A few days ago, US president-elect Donald Trump threatened to impose 100 percent tariffs on BRICS countries if they were to create a rival currency to the US dollar.

Trump wrote on his social media platform, Truth Social: “We require a commitment from these countries that they will neither create a new BRICS currency nor back any other currency to replace the mighty US dollar or they will face 100 percent tariffs and should expect to say goodbye to selling into the wonderful US economy.”

Trump’s remarks seem to miss the point, given that the risk of the US dollar losing its dominance in international trade is highly unlikely for now, whereas the risks and negative consequences of excessive tariffs and subsequent trade wars are much more concrete and immediate. What all these declarations risk is to start new and useless trade wars that would certainly benefit no one, not even the US itself.

It is true that some BRICS countries have expressed concern about the dominance of the US dollar in global trade. For example, last year, Brazilian President Luiz Inacio Lula da Silva questioned why all countries had to base their trade on the dollar, and also called at the BRICS summit, held in Johannesburg in August 2023, for BRICS nations to create a common currency for trade and investment between each other, as a means of reducing their vulnerability to dollar exchange-rate fluctuations.

While Lula did not specify, most experts agree that, among the options that BRICS may consider, we can find a basket of currencies from BRICS countries, using gold as a peg for a new potential currency, or even using digital currencies, be it using cryptocurrencies (a stablecoin) or even creating a common central bank digital currency (CBDC).

That being said, CBDCs could in theory play a role in these de-dollarization trends that we are (to some extent) witnessing. For example, in theory, some of the US dollar-denominated international trade transactions could be converted into renminbi-denominated ones, thus reducing the dominance of the US dollar in international trade and finance, and this would apply to other CBDCs, not just China’s.

Theoretically, if there is enough penetration and acceptance of a CBDC (like the digital yuan) in a separate jurisdiction or region, it is conceivable that a trade and finance system parallel to the US-dollar system can gain critical mass, a system that can allow certain countries to bypass the global banking system and US sanctions.

This is what probably worries Trump. But in practice, this is not so easy, since any newly created BRICS currency would require a banking union, a fiscal union, and a macroeconomic convergence would be necessary.

Furthermore, if all these countries were to have a single currency uniting them, it would be dominated by the biggest and most powerful economy in the group, which is China, leaving us to wonder why smaller countries would want to link their monetary policy and aspects of their fiscal policy to the Chinese economy. We need to remember that the BRICS bloc is becoming more diverse, since it initially comprised Brazil, Russia, India, China and South Africa, but it expanded on Jan 1 to include four new full members: Egypt, Ethiopia, Iran, and the United Arab Emirates. Also, over 40 other countries, including Algeria, Indonesia and Kazakhstan, have expressed interest in joining the forum.

The more feasible idea would probably be for each one of these countries to launch, for example, their own CBDCs and then work toward their interoperability. But even in that case, this is not something that can happen overnight since most countries do not have a CBDC yet, unlike China, whose CBDC, the digital yuan, is moving forward at great speed.

In other words, even if most BRICS countries were to launch their own CBDCs and even if those newly launched CBDCs were to become successful, like China’s digital yuan, the risks to the US dollar would still remain very vague for the reasons I mentioned above. If anything, we should be looking at the advantages the digital yuan will bring to China rather than looking at how this or any other CBDC can harm the US dollar.

To sum up, Trump’s remarks are a clear example that sometimes the solution can be worse than the “problem”. In other words, if, in order to protect the US dollar, he needs to apply those kinds of tariffs, the solution will be worse.

While tariffs are a central part of Trump’s economic vision since he sees them as a way of growing the US economy, protecting jobs and raising tax revenue, this is a risky approach.

The trade war started by Trump in 2018 was the result of his bet on protectionism and bilateralism instead of free trade and multilateralism, which brought great prosperity to the US, not to mention global influence.

Any new trade war would be a complete mistake, since trade-related tensions would not only harm both China and the US but also third parties. New tariffs and a second round of a trade war could add to the uncertainty for the world economy — anathema to all businesspeople and investors. If we take a look at past trade wars, the results were not encouraging at all. The consequences of a new trade war could be more widespread and severe since we are living in a globalized world in which everything is intertwined.

The ideal scenario would be that of managed economic competition, deepened crisis-management mechanisms, sustained trade and investment, limited technology restrictions, and cooperation on shared global threats.

The author is a fintech adviser, a researcher and a former business analyst for a Hong Kong publicly listed company.

The views do not necessarily reflect those of China Daily.