The surest way to weaken the dollar is to threaten to defend it

The surest way to weaken the dollar is to threaten to defend it

BRAZIL'S government formally opened consultations this month into retaliating against the latest round of American tariffs — import duties that Washington defends as a response to "unfair trade practices" in a country with which America runs a trade surplus. The incongruity is the story. Since late 2024 the administration of Donald Trump has threatened to tax Brazil for, in turn: plotting an alternative to the dollar; holding a criminal trial of its former president, Jair Bolsonaro; "censoring" American social-media companies; and, most recently, its commercial policies. The accusations change because the underlying object does not. The tariffs are not trade policy. They are a weapon, pointed at a country that Mr Trump fears might one day doubt the primacy of the currency he has appointed himself to defend. The weapon, used this way, misses its target and hits its maker.

The sequence deserves to be listed, because its instability is diagnostic. In November 2024, before taking office, Mr Trump threatened 100% tariffs on the nine members of the BRICS group — Brazil, Russia, India, China and the rest — if they tried to replace the dollar in global commerce. The following summer, with a 10% baseline tariff already in place for nearly every country from "Liberation Day", a letter from Mr Trump to Luiz Inácio Lula da Silva, Brazil's president, complained that Brazil's trial of Mr Bolsonaro was a "witch hunt" and threatened a 50% duty unless Brazilian behaviour changed. Brazil answered with a threat of reciprocation, invoking a new "economic reciprocity" law; Mr Lula ordered the letter returned. In late July 2025 the White House declared a national emergency over Brazilian "censorship" and added a 40% emergency surcharge, in effect from August 6th. The Supreme Court struck the emergency tariffs down in February 2026, whereupon the administration went shopping for a legal vehicle that could survive a court challenge and settled on Section 301 of the Trade Act of 1974, which authorises duties on foreign practices found to be unreasonable, discriminatory or burdensome to American commerce. On July 22nd 2026 a 25% duty on selected Brazilian goods took effect; a separate investigation into forced-labour imports would stack the effective barrier to 37.5%.

The doctrinal drift, from "replace the dollar" to "unfair trade practices", is not a politician refining his argument. It is a government looking for a statute — any statute — that Congress once wrote for a real purpose and that can be stretched to cover a punishment that Congress never approved. The legal basis matters because it exposes the difference between coercion and correction, and that difference decides whether the policy does any good.

The strongest case for the tariffs is real, and deserves to be stated at full strength. Brazil is no paragon of free trade. Members of Mercosur, its customs union, shelter behind an external tariff that is among the highest of any large emerging economy. American producers complain of Brazilian restrictions on ethanol, weak enforcement of intellectual-property rights and favouritism toward domestic digital firms. A yearlong investigation by the Office of the United States Trade Representative assembled a record of genuine commercial frictions, and the administration even dressed up its stopgap global tariff as a balance-of-payments measure. And a credible threat against countries flirting with an alternative currency has a certain logic: deterrence can work without being fired.

Yet look at what the tariffs actually do, and the correction theory collapses. The United States has run a trade surplus with Brazil for fifteen years; it reached $14.4bn last year and, in the first part of 2026, America exported $26.5bn of goods and services to Brazil while importing $17bn. The intellectual apparatus of the whole tariff programme is the assertion that America's deficits are a national emergency; where there is no deficit, there is no case. Then consider the targeting. Roughly two-thirds of Brazilian exports to America escaped the new 25% duty — including coffee, orange juice, beef and civil aircraft — while the tax fell on machinery, electrical equipment, granite, gold, tyres, sugar and apparel. A policy designed to correct commercial barriers would aim where the barriers are. This one aims where the politics are.

The deeper problem is that the object the whole apparatus exists to protect barely needs protecting. The dollar still accounts for roughly 58% of allocated global foreign-exchange reserves, down from more than 70% in the late 1990s. But the slide is smaller and more mechanical than the de-dollarisation literature admits: much of it reflects the sheer scale of reserve accumulation by Switzerland and China rather than any broad preference for other currencies. Over 2015-2020, when the dollar's global share fell by 6.8 percentage points, countries that raised their dollar holdings roughly balanced those that reduced them. As for the rival unit that prompted Mr Trump's first threat, a BRICS currency is a category error. A monetary union requires correlated business cycles, integrated economies and a willingness to surrender monetary sovereignty — not a four-continent coalition whose members enjoy opposite fortunes when energy prices move. The Gulf Co-operation Council, a far more plausible candidate, failed to launch a united currency for want of exactly these conditions. Mr Lula's chatter about an alternative to the dollar is theatre for summit audiences; Brazil still needs the greenback for the debt it owes, the imports it buys and the stability it covets. De-dollarisation, at present, is a slogan in search of a mechanism.

The second-order effects are the point, because they run against the policy's stated purpose. Every tariff is a tutorial in the risk of holding American claims; what drift the dollar's reserve share has seen owes more to America's own readiness to weaponise finance than to any rival. Brazil is already pulling its trade toward exactly the bloc Mr Trump hopes to isolate: China absorbed 37% of Brazilian trade by the end of 2025, shipments to India rose by more than half, and the American share of Brazilian trade is at a record low. The market's verdict is quieter but visible. The main exchange-traded fund for Brazilian equities, iShares MSCI Brazil, saw net redemptions of about $2.2bn over the three months to mid-August and roughly $0.8bn in the past month, according to fund-flow data, even as its year-to-date inflow remained positive. Some of that outflow reflects Brazil's own fiscal indiscipline rather than the tariff fight. But the direction is unmistakable: global money is asking how much Brazilian exposure it wants from a country Washington has chosen as a test case.

What should follow? For Washington, the lesson is institutional rather than transactional. Tariffs belong where they correct demonstrable unfairness, imposed under statutes that Congress wrote for the purpose and, ideally, with Congress's consent; the Supreme Court was right, and the answer to its ruling is not statute-shopping. The dollar's primacy is not sustained by threats. It is sustained by fiscal credibility, open capital markets and the restraint that makes a safe asset safe — each move to weaponise trade or finance for diplomatic ends is a small deposit in de-dollarisation's account. For Brasília, the wiser course is equally unglamorous: fight in the World Trade Organisation, use the reciprocity law sparingly, keep selling to whoever pays, and resist the temptation to answer a theatrical tariff with a theatrical retaliation that taxes Brazilian consumers.

Mr Trump is the latest in a long line of politicians to discover that the dollar is an inheritance, not an achievement to be defended by ad hoc edicts. The fastest way to make other countries want fewer dollars is to make holding dollars a political act. No one has devised a surer way to weaken a currency than to threaten to defend it.