Statement on potential impact of US tariffs on developing countries

We’ve been following the US tariffs, in particular the impact of the tariffs on developing countries and their small businesses. 

The volume of world merchandise trade is expected to decline by 0.2% in 2025 under current conditions, nearly three percentage points lower than what would have been expected under a "low tariff" baseline scenario, according to the WTO, based on the tariff situation as of 14 April. Trade could shrink even further, to -1.5% in 2025, if the situation deteriorates.

There could be significant long-term shifts in trade patterns and economic integration as a result. For example, exports from Mexico—which have been highly impacted—are shifting from markets such as the US, China, Europe and even other Latin American countries, with modest gains instead in Canada and Brazil, and to a lesser extent, India. Similarly, Vietnamese exports are redirecting away from the US, Mexico and China, while increasing substantially towards MENA markets, the EU, Korea and others. 

So not all countries are affected by such changes equally. 

Least developed countries, including Lesotho, Cambodia, Lao PDR, Madagascar and Myanmar, are most exposed to instabilities in the global trading system and least equipped to pivot as needed. The same goes for small businesses in those countries, which don’t have the capacity to absorb additional costs or to navigate such changes, as their bigger counterparts do. 

Some of these least developed countries rely heavily on the US market for their exports, using preferences such as the African Growth and Opportunity Act or AGOA, which has allowed imports from Sub-Saharan African countries to enter the US market duty-free, since 2000. 

Lesotho has been making use of AGOA, sending 60% of its apparel exports to the US market, exporting on average more than $230 million in apparel a year, over the past five years. Before the pause in “reciprocal” tariffs, Lesotho faced the highest rate of 50%. A 50% tariff would imply export potential losses of $210 million in the US market by 2029. 

Let me give another example on apparel, as textiles is a top industry in terms of economic activity and employment for developing countries: Bangladesh, the world’s second largest apparel exporter, would face a reciprocal tariff of 37%, should it come into effect, which could lead to a loss of $3.3 billion in annual exports to the US by 2029.   

Now let me shift gears a bit. It’s easy to get caught up in daily or even hourly updates but there’s a bigger story here. And it’s a story about opportunities. And it’s about the long-term game.  

A key part of the solution for developing countries to navigate any kind of global shocks—be it a pandemic, climate disaster or sudden changes in policies—lies in prioritizing three areas, something we’ve been saying for years: diversification, value addition and regional integration.  

If ever there was a time to make this pivot to diversification, value addition and regional integration—what I call “strategic reglobalization”—this is it. It’s characterized by mutually beneficial trade, rather than traditional development aid. 

On diversification: This is about exploring new markets to sell to, to reduce reliance on one or two big trading partners. It’s the concept of “don’t put all your eggs in one basket”. To absorb some of the losses on the US market, for example, Bangladesh could explore European markets, which still hold growth potential for its apparel. Lesotho can tap into alternative markets such as Belgium or Eswatini, where Lesotho holds a combined unrealized export potential of $22 million. While this won’t compensate for the estimated losses, it is one way to blunt the full impact. 

On value addition: This is about developing countries moving from selling commodities to focusing on in-country processing of goods before export. Value-added goods help developing countries retain more value, so they are less affected by sudden drops in prices of coffee, cocoa or copper on global markets, for example. This is another way to improve overall resilience. 

On regional integration: This is about developing countries looking at their neighbors and choosing to invest in trading relationships at the regional level. The African Continental Free Trade Area is one example, with the potential to transform the way Africa trades within and with the rest of the world. Let’s look at the example of Côte d’Ivoire. If tariffs were fully eliminated, Côte d’Ivoire could increase intra-African exports by 25%, partially compensating for the anticipated $563 million losses on the US market.  

So there are opportunities for developing countries not just to navigate times of uncertainty, but to proactively prepare for the long haul. Thank you.