Brief: Trump’s Economic Policies & BRICS
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With the upcoming trump presidency, projections are edging towards an increasingly adversarial international economic landscape. Basing predictions on the combination of Trump’s first term and his campaign promises, expectations include increased protectionism in the form of tariffs, redrawing trade lines and a more aggressive economic policy, including additional sanctions.
BRICS Kazan Summit in 2024 emphasized the need to insulate against western hegemony of financial markets, moving towards de-dollarization and the use of local currencies between member and partner states. It also addressed the issue of cushioning against the increased politicization of economic sanctions by the U.S.
It further stressed the need to expand cooperation and increase investment in key sectors to drive development across various industries.
Likely Policies in Trump’s Second Term
Trump is likely to double down on the economic policies that he enacted during his first term as president. These may include:
- Tariffs: In his previous term Trump imposed tariffs on allies and competitors to reinforce domestic U.S. industry and reduce the trade deficit. This policy will likely recur in his second term based on his campaign statements.
- Deregulation: Expected recurrence of rolled back environmental and financial regulations, particularly in the energy and manufacturing sectors, to promote business growth and reduce compliance costs.
- Reshoring Supply Chains: Expectations point toward policies to encourage U.S. companies to bring manufacturing back to the U.S. through incentives and penalties for companies operating overseas, especially in China.
- Sanctions: broad use of economic sanctions as a foreign policy tool to pressure other countries on trade, technology, and security issues.
Potential Responses from BRICS members and partners
BRICS members, particularly China and Russia, have been steadily working toward reducing dependence on existing financial frameworks dominated by the U.S. and the USD. The election of Donald Trump will likely drive these efforts forward.
The increased risk of exposure to politicized sanctions, limitations on exports and imports, and more aggressive tariffs posing barriers to trade an investment, in addition to predicted Trump policies of disincentivizing external investment by U.S. companies, could push pose barriers to trade and investment.
The methods may include:
- Increased mutual investment and trade: reprioritizing mutual trade within BRICS members and partners, that now form more than 35% of the global GDP.
- De-dollarization: Redoubling efforts to reduce dollar dependency may result in response to the more aggressive use of sanctions by the U.S., focusing on trade agreements that allow them to bypass the dollar, reducing vulnerability to U.S. trade policies.
- Increasing Resilience: The likelihood of sanctions or economic pressure may become a unifying factor, seeing increased investment in alternative frameworks for financial cooperation, including alternative payment systems like Russia’s System for Transfer of Financial Messages (SPFS) and China's Cross-border Interbank Payment System (CIPS).
- Filling the Voids: Increasing self reliance of the U.S. may result in reduced imports across various sectors, particularly if imposed tariffs are particularly high. BRICS countries may look to capitalize on any gaps or shifts in demand resulting from U.S. self-reliance. This realignment could open doors for BRICS to expand influence in global energy markets, possibly through more coordinated export strategies or regional energy partnerships.
- Supply Chain Realignment: With the U.S. already taking more aggressive steps to exclude China from technological supply chains, particularly in the semiconductors sector, China and others may take steps to secure their own supply chain independence.
Outlook
- Investment:
- Opportunities are present both in the U.S. and BRICS. With increasing focus on domestic industry in the U.S., there may be a surge in various sectors including energy, ICT, automotives, and infrastructure as Trump’s economic protection policies take effect.
- On the other hand, U.S.-imposed tariffs and restrictions could make BRICS an increasingly attractive investment destination, especially in sectors like energy, tech, and commodities, as member countries expand these sectors.
- BRICS's proactive measures to insulate from U.S. sanctions may stabilize their investment climate, making them more resilient markets in a turbulent global economy.
- Market Diversification
- With BRICS strengthening intra-group trade and potentially launching dollar alternatives, businesses will have opportunities to leverage these markets for diversification.
- BRICS’s evolving financial infrastructure and trade frameworks can reduce exposure to currency volatility and trade disruptions.
- BRICS developing economies have rapidly expanding ICT, energy and infrastructure sectors, offering significant growth potential.
- Risk Mitigation
- As U.S. policies under Trump might lean toward trade restrictions, businesses engaged in BRICS markets should consider contingency plans for potential tariffs or trade barriers.
- Engagement in BRICS could act as a hedge, offering companies alternative growth channels amidst U.S.-centered economic policies.