How Trump's Tariffs Can Reverse De-Dollarization

Immediately upon assuming office, President Donald Trump reiterated that he would impose 100% tariffs on BRICS nations contemplating de-dollarization. Trump advocates a worldview in which the U.S. dollar remains the undisputed reserve currency, but unlike his predecessors, he perceives BRICS as a serious challenge to the greenback’s predominance. Targeted tariffs combined with incentive structures for alignment with American interests can discourage countries from pursuing de-dollarization policies.

Indeed, following Russia’s war in Ukraine, the United States and the European Union moved to seize $300 billion in Russian Central Bank assets. During its last days in government, the Biden administration attempted to convince European leaders that the money should be moved to an escrow account to which Moscow would only get access if it signed a peace deal. Russia recently retaliated with a new legislative initiative that allows it to confiscate assets in “unfriendly” countries.

The problem for Washington is that, although the Kremlin is similarly engaging in asset seizure, Russian President Vladimir Putin has crafted an image of himself as a defender of the Global South’s interests and as responding to Western aggression. Speaking before representatives from African and Asian countries, Putin argues that “we never tried to oust anyone from our market” and that the West relies on “neo-colonial practices” to make African countries “dependent on Western technology and loans.” Putin also frequently repeats that Western countries are responsible for escalation—both military and financial—and that Moscow has been collaborating with developing countries for decades. 

Russia and China enjoy much more direct messaging to the Global South, presenting themselves as alternatives to American financial hegemony. This stokes anti-Western sentiment amongst countries that perceive Beijing and Moscow as disposed to provide economic and security aid without using their currencies as a tool to force democratization.

The Trump administration’s response to this increasing hostility is to induce countries to trade in the dollar. During the same interview, Bessent suggested that the United States could set up a three-tiered system in which countries fall from the desirable green zone to the yellow to the red zone if they fail to align with Washington’s interests. Bessent cited India continuing to buy Russian oil as an example of what might demote a country from the yellow to the red box. Trump’s 100% tariff threat on BRICS countries pursuing de-dollarization is rooted in the same approach.

For the past few weeks, Trump has used tariffs to achieve rapid political outcomes. When Colombian President Gustavo Petro refused to accept planes carrying migrants deported from the United States, Trump issued a 25% tariff on all goods imported from Colombia that would rise to 50% the following week. Within the same day, Petro reversed his decision and offered a presidential plane to return migrants to Colombia. Since the United States accounts for approximately 34% of Colombia’s trade, Petro had no choice but to put himself in lockstep with Washington’s migratory policy.

Trump has also succeeded in obtaining concessions from America’s neighbors through targeted tariffs. Mexican President Claudia Sheinbaum agreed to deploy 10,000 National Guard troops to the U.S.-Mexico border to monitor drug trafficking and illegal immigration in exchange for a month-long delay in the implementation of 25% import tariffs. Canadian Prime Minister Justin Trudeau struck a similar deal, committing to reinforcing the U.S.’ northern border with personnel and technology to stop the illegal flow of fentanyl. Tariffs have thus strengthened Washington’s bargaining position to achieve its domestic objectives.

Regarding the United States’ major adversaries like Russia and China, tariffs are not intended to secure instantaneous reversals. Washington is seeking long-term shifts that benefit it domestically and internationally. For instance, Bessent noted that “we are trying to make China rebalance. China over-manufactures and they deprive the household sector. They under-consume.” The end goal of instituting tariffs is to encourage “more U.S. manufacturing,” he added, which entails additional jobs, decreased supply chain dependence, and reduced costs over time. In this spirit, Trump warned business leaders across the globe that they would face tariffs if they do not bring manufacturing to the United States.

Trump desires a somewhat more immediate shift when it comes to Russia. He threatened Putin with high tariffs and a new volley of sanctions if he does not come to the negotiating table to end the Ukraine war. Russia has shown an impressive ability to circumvent Western sanctions up to this point—a process it began after its annexation of Crimea in 2014 when it was hit by Obama-era sanctions—and there are few industries in which Moscow still finds itself dependent on the United States. However, Trump’s statements may serve as a concrete signal to the Kremlin that he is intent on seeing an end to the war as soon as possible.

The Trump administration appears largely united on the idea of using forceful methods to maintain the dollar’s status as the world’s reserve currency. One exception was when Vice President JD Vance said last year, “when I see our mass consumption of mostly useless imports on the one hand and our hollowed-out industrial base, on the other hand, I wonder if the reserve currency status also has some downsides.” However, if tariffs designed to foster domestic manufacturing and increase the quality of American products are strategically used to reverse de-dollarization, this would address Vance’s concerns.

Nevertheless, the administration should be prepared to respond to the first signs of the alternate outcome. It is possible that tariffs levied against current or aspiring BRICS members, for example, will convince these countries to turn to cross-border payment systems, replacing dollar-based transactions monitored by Washington with local currency equivalents.

What makes tariffs more attractive than sanctions, however, is that they are less likely to accelerate de-dollarization. Excessively applying sanctions to coerce countries to align with American interests can smack of dollar weaponization, pushing countries directly into Russia and China’s embrace. Tariffs, on the other hand, are a trade tool that remains separate from the international financial payment systems undergirding the dollar.

Tariffs can thus incentivize alignment with American policies—as Bessent proposes in his green-yellow-red box analogy—in subtler ways than the blanket sanctions that Washington has used for the past few years. Unlike sanctions, however, they carry inflammatory effects, which will have to be weighed when considering their implementation. As Bessent said, the ideal situation is if tariffs can be removed after they have achieved their political objective, but this may take time when dealing with more persistent countries such as China.

President Trump has concluded that BRICS presents a credible threat to the U.S.-led world order, which is sustained by the dollar’s role as the global reserve currency. He is willing to use tariffs as a political instrument to convince countries that it is in their interest to operate within the American financial system. Targeted tariffs accompanied by incentives to compliant countries may prove more useful than sanctions in combating de-dollarization, enabling the United States to defend its economic and political interests in the face of Sino-Russian rapprochement.

Axel de Vernou is a senior at Yale University majoring in Global Affairs and History with a Certificate of Advanced Language Study in Russian. He is a Research Assistant at the Yorktown Institute.