Trump’s remarks come in response to discussions among BRICS nations, which include Brazil, Russia, India, China, and South Africa, regarding the possibility of reducing their reliance on the US dollar for trade. A summit held in Russia in October focused on increasing local currency transactions, a move that Trump has now vowed to challenge. “The idea that the BRICS Countries are trying to move away from the Dollar while we stand by and watch is OVER,” Trump wrote, warning that any country attempting to replace the dollar with another currency would face significant tariff hikes.
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A Threat to India’s Economic Growth?
Trump’s tariff threats are particularly concerning for India, which maintains a strong trade relationship with the US. The US is India’s largest trading partner, with bilateral trade surpassing $120 billion in FY24. India’s export portfolio to the US is diverse, spanning textiles, pharmaceuticals, engineering goods, and IT services. Trump’s promise to impose 100% tariffs on countries undermining the dollar could lead to higher costs for Indian exporters, making their products less competitive in the US market.
India, like the other BRICS nations, has shown interest in reducing its dependency on the US dollar. However, India has also been cautious in this regard. India’s Foreign Minister S. Jaishankar has stated that de-dollarisation is not part of India’s economic policy or strategy. Instead, India has explored alternatives when trade partners do not accept the dollar or when specific trade policies create obstacles. Despite this, Trump’s strong words on the matter could put India in a difficult position, forcing the country to choose between adhering to US demands or facing the consequences of higher tariffs.
According to a report by Motilal Oswal Private Wealth (MOPW), while India could benefit in some areas, Trump’s policies could bring substantial challenges, especially with his recent threats of imposing 100% tariffs on nations like India.Also Read: Donald Trump and JPMorgan Chase CEO Jamie Dimon secretly teaming up to shape White House agenda?
BRICS and the Dollar: A Rising Challenge
The BRICS countries have long discussed increasing non-dollar transactions, with Russia’s President Vladimir Putin hinting that the group is exploring alternatives to the Belgium-based SWIFT financial system. At the October summit, a joint declaration was made to strengthen banking networks and facilitate local currency settlements among BRICS members. However, no definitive alternative to the US dollar has been proposed, and the idea of replacing the dollar in global trade remains a distant prospect.
Trump’s threat to impose tariffs stems from this growing push for de-dollarisation. He has made it clear that the US will not stand idly by if countries like India move away from the dollar. “They can go find another ‘sucker,'” Trump said, further emphasising that any country attempting to replace the US dollar in international trade should “wave goodbye to America.”
India’s Position Amid Global Trade Tensions
India’s position in the global trade landscape is somewhat different from other BRICS countries. While China has been the primary target of Trump’s trade wars due to its significant trade surplus with the US, India could still be impacted by the tariff threats. Trump has previously criticised India’s high tariffs, calling the country the “biggest charger” and even threatening reciprocal tariffs if elected. Despite this, Trump has also praised Prime Minister Narendra Modi, and the two leaders share a strong personal rapport. This dynamic could help mitigate some of the damage caused by potential tariffs, as Modi and Trump could engage in negotiations to protect India’s economic interests.
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The Broader Impact of Trump’s Protectionism
The global economy is already bracing for the consequences of Trump’s protectionist policies. A potential trade war between the US and major economies like China, Mexico, and the European Union could destabilise markets worldwide. Countries that rely heavily on exports to the US could see a decline in demand for their goods, which would, in turn, affect their economic growth.
The World Trade Organization (WTO), which has long served as a mediator for trade disputes, remains paralysed, further escalating concerns of a global economic slowdown. Christine Lagarde, President of the European Central Bank, warned that a trade war could harm global GDP and lead to negative consequences for all parties involved.
In India’s case, the risks of a global slowdown could lead to weaker demand for Indian exports, particularly in key sectors like IT and pharmaceuticals, which heavily depend on US markets. Additionally, any disruption in the global supply chain caused by tariff hikes could hurt India’s competitiveness in the global economy.
India’s export sectors, particularly pharmaceuticals, textiles, and IT services, could bear the brunt of such tariff hikes. The US is India’s largest trading partner, and any imposition of tariffs would increase the cost of Indian goods, reducing their competitiveness in the US market. If Trump’s tariffs were to come into effect, Indian businesses would face higher export costs, potentially leading to a dip in trade volumes and economic slowdowns.
Shifts in Supply Chains: Opportunities and Challenges for India
While the protectionist policies could lead to higher tariffs and market instability, they may also provide India with opportunities. Trump’s earlier “China+1” strategy, which encouraged businesses to move production out of China to avoid tariffs, has already benefited India. Companies in sectors such as electronics and textiles have moved their operations to India to diversify their supply chains. India’s skilled workforce and competitive labour costs make it an attractive destination for such relocations.
However, the broader implications of a global economic slowdown could offset these benefits. Higher tariffs on Indian goods, coupled with weaker global demand, could reduce India’s ability to maintain its export growth. This is especially true for sectors that rely heavily on the US market. India’s challenge will be to maintain its growth trajectory while navigating the potential consequences of Trump’s tariffs.
As Donald Trump’s second term approaches, India faces a complex trade landscape. While the country’s strong ties with the US may provide some buffer against the full impact of Trump’s tariff threats, the potential for higher tariffs and economic instability is real. India will need to carefully navigate these challenges, balancing its interests in global trade with its relationship with the US.
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The US Dollar, Tariffs, and India’s Export Market
In addition to tariffs, the strength of the US dollar under Trump’s policies could affect India’s exports. As the dollar strengthens, Indian products become more expensive for international buyers, making it harder for India to maintain competitive pricing, especially in critical export sectors like IT and pharmaceuticals.
India’s response to the growing push for de-dollarisation, a trend supported by BRICS nations, is still cautious. However, Trump’s tariffs could force India to reconsider its stance on trade with the US. The country may need to balance its commitment to the dollar while exploring alternatives that safeguard its trade interests.
Trump’s Domestic Policies and Their Impact on India
Domestically, Trump’s economic policies are likely to prioritize corporate tax reductions and pro-business reforms aimed at boosting growth in the US. If the corporate tax rate is reduced further, as expected, this could increase demand for Indian services, especially in the IT sector. However, India’s exports could suffer if tariffs are imposed or if inflation rises due to expansive fiscal policies under Trump.
MOPW notes that under Trump’s administration, US interest rates could remain low, potentially fueling inflation while stimulating growth. However, this could also increase the risk of trade imbalances, particularly if the US continues its protectionist policies.
Trump’s aggressive stance on tariffs could reshape the global trade environment, and India, as one of the key players in the BRICS group, will need to remain vigilant and adaptable. The future of India’s exports and its place in the global supply chain will depend on how it manages its trade relationships in the face of rising protectionism.
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