TARIFFS, TRADE AND DEVELOPMENT
Differences in trade composition
Low-income countries often depend on a few key low value-added commodity exports and face challenges in trying to move up the value chain such as limited industrialization, weak infrastructure (particularly energy) and low labor productivity. In contrast, their imports largely consist of essential goods, including machinery, pharmaceuticals and food products that cannot be produced domestically due to the limitations above. Middle-income countries, in contrast, have more diversified economies. They export a combination of raw materials, manufactured goods and, increasingly, services such as IT, tourism and financial services. They also import intermediate goods for production, making them more integrated into global value chains. These differences in trade structures mean that changes in tariff policies affect each group in distinct ways.
percent of the US trade deficit covered just three countries: South Africa, Nigeria and Ghana. These countries’ primary exports, notably platinum and crude petroleum, are critical resources for which there is high demand in the USA, which would appear to make tariffs self-defeating. However, many Sub-Saharan African countries that displease President Trump have had broad, sweeping tariffs imposed upon them – South Africa for example due to its land reform policies, highlighting that tariff policy may be dictated by more than economics. Furthermore, by imposing tariffs on South Africa, it is effectively imposing tariffs on most of Southern Africa: Zimbabwe and Botswana, which are landlocked, and Namibia, which does not have access to sophisticated ports, all tend to trade through South African ports. There would be negative economic repercussions for most of the region. Meanwhile, now that the USA is waging a trade war on China, this will likely slow China's already under performing economy. More substantial decreases are not ruled out should the USA increase tariffs further or bring in more measures such as ending the US designation of Permanent Normal Trade Relations (successor to the most-favored nation status) with China, which dates back to 2000 and is under renewed attack from within the US political system. Weaker growth in China could be particularly felt by Sub-Saharan African countries such as Zambia, Angola and the Democratic Republic of the Congo, which rely on Chinese demand for copper, oil and cobalt. A weaker Chinese economy would likely dampen demand for these commodities, potentially leading to lower prices on global markets and revenue losses for African exporters. More broadly, Africa collectively could also suffer from any bid to alter or repeal the US trade deal, the African Growth and Opportunity Act (AGOA).
Impact of tariff increases
exporting intermediate goods that are processed elsewhere. If tariffs increase in key markets their competitiveness declines and multinational corporations may shift production to countries with more favorable trade regimes. On the import side, middle-income countries often rely on foreign inputs for their manufacturing sectors. Tariff increases on these inputs also raise production costs, reducing competitiveness in domestic and international markets. While these countries have more policy tools to adapt compared to low-income countries such as trade diversification and industrial upgrading, these take time to implement so rising tariffs still pose significant short-term challenges.
Low-income countries When tariffs rise in developed
economies, low-income countries suffer disproportionately due to their reliance on exporting primary commodities. Higher tariffs on their exports of goods reduce demand in developed economies because of the higher price consumers face. This leads to lower export revenues, which undermines the trade balance (the net of exports and imports) assuming that low-income countries’ imports remain relatively stable. Given that these nations have limited fiscal space and low industrial diversification, they struggle to adjust to these shocks. Additionally, since low-income countries import a large share of their capital goods, higher tariffs on these products can slow industrial development. Increased import costs raise production expenses, making it harder for local businesses to compete. This can lead to slower economic growth, reduced foreign investment and weaker employment opportunities. Ultimately, we can expect to see these negative effects reflected in stagnating or decreasing GDP per capita, which in many OPEC Fund low-income partner countries is already very low. Middle-income countries For middle-income countries tariff increases on their exports, especially on manufactured goods, can disrupt their integration into global supply chains. Many middle-income nations rely on
Africa caught in the crossfire Many observers decry the tariffs
imposed on Sub-Saharan Africa as the USA runs only a small trade deficit with the continent – US$7.4 billion in 2024 compared to a deficit of almost US$300 STOP
billion with China in the same year. Of this, around 85
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