TARIFFS, TRADE AND DEVELOPMENT
When used hastily, they can wreak havoc in many ways – for both developed and developing economies By Angus Downie, Senior Economist, OPEC Fund WORD IN THE DICTIONARY” WHY TARIFF IS NOT “THE MOST BEAUTIFUL
T ariffs, or taxes, duties or levies on imports and exports, have been placed center stage following the Trump administration’s imposition of sweeping tariffs on goods from countries across the world, wiping off trillions from stock markets around the world and unleashing a global trade war. When used prudently, tariffs can play a crucial role in shaping balanced international trade and economic development. However, when used hastily, they can wreak havoc in many ways – for both developed and developing economies. A large part of the reason for the Trump administration’s tariff increases is explained by an attempt to protect US workers, create more employment and place “America First”. However, by reducing foreign competition, not only is US consumer choice limited but local quality can fail to keep up with
Large tariff increases tend to hurt local consumers at the expense of domestic industries, while developing countries lose out from foregone revenues.
foreign improvements. Large tariff increases therefore tend to hurt local consumers at the expense of domestic industries, while developing countries lose out from foregone trade revenues driven by lower market access via their exports to developed economies. This effect is particularly pronounced when tariff increases are unilateral rather than reciprocal. Changes in tariff policies can significantly affect low-income and middle-income countries, albeit in different ways due to variations in
their economic structures and trade compositions and relations. Low-income countries typically rely on exporting raw materials and agricultural products, whereas middle-income countries are more involved in the production and export of manufactured goods and services. This article delves into some of the impacts of tariff changes on these two country groups, focusing on how they influence trade balances, economic growth and social welfare – all generally for the worse of these countries.
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