pushing for de-dollarization in a bid to sidestep the SWIFT network, a globally recognized standard for bank transactions, and to curtail the impact of U.S sanctions against Moscow. In the Kazan talks, Vladimir Putin reiterated the use of the dollar as a “weapon” and a “big mistake,” The Guardian reports. 

One of the group’s options to topple the dollar was to create a unified BRICS currency — a proposal spearheaded by Brazil, which has yet to gain traction.

Another possibility was setting up multi-currency trade, which is already taking place among several members: some Chinese and Russian trade is being done through the yuan and ruble. Nations have also agreed to continue to strengthen trading 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 useable internationally than dollars,” given that financial markets are largely denominated in the greenback.

Just a ‘talking shop’

The lack of a concrete allied strategy and action from BRICS members raises doubts over whether it will be considered a threat to the U.S., with Pantheon Macroeconomics’ Wrigley saying the emerging markets alliance is currently not much more than a “talking shop.”

The bloc is still too loose and unorganized to create any substantive change, with the 2024 Kazan summit resulting in “nothing really concrete”, according to Cecilia Malmström, nonresident senior fellow at the Peterson Institute for International Economics.

This might just insulate BRICS members and partner countries from a trade war with the U.S. — which has China as one of its main targets.

While Beijing holds a significant position in the group, there is still much internal caution amongst other member nations over Beijing’s dominance and potential trade imbalances, according to MIT’s Papas. 

“Even if China seeks to leverage its position, internal caution among members is likely to remain a limiting factor,” she adds.

Many BRICS members also still maintain their friendly relations with the U.S. as a “crucial trade partner,” Gustavo Medeiros, head of research at Ashmore Group told CNBC by email. 

“There is no reason to believe members of the bloc would be automatically at economic or geopolitical risk in the case of a trade war between the U.S. and China,” Medeiros says.