Double Trouble: How BRICS De-Dollarization and Trump's Tariffs Could Impact Your DTC's Balance Sheet

The latest headlines regarding Donald Trump’s threats to impose 100% tariffs on the BRICS bloc (mainly consisting of Brazil, Russia, India, China, and South Africa, along with other countries) - in the wake of their declared intentions to replace the US dollar - has two direct implications:

One is the frequency with which I grab my keyboard to write a blog post. After all, it was only three weeks ago that I discussed how Trump's second administration will impact your P&L.

The second one, however, may mean more to you—as the BRICS’ de-dollarization intentions and Trump’s possible reaction will most certainly change how practically every DTC business operates.

Let’s dive in.

De-dollarization and Your Ecommerce Financials

This BRICS proposal is part of what is called the “De-dollarization movement,” which is trying to switch the USD in world trade and financial transactions, in addition to replacing the dollar as the global reserve currency. This is an attempt to change the world order, which has been pretty much stable ever since 1944, when leading Western countries agreed to peg their own currencies to the Dollar, which, in turn, required them to hold large amounts of Dollars.

Now, this is all interesting (perhaps), but how does it impact you, your direct-to-consumer business, and your ecommerce balance sheet?

In two possible ways:

Assuming the BRICS bloc does go ahead and “de-dollarizes," this can negatively impact the value of the USD. Investors may want to sell their dollars and hold other currencies instead, decreasing the value of the USD.

For those manufacturing abroad and importing goods to the US, a weaker dollar means less purchasing power, meaning you will have to spend more to buy or manufacture the same goods. This, in turn, could drive up your inventory costs (and your COGS).

Second, assuming Trump follows through on his retaliatory 100% tariffs, items imported to the US will be subject to significant cost increases. This will drive up the cost of the inventory (and again, your COGS) and potentially lead to further inflation.

It's pretty much a double whammy. This could kill the Fed's hard-earned interest-cut policies. When interest goes up, so does the cost of capital, making the financing of your working capital even more cost-prohibitive (another balance sheet killer).

To put this double whammy in perspective: Consider how these two factors could compound. While a significant tariff alone would double your import costs, combining this with a weakening dollar would amplify the impact - you'd be paying more dollars for the same goods, and then paying tariffs on that higher base cost. This combination of factors could create cost increases that far exceed what most DTC businesses have planned for in their pricing and margin structures.

We've already seen similar impacts in practice. During the 2018-2019 trade war with China, many U.S. companies shifted their manufacturing to countries like Vietnam, Mexico, and Indonesia to avoid tariffs. Companies across various sectors - from furniture to electronics - had to either absorb higher costs, raise prices, or restructure their supply chains.

For DTC brands, particularly those in categories like apparel and electronics where margins are already tight, these shifts in manufacturing locations often required significant operational changes and initial investment, even if they led to long-term cost savings. These historical examples show us how currency and trade policy changes can fundamentally impact DTC operations.

In short, the “de-dollarization” movement can impact your balance sheet by:

• Drive up your inventory costs through a weaker dollar
• Trigger retaliatory inflation, which will also increase your inventory costs
• Force the Fed to increase interest rates, which will make financing more expensive

DTC Founders, Look Up

Now, should you be taking action to deal with this today? It is an unlikely scenario, but it is always worth trying to expand your supply chain and be aware of local options and opportunities, which may end up being cheaper taking the tariffs and weakening dollar into account, along with thinking about improving your working capital cycle, to make you less dependent on external financing.

Here are concrete steps you can take today to protect your business:

• Diversify your supply chain: Map out alternative suppliers in different currency zones. If you're currently manufacturing in China, explore options in Mexico, Vietnam, or even domestic suppliers.
• Optimize inventory management: Consider implementing a real-time inventory tracking system to reduce exposure to currency fluctuations and minimize working capital tied up in stock.
• Explore currency hedging: While complex, even smaller businesses can work with financial institutions to lock in exchange rates for future purchases. Start by discussing options with your bank or financial advisor.
• Build pricing flexibility: Update your pricing strategy to allow for rapid adjustments. Consider building in seasonal price reviews rather than absorbing all cost increases.

Will any of this actually happen? Is it just Trump positioning himself ahead of the game to negotiate his opponents down? More likely than not, this won't happen, but time will tell, and I'll be sure to keep you posted.

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