“We will continue to uphold the US dollar as the global reserve currency, despite facing notable challenges. Many nations are moving away from the dollar. Should they opt to discard it, they might cease transactions with the United States — we are prepared to implement a 100% tariff on any goods they send.”

These comments were delivered by then-President-elect Donald Trump during a campaign rally in September prior to his victorious election in November. While Trump’s second term will not begin until early next year, the economic effects of his upcoming administration on African economies are already becoming evident. For example, following the election results, the US dollar experienced a significant spike in value against African and other developing market currencies.

This rise is primarily attributed to Trump’s expected protectionist economic policies. His intentions to raise existing tariffs by an additional 10% on most imports and to impose tariffs of 60% or more on Chinese products are anticipated to increase the cost of imported goods within the US, consequently heightening inflationary pressures and compelling the Federal Reserve to sustain higher interest rates.

Increased interest rates would likely lead to a stronger US dollar, as investors are attracted to the elevated yields linked with US assets, thereby boosting the dollar’s value relative to African currencies. This situation — marked by weaker African currencies alongside a more powerful US dollar, coupled with a potential protracted period of elevated interest rates — would heavily impact African nations’ ability to service their significant dollar-denominated external debts, rendering them much more costly in local currency terms. This dilemma could complicate financial strategies for heavily indebted countries like Angola and Kenya, hampering their ability to maintain high levels of expenditure through borrowing in capital markets.

Supporters of Dedollarisation in Africa

Nevertheless, it is unclear whether Trump will enforce his threats of sanctions against countries seeking to reduce their reliance on the US dollar. Though current “dedollarisation” efforts are still in their infancy, Trump’s warnings will warrant careful consideration by African economies contemplating this route.

Zambia is one country actively pursuing a reduction in its dollar dependency. Last year, President Hakainde Hichilema met in Lusaka with the vice-president of the Bank of China, Lin Jingzhen, to discuss ways to enhance the utilization of the Chinese renminbi (RMB) across southern Africa.

Given that China is Africa’s largest trading partner and main creditor, many key figures in Zambia and throughout the continent view strengthening the renminbi’s role as a logical step forward. Similarly, Kenya’s President William Ruto has championed the use of local currencies for intra-continental trade rather than relying on the US dollar, as African nations strive to form an independent trading bloc.

On a broader scale, the BRICS coalition of emerging economies — which includes South Africa, Egypt, and Ethiopia — has expressed interest in establishing a BRICS currency and creating alternative financial systems to rival the Western-centric Bretton Woods framework. At the recent BRICS summit in Kazan, members agreed to implement a “BRICS Clear” payment system intended to facilitate settlements and clearing between BRICS nations and their allies, effectively lowering reliance on the US dollar for these transactions.

These initiatives are primarily driven by the desire to reshape the global economic power landscape, so it better reflects the current multipolar world. African nations, alongside various other emerging economies, hope to diminish America’s influence, which some critics argue has exploited the dollar’s reserve status to pursue foreign policy goals via sanctions.

Are the Threats Empty?

Can Trump genuinely convince African nations to abandon their dedollarisation initiatives through escalating punitive measures such as increased tariffs? Philip Pilkington, an investment analyst based in London, argues that such actions would only heighten Africa’s resolve to eliminate dependence on the dollar for international trade.

“Dedollarisation is already in progress, primarily due to the rampant use of sanctions by the United States. Any attempt to intensify sanctions will merely expedite the dedollarisation process,” Pilkington asserts.

“This isn’t a serious 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 plans, especially because they contradict some of his other stated economic goals.

While Trump has previously indicated that the dollar losing its reserve status would be akin to “losing a war” due to the associated political and economic fallout, he has also maintained that the dollar’s strength in global forex markets is counterproductive. He has attributed the strong dollar to inflated prices of US manufactured goods, which makes them less competitive against lower-priced alternatives from China and other regions, and for worsening America’s significant trade deficit.

Advocating for a weakened dollar while simultaneously increasing demand for it by pressuring emerging market economies to continue using it appears paradoxical. Indeed, Robertson informs African Business that Trump’s proposal to implement tariffs on countries pursuing dedollarisation is “perplexing,” as it “contradicts his goal of a weaker US dollar — if he wanted a weaker dollar, he should welcome dedollarisation.”

Implications for Trade

However, Robertson also posits that Trump’s intentions to impose substantial tariffs on foreign goods could compel countries to seek alternative trading partners, thus potentially conducting transactions in different currencies — this shift could diminish, albeit not entirely eradicate, the dollar’s dominance.

For example, if Trump decides against renewing the African Growth and Opportunity Act (AGOA), which provides 32 Sub-Saharan African nations with duty-free access to the US market for thousands of products, it might lead to a greater percentage of those goods being sold in other international markets and possibly settled in various currencies.

“An interesting perspective for me would be if Trump’s tariffs result in an increased share of global trade outside of the US,” Robertson states. “That might encourage more countries to think about using the euro or renminbi.”

As with many of Trump’s proposals, it remains uncertain whether he will actually implement the extensive tariffs threatened against countries seeking to distance themselves from the US dollar. Given his previous lack of focus on Africa during his first term, it is plausible that he might not actively monitor any initiatives pursued by African leaders in this context.

What is more certain is that Africa, alongside the global community, is encountering a more fractured trading landscape that could complicate macroeconomic conditions for at least the next four years.