Dr Jaya Josie

A few days ago on December 2, 2024, the USA’s Bureau of Industry and Security under the Biden administration announced a package of rules designed to block China’s capability to produce advanced-node semiconductors that can be used in the next generation of advanced IT systems, artificial intelligence (AI), advanced computing and that may have significant military applications.

These rules come hard on the heels of a social media threat from incoming president-elect Donald Trump to impose 100% tariffs on the BRICS+ bloc if it creates its own currency or backs an alternative to the US dollar. Sanctions and threats against Russia, China and Iran have become normalised in the current global context. However, extending and expanding these sanctions and threats to nations in the BRICS+ group of countries by both the current US administration and the incoming administration only serves to demonstrate that positions of both parties are nothing but two sides of the same coin being used to buy more time to prolong global dominance. Positions of both the outgoing and incoming administration could significantly backfire.

During the US election campaign Trump promised to increase trade sanctions against China by cancelling its permanent normal trade relations or most favoured nation status; by imposing tariffs of 60% or more on all China’s exports to the USA; to stop the import of essential goods produced in China within four years and stop the export of Chinese goods to the US through third countries. This new impending trade war against China is not likely to make a significant impact on China’s economy as recently the country’s share of imports and trade deficits in the USA has fallen sharply. It is also important to remember that Trump promised to fight inflation in the USA. Inflation was one of the reasons that the Democratic Party lost the elections.

Any tariff increases on China, or the BRICS+ will raise the inflation expectations in the USA. Trying to impose restrictions on third party exports of goods from China to the USA comes with its own challenges that include the high cost of identifying the origin of the goods and possible opposition and retaliation from Chinese funded overseas investment enterprises. The biggest challenge that will confront the incoming Trump administration is that protectionism and going against the World Trade Organization (WTO) rules will inevitably lead to limiting the development of global supply chains.

The USA itself was at the forefront of promoting global supply chains enabling countries to focus on comparative advantages and the long-term robust development of the global economy. This is particularly so in the area of information technology where complex supply chains in which enterprises collaborate and cooperate across countries and depend upon a seamless international supply for electronic information technology inputs. Increased tariffs are likely to have supply chain cost implications for China’s enterprises and of course also raise the cost of supply chain cooperation. In addition, interrupting supply chain relationships introduces other economic costs associated with the search for alternative products. Although trade policy shocks can increase the risk of a rupture in supply chains however, when products are difficult to replace, contract costs for any breach are extremely high as invariably the contracts have long-term cooperation arrangements.

During Trump’s first presidency China’s export trade with the USA was in the range of 19% to 20%. In the ensuing years that level of exports has decreased substantially and now probably stands around 13% to 14% indicating that China’s trade with the USA is declining compared to the recent past. At the last meeting of the Polit Bureau of the Communist Party of China (CPC) decisions were taken to mitigate the overall macroeconomic downturn in the economy and these measures will ensure that any negative impacts are likely to be cushioned in the medium to long-term. Similarly, other members of the BRICS+ group are unlikely to suffer negative impacts from a sanctions or tariff policy hike introduced by the incoming Trump administration.

Recall that the BRICS+ bloc now not only includes China, Russia, Brazil, India and South Africa but also Egypt, Ethiopia, Saudi Arabia, Iran and the United Arab Emirates (UAE). Together the BRICS+ accounts for about 45% of the world’s population and 37.3% of the global GDP. Responding to South African media’s hysterical reaction to Trumps social media threats (2 December 2024) that he will introduce 100% tariff if the BRICS+ introduces an alternative to the US dollar, the South African Department of International Relations and Cooperation (DIRCO) indicated that the BRICS+ has no plans to create a BRICS+ currency.

In fact, the statement went on to say that the BRICS+ group’s main focus is on trade among member countries using their own national currencies. The BRICS+ group accounts for 30% of the world's land surface and about 45% of the world's population and 37.3% of global GDP with China accounting for 70% of the total. The group itself is indispensable to global supply chains and the functioning of the world economy. The BRICS+ group is a major supplier of energy and raw materials, including crude oil, magnesium and graphite. An important outcome of the 2024 Kazan BRICS+ Summit, hosted by Russia, was the agreement to create a new category of BRICS partner countries. 13 countries were reported to have been offered this status including Algeria, Belarus, Bolivia, Cuba, Indonesia, Kazakhstan, Malaysia, Nigeria, Thailand, Turkey, Uganda, Uzbekistan and Vietnam.

As for the potential of a future USA tariff or sanction imposition on the BRICS+ it is always important to note that the US has a $433.5 billion trade deficit with the BRICS+ while none of the BRICS+ partners or candidate nations (over 50 countries in total) have significant trade deficits with the US, with Vietnam already posting a $104.62 billion surplus in 2023.

At the last BRICS+ Summit in Kazan, Russia the emphasis was placed on developing a clearing mechanism for the use of own national currencies for intra-BRICS+ trade. The BRICS economies are reducing their reliance on US debt and the dollar and are shifting to local currencies in trade that now account for 65% of BRICS-to-BRICS transactions. In addition the USA depends on BRICS for a wide range of physical goods, from machinery and pharmaceuticals to rare earth minerals in high demand in the growing electronics and technology industries with the bloc accounting for 40% -70% of production in these sectors. Meanwhile, the US’s main exports - arms, petroleum, food, and cars - are widely available globally, especially within BRICS+ countries.

For countries in the Global South, especially in the African Continental Free Trade Area (AfCFTA) including South Africa and sub-Saharan Africa in general. The USA’s trade deficit with sub-Saharan Africa was US$11.7 billion in 2021 with the USA importing US$ 28.3 billion and exporting US$16.6 billion. Although the South African media presents a picture of doom with respect to the country’s trade with the USA recent business reports indicate that the in 2022 the USA’s goods and services trade deficit with South Africa was US$6.9 billion with the USA importing US$14.6 billion in 2022 showing an increase of 68% 2012. Most important USA service exports to South Africa were in travel, financial services and intellectual property rights leading to the USA generating a services trade surplus of approximately US$1.2 billion with South Africa in 2022. However, it is important to note that the USA is an important foreign direct investor in South Africa with foreign direct investment (FDI) stock totalling US$7.4 billion in 2022 led by manufacturing, finance, insurance and mining.

The question we now have to ask is how significant is the USA dollar in the BRICS+ and the Global South in general that the group has to be concerned about the impending threat from a new USA administration? None of the BRICS+ countries have advocated for abandoning the use of the US$ in financial transactions. However, successive BRICS+ summits have argued for less reliance on the US$ and greater use of own currencies for intra-BRICS+ trade. In any case the use of the US$ as a reserve currency is declining significantly globally. This was noted by the International Monetary Fund in a recently (6 June 2024) published report. The IMF data is from its Currency Composition of Official Foreign Exchange Reserves (COFER) and indicates an ongoing gradual decline in the dollar’s share of allocated foreign reserves of central banks and governments. Significantly the decline did not see a counterpart increase in reserves of the Euro, the Yen and Pound Sterling.

The decline was matched by an increase in reserves of nontraditional currencies and gold bullion. China’s Renminbi was a one of the nontraditional currencies that matched a quarter of the US$ decline in the reserves of central banks. The BRICS+ countries have been using their own currencies in global payments and using Over the Counter (OTC) foreign exchange derivatives. The OTC as a financial transaction contract does not trade on an asset exchange and can be customised to the needs of each contractual party.

The share of BRICS+ currencies in global payments using the SWIFT system was 6.4%. Much like the Pan African Payment System (PAPS) the BRICS+ designed a cross-border payments system to facilitate financial transactions. Already Russia and Iran use a bilateral payment system for mutual trade. South Africa, China, Brazil and India are considering engaging with pilots in their respective countries.

* Dr Jaya Josie, Africa Advisor, Zhejiang University International Business School (ZIBS) Adjunct Professor University of the Western Cape (UWC) & University of Venda (UniVen)

** The views expressed do not necessarily reflect the views of IOL or Independent Media.

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