Can BRICS Derail the Dollar’s Dominance? 

Matthew Kroenig: Hi, Emma! Welcome back from Hawaii. I hope your flight was smoother than Yevgeny Prigozhin’s last trip.  

What should we discuss this week?  

Emma Ashford: Ouch. It might be too soon for that joke, although it is hard to resist the sense that Prigozhin got what was coming to him.  

Actually, this week’s news fits neatly with some of the things we’ve been debating in this column over the last few months. There’s been yet another coup in Africa, this time in Gabon, where the military has seized power from longtime strongman Ali Bongo and his family. Prigozhin’s mutiny against Vladimir Putin finally ended as I think we all assumed it would—a messy death at the fairly obvious hands of the Russian state. And discussions about U.S. policy on Ukraine were front and center at the first Republican presidential primary debate last week.  

But perhaps this week would be a good time to turn to the global political economy and the ways that U.S.-China competition is slowly taking over the world’s economic fortunes, whether it’s the expansion of BRICS or U.S. Commerce Secretary Gina Raimondo’s trip to China?  

MK: Well, it would be fun to debate Vivek Ramaswamy’s doctrine. For example, should Washington align with Putin against China, or, as I have argued in these pages, is that a really terrible idea?  

EA: Oh, no. Though sometime we should debate whose foreign-policy philosophy attracts the most off-putting political candidates.  

MK: I’ll look forward to it. For now, let’s dive into the topics you suggested. The BRICS summit was held last week in Johannesburg. It included more than 60 countries, and six were officially invited to join the club: Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates. They are set to join the founding members: Brazil, Russia, India, China, and South Africa.  

This expansion is a major win for China as it attempts to position itself as the leader of the global south. It is also discouraging to see countries that had been long-standing U.S. partners, such as Saudi Arabia and the UAE, cozy up to Beijing. BRICS seems to be positioning itself as a new axis of authoritarians in contrast to the G-7 club of democracies. Of the potential new members, only Argentina is rated as free, according to Freedom House.  

Fortunately, this new grouping has vulnerabilities. We saw a major cleavage with Russia and China pushing for Iranian membership on the one side and India and Brazil worrying that this and other moves would make the body appear too anti-American on the other. Combined, BRICS only possesses about 25 percent of global GDP compared with the free world’s nearly 60 percent. And autocratic alliances often don’t work very well. Remember the Molotov-Ribbentrop Pact? Not that the BRICS countries are about to invade one another, but dictators don’t often form deep and trusting international partnerships.  

Still, I am concerned. I’d rather have most of these countries aligning with Washington, not Beijing. What is your take?  

EA: My feelings on the BRICS expansion are more mixed. On the one hand, its significance is being blown out of proportion in some news accounts. Six new countries have chosen to join a bloc heavily influenced by Russia and China, but the idea that China is winning the “new cold war” as a result is ridiculous. As you point out, there are pairs of countries with strong histories of mutual antagonism, territorial disputes, or even outright conflict within the group—it’s hard to see India and China fully cooperating on a wide range of issues or the Iranians and Saudis suddenly being best friends. The group is massively diverse in economic terms, as well. None of the new members—and quite a few of the founding members at this point—meet the original organizational rationale of bringing together high-performing developing economies.  

On the other hand, the history of organizations such as OPEC suggests that states may cooperate on economic issues while being engaged in security hostilities, and many of these states have good reasons to look for ways to build a counterweight to the economic power of the United States and its allies in Europe and Asia. I’m not sure the Molotov-Ribbentrop comparison is particularly useful—a wartime security pact isn’t at all the same thing as an economic cooperation society.  

Despite disagreements among its members, BRICS has been pretty durable so far. Almost all these countries share concerns about the growing use of U.S. sanctions to restrict trade and investment globally. Most have incentives to resist wide-ranging restrictions put in place by Western organizations such as the G-7 or the European Union. Consider the example of Russia energy sanctions, where India has been a prime opponent of a more restrictive global price cap.  

It all comes down to a basic question: Do you think expanding BRICS will, in the long run, allow these countries to cooperate and place pressure on U.S. dollar dominance? Or is BRICS mostly just a talk shop?  

MK: If those are my options, I’ll choose the latter. There is no universal agreement within the group on setting de-dollarization as a goal. Russia has shown the most interest, but its South African hosts said the topic was not even on the agenda. And while these countries are vulnerable due to their dependence on the dollar, there is no other game in town. The dollar still dominates global trade and 90 percent of foreign exchange transactions. For de-dollarization to happen, many independent economic actors around the world would have to agree to make the switch.  

And switch to what? These countries all do a lot of business with China, not with one another. But given China’s capital controls, restrictions on currency convertibility, and its other economic problems, the renminbi won’t really work as an alternative.  

I guess I am more worried about high-level geopolitical coordination among important countries that excludes the United States and its allies than about anything concrete, at this point.  

EA: Yes, you could see this group acting as a coordinated counterweight to the G-7, for example—a way for some of these countries to interact more thoroughly in a non-Western setting.  

The de-dollarization debate is complex. There’s little real evidence that de-dollarization is happening now, and, as you point out, there are few real alternatives to the dollar. But as scholars have noted, there is a strong potential for backlash to overused U.S. sanctions policies over time, and the BRICS expansion could add to the impetus to look for alternative payment infrastructures for banks and companies to bypass the European-owned SWIFT system. So, it’s not a big problem today, but it could add to one in the future. Most BRICS countries are not themselves sanctioned, but they all have an interest in maintaining trade ties with countries that are—and hold fears that the United States might target them in the future.  

I do think U.S. policymakers aren’t taking this seriously enough.  

MK: I agree that there is a theoretical rationale for why countries don’t want to be dependent on the dollar, but in order to move away from it, there has to be a viable alternative. And there just isn’t. Europe and Iran, for example, established INSTEX to try to get around the U.S. financial system in an attempt to save the Iranian nuclear deal during the Trump administration, and it did not work. The European Union, a major economic power with a stable and established currency, was reduced to setting up what was essentially a barter system.  

After all, I am personally vulnerable due to my great dependence on oxygen, but I don’t have any good alternatives. Like it or not, the dollar is the oxygen of the global economic system.  

EA: Unlike oxygen, though, the dollar wasn’t always essential. The British pound used to fill that role! So we know that decline and loss of primacy in the economic space are possible. Modern payment systems aren’t essential either, and alternatives can be created. I agree that it won’t happen anytime soon, but we’d be foolish to ignore the possibility.  

Something else I don’t think the White House is taking seriously enough is the impact of ongoing U.S. attempts to decouple from China and how it’s damaging the global economy. Have you been following Raimondo’s trip to China?  

MK: Yes. This is a major issue. But before diving into the substance, I just wanted to point out the bad optics. Raimondo is just the latest in a series of senior Biden administration officials (including Treasury Secretary Janet Yellen, climate envoy John Kerry, and Secretary of State Antony Blinken) who have traveled to Beijing in recent months, with zero trips in the other direction. Washington risks looking like a tributary state kowtowing to the Son of Heaven.  

The Biden administration is worried that the competition is spinning out of control, and it is trying to put guardrails in place, but this approach risks having the opposite effect by making the Chinese Communist Party (CCP) think it has the upper hand.  

EA: Yikes. Although at least, unlike when Soviet leader Nikita Khrushchev toured the United States during the Cold War, Raimondo got to visit Shanghai Disneyland!  

MK: Turning to the substance, Raimondo’s mission was to try to communicate America’s economic strategy. Washington is attempting to “de-risk” by putting in place export controls against China to protect sensitive national security areas while it remains open for business in other areas. But CCP officials say (and perhaps believe) that Washington is engaging in comprehensive economic warfare aimed to keep China down. Raimondo was trying to disabuse them of that notion.  

It wasn’t an easy sell, however, because the reality is that U.S.-China economic relations are suffering across the board. China restricts market access to foreign firms, forces technology transfers, detains foreigners arbitrarily, and raids the offices of foreign businesses. Raimondo caused a scandal during the trip when she said U.S. firms are increasingly seeing China as “uninvestable.”  

EA: That remark was notably unpopular with the U.S. Chamber of Commerce as well, although we weren’t in any real doubt that the Biden administration is not friendly to big business. I think Raimondo’s “uninvestable” comment was more an expressed desire of how the administration would like U.S. companies to view China. There has been more investment hesitance in recent years due to the activities you describe—and to things like intellectual property theft—but I think much of the business hesitation about investments in China has to do with fears about being caught either by the administration’s own restrictions or in some escalating tit-for-tat economic war between the United States and China.  

I don’t oppose restrictions in some high-tech or national security areas of trade, but it feels as if the White House is happy to expand the scope of restrictions even when they don’t have an obvious national security rationale for them. Most of the Trump tariffs are still in place, for example.  

MK: De-risking is the right approach in theory. In practice, it is hard to know where to draw the line between what is and is not permitted.  

Moreover, in addition to a hard decoupling in areas of national security concern, de-risking should also include countervailing measures, such as tariffs, to counter China’s unfair trading practices. These are practices that do not directly threaten national security but that do violate the rules and norms of international trade. For decades, Washington turned a blind eye to them because it was pursuing engagement with Beijing, but now that the two powers are in direct confrontation, there is no good reason to allow China’s cheating to go unpunished. The problem is that unfair trading practices are the cornerstone of China’s economy.  

I was giving a talk on this subject recently, and I gave the example of software to simulate a wind tunnel for testing hypersonic missiles as the kind of trade that should be off limits but argued that buying made-in-China baseball caps was fine. A corruption expert in the audience pointed out that there was a major problem with China exporting counterfeit brand-name baseball caps. I offered furniture as an alternative. “Same problem,” she said.  

I do think there is the potential for a surgical de-risking now to become a harder decoupling over time.  

EA: Surely there are better ways to handle counterfeiting than decoupling trade? There are significant and growing costs spilling over from the Biden administration’s trade restrictions, as businesses try to find workarounds, and from tariffs that raise the costs to consumers around the world. The Peterson Institute for International Economics estimates that the Trump-era tariffs alone cost an average U.S. household $800 per year. And the International Monetary Fund is now forecasting the lowest level of growth in three decades in the next few years. As Pierre-Olivier Gourinchas, the IMF’s chief economist, described their conclusions, “There is a danger that [the] global economy could fragment into blocs” weighed down by slower growth. IMF Managing Director Kristalina Georgieva has argued that trade fragmentation is likely to lead to the formation of competitive blocs, along with slower growth and the loss of cooperation in other areas of international politics.  

The de-risking is already moving past the “surgical” stage. And it has been sped up by the Russian invasion of Ukraine and the sanctions that followed it. The administration is playing with fire here, and the mere fact that businesses were relieved to see Raimondo travel to China—even without any change in policy—suggests how worried they are about the future direction of U.S. trade policy.  

Decoupling or de-risking also reduces future U.S. sanctions leverage, incidentally. Didn’t I just hear you were in Taiwan last week? I feel as if Taipei might prefer that the United States retain a robust economic deterrent against China.  

MK: It was a good trip. We got to meet with several high-level officials, including President Tsai Ing-wen, and I learned a lot. I am more worried about the security situation now than one week ago. Taiwan’s society remains divided on the threat, with the opposition Kuomintang arguing that the ruling Democratic Progressive Party, not the CCP, is responsible for stoking cross-strait tensions. And while the Ministry of National Defense is reforming and adopting an asymmetric defense strategy, I fear it may not be moving fast enough to keep pace with the China threat.  

On the economic front, Taiwan is also seeking to reduce its vulnerability to China. While Taiwan’s semiconductor manufacturers, for example, are not closing down plants in China, they are not making new investments there either. Instead, they are opening new plants in places such as Germany, Japan, and Arizona.  

There is much more I could report, but I think we are out of time and space. Pick this up in two weeks?  

EA: Sure. After this discussion, I feel as if I need to go and put all my savings into dogecoin. Or perhaps rai stones.