Published on Barron's

The group has long been dismissed as a collection of developing countries with little in common other than historical border disputes and troubled economies. But in recent  years, it has expanded beyond its original membership to include Egypt, Ethiopia, Indonesia, Iran, and the United Arab Emirates and has extended invitations to Saudi Arabia. Turkey, Mexico, and others have applied for membership.

Some of these countries lack punch or significance on their own. But they have all been carefully chosen to add to the coalition’s collective strengths and levers of global influence. The Trump administration’s tariffs may be an overreactionto this—but there are signs the group is methodically threatening the economic and geopolitical hegemony of the U.S.

Brics is for China what the G-7 and the European Union are for the U.S. The G-7 and the EU, however, want for resources Brics is rich in. Brics dominates global production in magnesium, aluminum, and antimony, all of which are needed for ammunition production. It has more rare earths, industrial metals, and grains than the G-7, and produces more oil. The group also owns almost double the precious metals reserves of the G-7 and EU combined. Overall, Brics has significant advantages in the artificial intelligence and clean energy revolution.

Iran, South Africa, Egypt, the U.A.E., and Indonesia control four of the world’s six most important maritime chokepoints. And Brics member countries have a still-growing consumption base, with demographic growth trends exceeding the West’s for at least the next 35 years.

It is also emerging as a defense pact, with nuclear capabilities that counterbalance NATO’s. From China and Iran aiding Russia in its war against Ukraine, to declarations regarding the attacks on Iran and the war in Gaza, Brics appear increasingly less shy about asserting its ambitions in the geopolitical arena. The Trump administration’s swift push for a cease-fire in last month’s conflict between Israel and Iran averted any opportunity for China or Russia to get involved. But their recent declarations of solidarity in Rio shows that the incident didn’t go unnoticed.

The U.S. still has the world’s dominant currency. But Trump seems anxious about that, too. In January, his administration threatened to impose 100% tariffs on Brics if it attempts to de-dollarize. It has already developed multiple payment systems that successfully bypass the dollar settlement system, allowing Russia to evade U.S. or EU sanctions. These payment systems, however, don’t amount to de-dollarization, as many of them are implicitly or explicitly pegged to the U.S. dollar. But they do show that the members are willing and able to devise ways that avoid the reach of the U.S. Everything suggests the adoption of a common currency will one day become one of Bric’s goals, although that would take at least a decade to become reality.

Meanwhile, Brics has expanded its intragroup trade by close to 200%—at the expense of imports from the G-7—in response to U.S. tariffs and the war in Ukraine. This has worked to keep Russia afloat. It has also acted as a hedge for China, which has seen U.S. and European markets shut out its products. While Brics cannot replace the U.S. as a destination for China’s exports, they can certainly cushion the blow of tariffs on the Chinese economy.

Trump’s tariffs can only go so far to impede these short-run ambitions. But tariffs issue a significant message to the Brics coalition for the longer term: The member countries will need to disentangle their economic dependency on the West. From an investor’s perspective, that means the emerging markets in Brics will profoundly change. Their opportunities, risks, and accessibility need rethinking by investors, both at a single asset and portfolio level.

About the author: Maria Vassalou is the head of the Pictet Research Institute, part of the Geneva-based bank and asset manager Pictet.