Over the last decade, global trade has faced unprecedented and intensifying disruptions that have reshaped the international economic landscape. One of the most notable developments has been the prolonged trade war between the United States and China, which has not only strained relationships between two of the world’s largest economies but also sent ripples across global markets. Alongside this, a growing wave of protectionist policies –adopted by both developed and emerging countries and symbolized by the recent decisions of the Trump administration – has reversed decades of progress toward open and liberalized trade. Moreover, this has created uncertainty, increased costs for businesses, and disrupted established supply chains.
While trade wars are mostly waged between larger economies, smaller, developing nations often suffer collateral damage due to disrupted supply chains, diverted trade flows, or reduced demand.
Despite the fact they may not be direct participants, developing countries are exceptionally vulnerable to the tariffs applied by major importers, particularly when they are reliant on a narrow range of commodity exports. These nations often depend heavily on export-led growth, the trade of raw materials, and seamless integration into global supply chains to boost employment, attract foreign investment, and reduce poverty.
When tariffs rise and trade flows contract, these economies face reduced demand for their exports, currency volatility, and slower GDP growth. In some cases, key industries such as textiles, electronics assembly, or agricultural exports suffer a decline, which ripples out to affect labor markets and public revenues.
Five notable trade wars of the last decade
Highest tariffs in the world imposed by the U.S. President Trump Administration in 2025
Here’s a table showcasing some of the countries hit with the highest imposed tariff rates, often in response to geopolitical maneuvers or trade retaliation:
Impact of increased tariffs on developing economies
🔹 Export reductions
More than two-thirds of developing countries depend on the export of agricultural products, textiles, and raw materials. Tariffs reduce demand from key importers, especially the U.S., the EU, and China.
When these key markets implement tariffs – particularly steep ones of 30% – on goods from developing economies, the price competitiveness of these exports significantly diminishes. The outcome is a decline in export earnings, job losses in export-dependent industries, and reduced government revenue from trade-related taxes. These pressures can compound existing vulnerabilities in nations that already face economic constraints or high public debt.
Example: The U.S.-China trade war severely impacted soybean exports from Brazil and Argentina as supply chains shifted and demand patterns changed. Similarly, textile producers in Bangladesh and Vietnam faced declining orders when tariffs disrupted global apparel supply chains.
🔹 Supply chain disruptions
Supply chains are global. A single tariff in one country can increase costs and cause logistical disruptions for small and medium enterprises. This is particularly devastating for Small and Medium-sized Enterprises (SMEs) in developing countries, which often lack the financial or logistical resilience of larger corporations.
Recent development: According to the World Bank (2024), over 60% of SMEs in sub-Saharan Africa reported supply chain delays due to global trade tensions, with many citing reduced access to intermediate goods and spare parts. Being dependent on textile exports under AGOA, tariffs led to order reductions and job losses.
🔹 Currency instability
Trade uncertainty can cause currency depreciation in emerging markets, thus raising import costs. Trade wars and the related uncertainties often lead to capital flight and investor skepticism toward emerging markets. As investors seek safer assets, currencies in developing countries could depreciate. This currency devaluation makes it more expensive to import goods, particularly in relation to energy, technology, and pharmaceuticals, all of which are often priced in dollars or euros.
Example: During the height of the US-China tariff escalation in 2019, countries like Turkey and South Africa experienced a sharp depreciation of their currency due to global investor anxiety. This pattern recurred in 2022 when new tariffs were floated during the Russia-Ukraine conflict, triggering ripple effects even in non-belligerent developing nations.
🔹 Reduced Foreign Direct Investment (FDI)
Foreign investors seek stability, predictability, and open access to markets. When a country becomes entangled – either directly or indirectly – in a trade war, this is often viewed as high risk. This leads to a reduction in FDI, which is a vital driver for infrastructure development, job creation, and technology transfer in developing regions.
Investors fear:
- Disrupted exports
- New tariffs on supply chain inputs
- Restrictions on capital flow
- Local regulatory uncertainty created by government reactions to the trade war
Example: FDI inflows to Latin America declined by 12% in 2024 largely due to trade tensions between the US and China, which caused supply chains to reorient, leaving Latin American hubs less attractive to global investment portfolios.
Table: Impacts of trade wars on macroeconomic indicators
Impact mitigation recommendations
🔹 Diversify export markets
Developing countries often rely on a limited number of trading partners, most commonly the U.S., China, or the EU, for the majority of their export revenues. This concentration increases vulnerability to trade shocks, such as tariff hikes or sudden policy shifts. By diversifying their export markets, developing nations can distribute the risk more evenly across a broader range of economies.
Strategic actions:
- Establish trade agreements with emerging markets in Latin America, Southeast Asia, and Africa
- Participate in global trade fairs and leverage digital platforms for B2B engagement
- Leverage regional trade deals such as the African Continental Free Trade Area (AfCFTA) or Mercosur.
Case study: Rwanda has sought to reduce its dependency on European markets by expanding tea exports to the Middle East and Asia, resulting in greater pricing leverage and stability.
🔹 Strengthen regional trade
Intra-regional trade in Africa, Latin America, and parts of Asia remains significantly lower than in Europe or North America. Strengthening regional trade enables countries to buffer against external shocks, reduce logistics costs, and build stable supply chains close to home.
Strategic actions:
- Reduce non-tariff barriers (e.g., border delays, inconsistent regulations)
- Harmonize standards and customs procedures across countries in the region
- Support the development of regional payment systems and currency convertibility
- Invest in regional transport corridors (rail, road, ports) to improve connectivity
Case study: The East African Community has made significant strides in harmonizing customs rules, which has cut border crossing times for goods by up to 70%. Regional trade agreements such as AfCFTA and RCEP are emerging as alternatives to buffer global protectionism, although their implementation remains uneven.
🔹 Build Trade Resilience Funds
Trade Resilience Funds – pooled either nationally or with international support – can act as safety nets for industries, workers, and essential public services during trade disruptions.
Strategic Actions:
- Establish national stabilization funds backed by export royalties or donor grants
- Collaborate with multilateral organizations (e.g., World Bank, IMF, UNCTAD) to design emergency relief mechanisms
- Use funds for retraining affected workers, subsidizing key industries, or bridging budget shortfalls
Case study: In terms of resilience funds, only a small number of countries – mostly resource-rich, such as Botswana’s Pula Fund or Chile’s ESSF – have established sovereign wealth or stabilization funds, but most developing economies lack the fiscal space or surplus to do so. A few other developing countries, such as Angola, Nigeria, Algeria, Timor-Leste, and the Philippines, are operating similar funds at present.
Conclusion
Continued trade wars and high tariffs pose a serious threat to development trajectories.
Policymakers must prioritize trade diversification, resilience, and regional collaboration to ensure sustained progress. However, ultimately, the stakes go beyond economics. Trade wars and protectionist policies undermine the foundations of cooperation that global development depends on. If left unchecked, these tensions risk locking developing countries into cycles of dependency and volatility. That means investing in inclusive trade systems, strengthening regional value chains, and removing barriers that block emerging economies from full participation are essential. Progress hinges not just on growth but on fair access to the drivers of growth.
