ECONOMYNEXT – The United States should avoid drawing developing countries into its trade war with China by imposing increased tariffs, with some countries, such as Sri Lanka, receiving higher tariffs than others, the Head of the UN Trade and Development Agency (UNCTAD) has said.
“When the two main global economies impose tariffs, it will affect everybody, not only the economies engaged in the tariff war,” Rebecca Grynspan said.
“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.
“These countries really are making no contribution to the US trade deficit. Most of the exports that they send to the US are commodities and many of these are exempt from tariffs under the new rules. These commodities don’t compete with the US, rather they help in production processes.
“The point I want to make is that there are a number of countries that don’t really contribute to the deficit, are not important in terms of the revenue [that the US can collect from tariffs] and are not competition or a national security threat to the US.
“So, maybe we can avoid starting new bilateral agreements and negotiations and spare them the pain of the tariffs.”
Grynspan appealed to the US administration to reconsider its ‘Liberation day’ tariffs, saying that higher tariffs would only make these countries’ existing debt crisis much worse.
Tariffs placed by developing countries are often a protective measure to retain foreign reserves within the country, UNCTAD says.
“We are already in a “new normal” of low growth and high debt, and we are worried that the global economy will slow down.”
Different tariff rates are going to stimulate trade competition within the countries to land a better deal. This could hike unemployment, manipulate markets, draw major industries off highly tariffed countries and significantly affect the economies of the vulnerable countries.
“Some countries are receiving higher tariffs than others, and so you don’t know what competitive impact this will have.”
Grynspan has advocated for developing countries to trade more within regional blocs where they can have more say in negotiations with richer countries.
There is also a deepening of trade relationships in Southeast Asia with ASEAN (the Association of Southeast Asian Nations), which Sri Lanka should engage.
“These partnerships could be very important, particularly at this precise moment.”
Strengthening regional trade and diversifying markets are key to the rebound of smaller economies.
“We still don’t know where we will end up. One of the things that we are doing is trying to give the public a real account of what is actually taking place, and what is still just talk.
“The most important point is the problem of the uncertainty. 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. Investment is paralyzed because CEOs are deciding to sit and wait, which means investment will not come back at the scale the world needs,” Grynspan said. (Colombo/Apr17/2025)