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Poor and vulnerable countries, including the Philippines, will be the most impacted by the sweeping tariffs imposed by the Trump administration on all foreign-origin goods coming to the United States (US), according to the United Nations Conference on Trade and Development (UNCTAD).
UNCTAD, an intergovernmental body within the UN that supports developing countries to access the benefits of global trade, condemned recent trade escalations that could potentially upend low-income economies.
US President Donald Trump announced during the so-called “Liberation Day” on April 2 a 10-percent baseline tariff on all imports to the US, along with a higher reciprocal tariff on countries with which America has a trade deficit.
This unprecedented move, framed by Trump as a measure to strengthen American manufacturing, rattled stock markets across the globe.
As major economies prepare for retaliation—with trade giant China recently announcing additional 34-percent tariffs on US goods—this could brew a devastating trade war.
Despite their minimal responsibility for global trade imbalances, developing countries are poised to bear the brunt.
In a statement, UNCTAD said this incoming “critical phase” in global trade threatens growth, investment, and development progress for vulnerable economies.
“This hurts the vulnerable and the poor. Trade must not become another source of instability. It should serve development and global growth,” said UNCTAD Secretary-General Rebeca Grynspan.
Grynspan said developing countries are the least equipped to absorb unpredictable changes, yet they are now facing severe penalties.
Based on UNCTAD’s analysis, only 10 countries out of the nearly 200 trade partners of the US account for almost 90 percent of its trade deficit.
However, least developed countries and small island developing states, accounting for just 1.6 percent and 0.4 percent of the US trade deficit, respectively, are also affected.
For instance, the tiny Australian territory of Norfolk Island, with a population of about 2,000 people, was slapped with a 29-percent tariff.
Rather notably, the Trump administration’s seemingly brazen tariff strategy also covered the Heard and McDonald Islands, which is largely inhabited by wildlife.
While this could be observed as a “lapse” from the US government, there is no laughing matter for developing Southeast Asian countries such as Cambodia, Laos, and Vietnam, which were hit with higher tariff rates.
Cambodia is facing a region-high 49-percent tariff, while Laos and Vietnam are met with 47 percent and 46 percent, respectively.
The Philippines, which has a US trade deficit of $4.9 billion, is hit with a 17-percent tariff.
“They will neither help balance the trade deficit nor generate significant revenue,” UNCTAD pointed out.
As a result of these tariffs, the UN body emphasized that low-income economies will have “a perfect storm of worsening external conditions, unsustainable debt levels, and slowing domestic growth.”
It noted that unpredictability and uncertainty in trade are serious obstacles to growth and planning.
The World Trade Organization (WTO) estimates that the ongoing challenges could lead to an overall contraction of around one percent in global merchandise trade volumes this year, which represents a downward revision of nearly four percent from previous projections.
In a separate statement, WTO Director-General Ngozi Okonjo-Iweala fears that further declines in trade could be on the horizon if tariffs continue to be imposed.
“Trade measures of this magnitude have the potential to create significant trade diversion effects,” Okonjo-Iweala said, referring to the shift of trade from a more efficient supplier to less efficient ones.
“I call on members to manage the resulting pressures responsibly to prevent trade tensions from proliferating,” she added.
Based on its website, the WTO has 166 member nations, accounting over 98 percent of global trade.
Moving forward
Given the impact on developing nations, UNCTAD stressed that pursuing dialogue and negotiation is vital to pursue a beneficial trade reform.
This reform, it said, should look into addressing trade imbalances, concentrated gains, and outdated rules “without sacrificing those least responsible.”
“Global trade rules must evolve to reflect today’s challenges, but they must do so with predictability and development at their core, protecting the most vulnerable,” said Grynspan.
UNCTAD said governments should swiftly reconsider the tariffs imposed on vulnerable countries, as these measures could inflict great pain on millions of people.
While the Philippine government is not yet seeing a substantial impact on Filipinos, this could soon be realized through monetary tightness.
In a radio interview last week, Philippine Exporters Confederation Inc. (Philexport) President Sergio Ortiz-Luis Jr. said financial institutions may soon raise interest rates and tighten lending to fight potential inflation in the US.
He said this would threaten Filipino workers in the US, in terms of their remittances back to their families in the Philippines.
For exports, however, there is an opportunity to boost their competitiveness since the country is facing lower tariffs compared to their regional trade competitors.
“Our competitiveness will not be eroded. To a certain degree it might even turn into an advantage because even if we increase our prices, our competitors can’t match ours as they have to adjust their prices against much higher tariffs on their products,” said Ortiz-Luis.
The Philexport head said he anticipates all exporters to raise the prices of their US-bound goods, although the Philippines would not raise as much with its lower tariffs.
He nonetheless acknowledged that there are still potential risks for the country since the US might make changes later.
