What Trump’s Tariffs mean for lower and lower middle-income countries

The Trump administration last week announced the imposition of minimum 10% tariffs on all products for all countries.

It has been called the biggest upheaval to the trade system since the Smoot Hawley tariffs made life in the US so much harder during the Great Depression of the 1930s. In a 21^st century world of global interdependence, these tariffs will have serious repercussions for countries in the Global South.

For over 50 years, the trade system has allowed for ‘preferential treatment’ of certain countries, in recognition of the significant economic challenges they face. Both the EU and the UK offer zero tariffs on everything but arms for all Least Developed Countries (LDCs) and preferential tariffs for Low and Lower-Middle Income Countries (LICs and LMICs). The US used to offer similar preferential tariffs to 119 countries and clearly considered trade as an important tool in achieving development goals:

“U.S. trade preference programs such as the Generalized System of Preferences (GSP) provide opportunities for many of the world’s poorest countries to use trade to grow their economies and climb out of poverty.” Office of the US Trade Representative website

As of Sunday 6^th April, the US has completely done away with that system. There are no exemptions for countries at any level of development. Some of the most shocking figures are those for economically vulnerable countries and those facing conflict and environmental disaster: Lesotho is hit with a 50% tariff – up from zero on some products. For Laos, Syria and Myanmar the figures are 48%, 41% and 45% respectively.

The impacts will vary depending on how significant the US is as a market for products from a particular country. For example, Tanzania used to benefit from preferences and will now be subject to a 10% tariff, but the US is a destination for less than 2% of its exports. The picture is much worse for Cambodia because it will be hit by a 49% tariff and the US accounts for 40% of its exports.

However, the full impact can only be understood by looking beyond the tariff implications for any one country because of the likely market adjustments that will follow. For example, many countries in the Global South are heavily dependent on garments exports. All of them face significant increases in tariffs: Bangladesh, Pakistan and Sri Lanka face 37%, 30% and 44% respectively, and Cambodia is also a major garment exporter. Because tariffs vary between countries, it is likely that companies will shift their supply chains to those with lower tariffs. There are already indications that companies will move to countries like India and Peru which face tariffs of 26% and 10%.

Many countries in the Global South are still dependent on a small number of commodity or manufacturing exports. The sheer size of the US economy means that there are few options available to them. If the US is a major export market, it will be difficult for them to find alternatives, it is also unlikely that they can afford to import significantly more to try to address the ‘trade deficit’ that Trump is so exercised about. 

Bangladesh has been considering increasing its imports of cotton from the US. However, this could mean higher input costs for Bangladeshi manufacturers, which could in turn lead to downward pressure on working conditions in a sector already rife with problems. It could also mean a reduction of imports from cotton-producing countries like India, Brazil and six West African countries (Benin, Burkina Faso, Chad, Cote d’Ivoire and Senegal). If all major textile manufacturing countries try this approach, this could be devastating for the West African countries, who are heavily dependent on cotton exports.

The withdrawal of USAID was terrible, but aid flows are dwarfed by the export earnings that countries receive from trade. Bangladesh’s total trade with the US is worth around US$8.4 billion, compared to, at its peak, the US giving US$447 million in aid. The sudden imposition of these tariffs is likely to cause a much greater economic shock.

There is not much the UK can do that would match up to the scale of the tariff impacts that will be felt. However, taking steps to address the problems in its own international supply chains is more important than ever. It must seek to reduce the negative impacts on the workers and small producers who have the least ability to protect their rights.

There are three things it could do immediately:

Introduce a Business, Human Rights and Environment Act so that companies cannot get away with practices that drive human rights abuses and environmental destruction

In light of the significant impact on garments exporters, it should introduce a Garment Trading Adjudicator to ensure UK companies treat suppliers fairly – just paying on time will be so important

 Finally, put workers and small producers at the heart of its forthcoming trade strategy.