How Trump’s tariffs could hit developing economies – even those not involved in the trade war
- Written by Selim Raihan, Professor of Economics, University of Dhaka
The world has witnessed a resurgence of protectionism since Donald Trump returned to the White House. So-called “reciprocal” tariffs, imposed on all US trading partners at varying degrees based on the tax they charge on American goods, have been one of the hallmark features of Trump’s economic policy. They aim to correct what he perceives as “unfair” trade practices.
In early April, Trump said many countries[1] had “ripped us off left and right” and declared “now it’s our turn to do the ripping”. His administration swiftly imposed sweeping tariff increases[2], with some of the highest rates falling on poorer countries like Laos and Lesotho.
A 90-day suspension was eventually made[3] for most of these tariffs, and Trump has now softened duties[4] on imported cars and car parts. But the danger remains high. No one can be certain that the initial reciprocal tariffs will not be reinstated.
Developing countries, many of which rely heavily on the export of manufactured goods to the US, will be keeping a keen eye on what happens next.
We employed the Global Trade Analysis Project[6] model to analyse the possible effects of US tariffs on trade and economic growth. The model captures interactions and feedback among economic agents (households, firms and governments), markets, sectors and regions in the world economy.
It can be used to forecast the effect of trade reforms on various indicators such as production, welfare, income, prices and trade flows. Based on certain assumptions, the changes are likely to be seen in between two and three years.
We used simulations to compute the effects of Trump’s tariff regime under two alternative scenarios. In the first, which reflects the global trade situation at the time of writing, baseline tariffs are levied on all countries at 10%. The duties are 25% on goods from Canada and Mexico, and 145% on China. Retaliatory duties by China on US goods are set at 125%.
In the second, across-the-board reciprocal tariffs are imposed on countries at the levels Trump declared in his initial plan on April 2. This is in addition to the 145% tariff on Chinese goods, 25% on those from Canada and Mexico and a 125% duty by China on imports from the US.
As shown by the graph below, our simulations suggest the US tariff regime will distort export patterns worldwide. The most painful effects will fall on China and the US itself.
Chinese exports would shrink by 10.8% in the first scenario and 10.9% in the second. The US would suffer an even larger loss of 11.7% and 14.9%, respectively.
The model suggests that other major US trading partners such as Canada and Mexico would also experience deep export declines of over 5% in both scenarios. Roughly 75% of Canada’s exports head south towards[7] the US.
Among the developing Asian economies, Nepal, Pakistan and the Philippines would experience substantial export declines. This is particularly the case in the second scenario, with losses ranging from 2% to 4.4%. These countries are particularly vulnerable to reciprocal tariffs because they rely heavily on exports and are deeply tied to global supply and production chains.
