Poor countries should be exempt from US 'reciprocal' tariffs, says UN

The US should spare the world's poorest and most vulnerable developing economies from President Donald Trump's 'reciprocal' tariffs, as their enforcement risks ruining struggling nations, the UN trade body has said.

Washington is pushing the US tariffs, currently on pause for 90 days, to balance its bilateral trade of goods and services with 57 trading partners around the world, including nations such as Cameroon, which is facing 11 per cent levies, and Lesotho, where duties are 50 per cent.

However, the 'reciprocal' tariffs, in many cases, risk severely disrupting growth of developing and least developed economies, if they try to significantly reduce their trade deficit with the US, without alternative sources of revenue, the UN Trade and Development (Unctad) said on Monday.

Of the 57 trading partners concerned – 11 of them least developed countries – they contribute minimally to the overall US trade deficit, the Unctad said.

About 28 out of these 57 trading partners each account for less than 0.1 per cent of the deficits, yet could still be subject to 'reciprocal' tariffs, it added.

For example, Lesotho contributed 0.019 per cent of the US trade deficit but is facing a 50 per cent tariff.

“Already grappling with low growth and mounting uncertainty, vulnerable and small economies, whose activities have a negligible effect on trade deficits, should be exempt from new tariff hikes,” the UN body said.

Since many of these economies are small in size, structurally weak and with low purchasing power, they offer limited export market opportunities for the US, the report showed.

“Any trade concessions they grant would mean little to the United States, while potentially reducing their own revenue collection,” the Unctad said.

These poor countries, which are not a competitive threat or a matter of national security to the US, should be spared “the pain of the tariffs”, the Unctad's director general Rebeca Grynspan said.

“We are already in a new normal of low growth and high debt, and we are worried that the global economy will slow down,” Ms Grynspan told UN News on April 10.

“Our emphasis has been to put attention on what can happen to countries that are more vulnerable, such as the least developed countries, and small island developing states. What is happening to those countries is what really worries us.”

The continuing uncertainty unleashed by the tariffs makes it difficult for companies and countries to plan ahead, which is also weighing down the global economy.

“If we know the final position, we will adjust, we will have strategies and we can see how to live with the decisions that are being taken. But if we have a prolonged period of uncertainty, where things change all the time, this is damaging because we don't know what to do,” Ms Grynspan said.

Investment is paralysed because company chief executives are deciding to sit and wait, which means investment will not come back at the scale the world needs, she added.

“Our first call is for rational decisions to be taken, so we can plan, strategise and adapt to change – but we still don’t know what that change will entail,” she said.

Ralph Ossa, chief economist at the World Trade Organisation, also cautioned about the impact of quickly escalating trade policy tension.

“Tariffs are not just a tool for raising revenue or protecting domestic industries – they are a policy lever with wide-ranging, and often unintended, consequences. Their appeal in the short term can obscure longer-term costs to inflation, competitiveness and international co-operation,” Mr Ossa said in a WTO blog post earlier this week.

“In a world of growing trade tension, a clear-eyed view of those trade-offs is more important than ever.”

Sean Doherty, head of international trade and development at the World Economic Forum, said that trade technology can help small economies to navigate the current uncertainties.

“If you're a small economy, you can implement or introduce technology relatively rapidly compared to a large economy where it's maybe harder to do that. On the other hand, [in] a large economy, you sometimes have the benefits of scale and so if you're able to implement a new technology, then others will follow along,” Mr Doherty said.

“Additionally, if you're a very rich economy, clearly then you have the capital to invest in technology, but often you have legacy systems which you need to update, whereas if you're a less developed economy, you may not have that many resources, but you have the ability to leapfrog. You just need to think carefully about where you are as an economy and therefore what is the best technology strategy for you.”