Trump’s tariffs hammer Global South, shrink policy space

Donald Trump’s weaponisation of trade-related tools such as tariffs represents a disruption in the global trade regime, the rules of which were championed by the Global North, and are now being broken by the largest economy of the very same bloc. 

For developing countries, many of whom have structured their economies towards an export-oriented model of growth in compliance with the global regime, the current disruptions are harmful and threaten to further erode developmental gains. 

One of the arguments used to justify the US tariffs is the need to reduce the country’s trade deficit — and to an extent this seems to be fructifying in the short run. Official figures as per the country’s Bureau of Economic Analysis showed that the country’s average trade deficit in goods and services, has decreased by $26 billion in the months of April-June, bringing the deficit to $64 billion by June end.

However, the motivation behind the tariffs also extends to a number of political factors aimed at bringing the US’ trade partners to their knees in compliance with the Trump administration’s demands, such as the imposition of an added 25 per cent on India as penalty for its imports of Russian crude oil.

Tariffs are not the only weapon being used in this process; Trump is also deploying oil and natural gas diplomacy or demanding greater control over the critical minerals supply chain in bilateral discussions with partners, to achieve his administration’s economic aims and political agenda. The resultant impact on developing countries could be devastating in the long run, if the aims are achieved without pushback. 

Developing countries face brunt of tariffs

Brazil is one of the few countries with whom the US has a trade surplus, which means they import more from the US than the goods and service they export. Nonetheless, Trump has imposed 50 per cent tariffs on the country, citing the ‘persecution’ of former President Jair Bolsonaro by the Brazilian government and the Supreme Court. 

Tariffs of up to 50 per cent on India has been a result of the country buying Russian oil which is seen as a threat to the US’s ‘national security and foreign policy’, as per an executive order by Trump. Experts have argued that the Indian exporters in sectors such as textiles, gems and jewellery, and chemicals, among others, could lose their competitive edge to countries such as Vietnam, Bangladesh and China.

While India has justifiably stood its ground rather than ceding to pressure, estimates showed that $37 billion of its exports could be hit this year, particularly in sectors such as textiles, in which MSMEs dominate almost 80 per cent of the production capacity.

Initially, Trump had also put a ‘reciprocal tariff’ of 46 per cent on Vietnam in April 2025 but the latter brokered a deal with the US that reduced their tariffs to 20 per cent. While the negotiations are ongoing, the concessions made by Vietnam include a tariff-free access to the imports of US, with an additional purchase of defense equipment such as F-16 fighter jets. 

Notably, a tariff of 40 per cent has been kept by the US on products that are trans-shipped through Vietnam. This is in the context of the US accusing the country of exporting goods that are actually made in China but exported through them, thereby impacting the US’s trade deficit with China.

Vietnam wants to become a high-income country by 2045 and to achieve that, it needs the access to the US and EU markets for their exports, as well as Chinese foreign direct investments (FDI) that facilitates their domestic industrial expansion. Thus, negotiating the US tariffs becomes even more complicated, as it exposes them of being caught in a crossfire between the two largest economies.

Ceding hard-won policy space to placate a global hegemon 

With Trump’s brute force exertion of political pressure through tariffs rather than diplomacy, developing countries are making costly concessions to accommodate the US. This is disrupting policies crafted over decades that were intended to advance their development pathways, especially in the context of horizontal and vertical diversification of their natural resource endowment. Last month’s Indonesia-US trade is one such example.

In its ‘reciprocal trade’ deal with Indonesia, the US first offered to reduce tariffs from 32 per cent to 19 per cent, as shared in the joint statement. But the benefits end there.

On the contrary, the US has been given a plethora of benefits. First, Indonesia will eliminate around 99 per cent of tariff barriers for a full range of US industrial, food and agricultural products that are exported to them.

Second, it offers to exempt US companies and originating goods from the country’s local content requirements (LCR). This policy tool has been a cornerstone of the country’s industrial development, especially in the automotive industry since 1974. The LCR policy played a crucial role in increasing industrial output and employment in the country, although there was a trade off with regard to higher input costs and consumer prices.

Third, and one of the most important terms of the trade deal, is that Indonesia would remove the restrictions on their exports of industrial commodities, including critical minerals. To put that in context, Indonesia is home to 42 per cent of the world’s nickel reserves and 51 per cent of global mine production, and has become a global case study for developing countries aspiring to assert control over their natural resources.

In January 2020, Indonesia reinstated a ban on the exports of raw nickel and foreign players were required to invest domestically in nickel-processing factories and smelters. The export ban on nickel was crucial to ensure that the primary commodity is processed to develop the industry for stainless steel and batteries in electric vehicles (EV), which would allow a greater value of nickel to be captured domestically.

Diluting this policy lever is not just about the economic impact it may have on the country but more importantly, it also hinges on the larger issue of developing countries’ exercising resource sovereignty, especially in the context of rising protectionism and the contours of a new green economy.

The US deal, while not yet cemented and may still evolve as discussions continue, spotlights the asymmetric power relations between the US and its developing country trade partners, especially the extent to which it can damage their development trajectories on a whim.

Although the US has worked out the contours of its bilateral deals with most of the countries but the discussions are still ongoing. Additionally, there are no timelines and enforcement mechanisms for the terms of trade. Thus, the country’s commitment of holding their end of the bargain could be strategic based on their domestic circumstances and relations with the US. However, it is imperative for other developing countries to urgently envision a robust response and strategy to navigate this reality.  

Strengthening the case for Global South solidarity

Developing countries are adopting various approaches to respond to the tariffs. For instance, in lieu of devising retaliatory tariffs, the Association of Southeast Asian Nations (ASEAN) countries are evaluating the potential consequences of it on their local industries and simultaneously negotiating with the US as individual countries, as well as preparing a common regional response that emphasises the importance of multilateralism. 

It is becoming increasingly evident that countries, especially in the Global South, need to act as a collective to gain better leverage against such volatile protectionist measures from the Global North.

Deepening regional economic integration by reducing barriers to trade and investment within existing blocs such as ASEAN, BRICS and AfCTA may be more effective than individual countries imposing higher tariffs on US goods, some have argued. Additionally, it may open up opportunities for countries to enhance market diversification and reduce their dependency on a single player, especially in the long run. 

The top political leadership of BRICS have increased their interactions within the bloc in recent months and expressed support for each other in the face of unilateralism and protectionism.

Furthermore, Brazil’s President Luiz Inàcio da Silva has called for a BRICS meeting this week for a discussion on Trump’s tariffs.

Additionally, there is a strong historical precedent of Global South solidarity in opposing the colonial and imperial forces which could lend itself in accelerating negotiations on new trade and investment deals. 

While it has been argued that the deals being agreed with Trump are mainly rhetoric to placate the US in the short term, it is an opportune moment for developing countries to use the disruption of the current landscape to rewrite global trade rules, explore what localisation could mean in today’s world and safeguard their development and decarbonisation trajectories.