“We will keep the US dollar as the globe’s reserve currency, despite facing considerable challenges. Many nations are moving away from the dollar. If they decide to forgo it, they will not engage in transactions with the United States — we stand ready to impose a 100% tariff on any goods they send.”
These comments were made by then-President-elect Donald Trump during a campaign rally in September before his election win in November. Although Trump’s second term will not begin until next year, the economic effects of his upcoming administration on African economies are already starting to emerge. Following the election results, the US dollar, for example, experienced a significant rise in value against African and other emerging market currencies.
This uptick can be largely attributed to Trump’s expected protectionist economic policies. His proposal to raise existing tariffs by an additional 10% on most foreign goods and to implement tariffs of up to 60% or more on Chinese products is projected to increase the cost of imported goods in the US, creating higher inflationary pressures and requiring the Federal Reserve to maintain elevated interest rates.
Higher interest rates would likely lead to a stronger US dollar, as traders seek the higher yields associated with US assets, thereby boosting the dollar’s value compared to African currencies. This situation — characterized by weaker African currencies and a stronger US dollar, along with a potentially prolonged period of higher interest rates — would significantly challenge African nations’ ability to repay their substantial debts in dollars, rendering them significantly more costly in local currency terms. This would complicate financial planning for heavily indebted countries like Angola and Kenya, limiting their ability to sustain high expenditure levels through borrowing in capital markets.
Supporters of Dedollarisation in Africa
Yet, it remains uncertain whether Trump will follow through on his threat of sanctions against nations attempting to reduce their reliance on the US dollar. Despite current “dedollarisation” efforts being in their early stages, Trump’s threats will need careful consideration by African economies pondering this route.
Zambia is one country that is actively pursuing a reduction in its dollar dependence. Last year, President Hakainde Hichilema met with Lin Jingzhen, the vice-president of the Bank of China, in Lusaka to discuss opportunities for increasing the use of the Chinese renminbi (RMB) across southern Africa.
Given that China is Africa’s largest trading partner and primary creditor, many influential figures in Zambia and other parts of the continent see the enhancement of the renminbi’s utilization as a natural evolution. Similarly, Kenya’s President William Ruto has advocated for the use of local currencies for intra-continental trade rather than the US dollar, as African countries aim to establish themselves as an independent trading bloc.
On a broader scale, the BRICS coalition of emerging economies — including South Africa, Egypt, and Ethiopia — has expressed interest in creating a BRICS currency and developing alternative financial systems to challenge the Western-centered Bretton Woods framework. During the recent BRICS summit held in Kazan, members agreed to create a “BRICS Clear” payment system intended to facilitate settlements and clearing among BRICS nations and their partners, effectively reducing reliance on the US dollar for such exchanges.
These efforts are largely fueled by the aspiration to reshape the global economic power dynamics to better reflect today’s multipolar landscape. African nations, along with various other emerging economies, seek to diminish America’s influence, which some critics argue has exploited the dollar’s reserve status for pursuing its foreign policy objectives via sanctions.
Are the Threats Hollow?
Can Trump genuinely pressure African nations to halt their dedollarisation endeavors through heightened punitive measures like augmented tariffs? Philip Pilkington, an investment expert based in London, argues that such actions would only escalate Africa’s urgency to sever reliance on the dollar for international trade.
“Dedollarisation is already in motion, primarily due to the overuse of sanctions by the United States. Any attempts to intensify sanctions will simply expedite the dedollarisation process,” Pilkington contends.
“This isn’t a credible proposal, and I doubt it will materialize.”
Charlie Robertson, head of macro strategy at FIM Partners in London, also expresses doubt about Trump’s commitment to these proposals, especially as they conflict with other stated economic goals.
While Trump has previously stated that the dollar losing its reserve status would be akin to “losing a war” due to its political and economic consequences, he has also maintained that the dollar’s strength in global forex markets poses problems. He has blamed this strong dollar for inflating the costs of US-manufactured goods, making them less competitive against cheaper alternatives from China and beyond, and for worsening America’s massive trade deficit.
Advocating for a weaker dollar while simultaneously encouraging demand for it by compelling emerging market economies to continue using it appears contradictory. Indeed, Robertson informs African Business that Trump’s intention to impose tariffs on nations pursuing dedollarisation is “puzzling” because “it contradicts his goal of a weaker US dollar — if he wanted a weaker dollar, he should welcome dedollarisation.”
Trade Implications
However, Robertson also suggests that Trump’s plan to impose significant tariffs on foreign goods could push countries to seek alternative trading partners, potentially transacting in different currencies — this could reduce, although not completely erase, the dollar’s dominance.
For example, if Trump decides against renewing the African Growth and Opportunity Act (AGOA), which allows 32 Sub-Saharan African nations duty-free access to the US market for thousands of products, it may result in a larger share of those goods being sold in different international markets and possibly settled in alternative currencies.
“An interesting angle for me would be if Trump’s tariffs lead to an increased share of global trade excluding the US,” Robertson notes. “That could encourage more countries to consider utilizing the euro or renminbi.”
As with many of Trump’s proposals, it remains to be seen whether he will actually implement the threatened extensive tariffs on nations seeking to distance themselves from the US dollar. Given his lack of focus on Africa during his initial term in office, it is conceivable he might not closely scrutinize any initiatives launched by African leaders regarding this matter.
What is more certain is that Africa, alongside the global community, is entering a more fragmented trading landscape that could complicate macroeconomic conditions for at least the next four years.
