Asad Mirza
The spate of tariffs announced against virtually the whole world has started taking its toll. With counter measures announced by some nations, led by China has further complicated that what the tariffs and reciprocal-tariffs are. The economists have deciphered the long-term negative impact of the tariffs announced by the US and what it essentially entails for the global economy.
The UN Secretary General Antonio Guterres on Friday (April 11) warned that “nobody wins in a trade war,” his spokesman said. “Our concern right now is with the most vulnerable countries who are the least equipped to deal with the current situation,” he further said. The UN Secretary General also noted that the UN Sustainable Development Goals would be impacted “negatively” by a global trade war.
Amid widespread opposition, US President Donald Trump on Wednesday (April 9) signed an executive order on the so-called “reciprocal tariffs” imposing a 10-percent “minimum baseline tariff” and higher rates on certain trading partners.
Sweeping tariffs under US President Donald Trump and countermeasures could have a “catastrophic” impact on developing countries, hitting even harder than foreign aid cuts, the director of the United Nation’s trade agency said on Friday. Global trade could shrink by 3-7% and global gross domestic product by 0.7%, with developing countries the worst affected, the International Trade Centre said.
“It is huge,” Pamela Coke-Hamilton, executive director of the International Trade Centre, told Reuters, reported a global banking and finance news website. “If this escalation between China and the US continues it will result in an 80% reduction in trade between the countries, and the ripple effect of that across the board can be catastrophic.”
China has been raising its tariffs on the US goods with each Trump increase, raising fears that Beijing may jack up tariffs above the current 84% to even 125%.
“Tariffs could have a much more harmful impact than the removal of foreign aid,” Coke-Hamilton said, warning that developing economies risk sliding back on the economic gains they made in recent years.
Meanwhile, the UN Conference on Trade and Development (UNCTAD) warned in a statement published by the Financial Times that tariffs imposed by the United States will harm vulnerable countries, adding that “the global trade system is entering a critical phase – threatening growth, investment, and development progress, particularly for the most vulnerable economies, as major economies are set to impose sweeping new tariffs.”
The UN’s top trade official has urged the US to spare the world’s poorest countries from high tariffs, saying they will damage vulnerable economies without raising significant sums for the US Treasury or shrinking the US trade deficit.
Rebeca Grynspan, secretary-general of UN Trade and Development (Unctad), told the Financial Times that while some of the world’s least developed countries depended on exports to the US, the dollar amounts they shipped were too small to have much impact on the US trade gap.
Paradoxically, the wave of tariffs announced by Trump though target those nations with which the American balance of trade is skewed, but unfortunately its impact will be felt by those least developed countries too, which are dependent on imports from the US elsewhere.
Giving the example of Madagascar, Grynspan said that Madagascar is one of the world’s poorest countries with GDP per capita of just $509. “If you try to calculate how much of the US trade deficit it represents, you will get zero, because you can’t even round it up to 0.1 per cent.”
“It exports products which the US doesn’t produce. They are not competitors and (the US) imposed a tariff of 47 percent on it,” she added.
The Trump administration’s so-called “reciprocal tariffs” on each country are proportional to the bilateral trade deficit divided by bilateral imports, a method that Grynspan said penalised the world’s poorest nations disproportionately without helping Washington.
“Our plea, our petition, is to reconsider,” she added. “It’s not that we are questioning what they are doing, it’s that [the measures on poorer countries] don’t have an impact on the objectives which the US has set out for its trade policy.”
According to Grynspan, the world’s 44 least developed countries, contributed just 1.6 per cent of the US trade deficit, yet the effect of much higher tariffs would be “extremely serious” for their fragile economies, raising the risk of fresh debt crises. These could be worsened by higher global interest rates if borrowing costs were increased to combat inflation.
Poorer nations would struggle to make their case to the Trump administration for a tariff rethink because they had “no negotiating power”, she added. They would have to wait in line behind much more powerful nations with better access in Washington.
Grynspan also said that global investments, too would be hit by uncertainty created by the tariffs. Over the longer term, economies in the global south would probably trade more with each other as a result of the US measures, the UN official said.
This would reinforce a trend in which trade between developing economies has risen to 30 percent of total world trade, while the share between wealthy economies has halved from the last century to this one, according to Unctad figures.
Grynspan, a Costa Rican economist and former vice-president, supports what she calls “open regionalism”: the rise of regional trade blocs, such as Asean, that help national economies develop scale and resilience to sell globally rather than wall themselves off from the world.
Looking ahead, she said intra-Asian trade would probably increase significantly and that regional trade would be “vital” for Africa, too. “The countries of the south need trade,” she said.
Overall, Trump’s tariff mania has resulted in casting a very negative impact on the global economy, and as the global leaders say the worst sufferers would be the poor or the lest developed countries.
Interestingly, it was the West itself, which had boosted the Chinese economy by outsourcing production of every conceivable good to China, in the last quarter of the last century, in the name of protecting their environment.
But they were unable to protect the environment even then, due to their conspicuous consumeristic behaviour and consumption, and now they are furthering the target for Net Zero world, every year. Further, on top of that this tariff mania has added additional strife to the global economy which has somehow recovered, albeit not completely, from the chaos of the Covid pandemic.
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