|
||
|
TWN
Info Service on UN Sustainable Development (Jul25/04) Geneva, 10 Jul (D. Ravi Kanth) — Amidst the growing threats of rising tariffs by the United States, the United Nations Department of Economic and Social Affairs (UN-DESA) has estimated the direct impact of increased US tariffs on the exports of the least developed countries (LDCs) and those that recently graduated. In a paper titled “Tariff shocks and graduation from the least developed country category”, UN-DESA called for a rethink of the graduation status of the LDCs, particularly for those nearing graduation from the LDC category. According to the paper, international support for LDCs, especially through trade preferences like duty-free quota- free (DFQF) access, has aimed to integrate LDCs into the global economy. Over $70 billion in LDC exports benefited from DFQF schemes in 2022. Participation in trade has helped countries approach graduation thresholds across three key criteria: income, human assets, and vulnerability, it said. It said merchandise exports, particularly garments and other labour-intensive goods, have driven structural transformation in many graduating LDCs. Countries like Bangladesh, Cambodia, and Lao PDR have become global export players. The US has been one of the main markets for many LDCs; however, with rising tariffs of the US, the current and future development prospects of LDCs have become more challenging, said the paper. In April 2025, the United States imposed a baseline 10 percentage point tariff increase on all trading partners, with further hikes tied to bilateral trade deficits. For many LDCs, this pushed effective tariffs to levels unseen in over a century, it pointed out. For example, Cambodia’s trade-weighted average US tariff could rise from 5.2% to 53.6% if all increases are enacted. While a 90-day pause has delayed some of these hikes, uncertainty persists, deterring investment and trade planning, said the paper. Notably, it said that LDCs most integrated into US markets – especially garment exporters – are also among the most affected. Graduating LDCs face average tariff hikes from 9.8% to 53.6%, compared to 1.5% to 28.4% for non-graduating LDCs. The export impacts are severe, it said. Using the SMART simulation model, UN-DESA estimates that a 10% tariff hike would reduce aggregate LDC exports to the US by 21%, from $24.4 billion in 2024. If full tariff increases are implemented, the decline could reach 77%. According to the paper, the analysis is undertaken for each of the 47 LDCs (including those which have or are about to graduate) providing a scenario of a 10% increase in the effective tariff rates and a full country-wise tariff hike post 90-day pause. Bangladesh and Cambodia would face the steepest losses – $1.8 billion and $1.6 billion, respectively – under the baseline hike. Under the full tariff increase, exports could drop by $6.7 billion and $7.7 billion, respectively, said the paper. In terms of percentage changes in exports to the United States, countries which will experience more than 85% decline include Lesotho, Madagascar, Guinea-Bissau, Vanuatu, Lao PDR, Cambodia and Myanmar. These declines threaten job losses, particularly for women, given that garment sectors in many LDCs employ a predominantly female workforce (e.g., 80% in Cambodia), it added. Moreover, preferential schemes like the African Growth and Opportunity Act (AGOA) – benefiting 20 African LDCs – are set to expire in September 2025. Non-renewal would force these countries into less favourable tariff regimes, compounding their competitive disadvantage, said UN-DESA. Although rising tariffs on major exporters like China and Viet Nam may offer some trade diversion benefits for LDCs, gains are uncertain and likely to be limited, it added. In the 2018 tariff conflict, Cambodia gained market share in US solar panel imports, rising from 0% in 2017 to 9% in 2023. But unlike that episode, the current tariff regime includes potential hikes on LDCs themselves, limiting their ability to capitalize on such shifts, said the paper. Additionally, the unpredictability of US trade policy discourages long-term investments and supply chain shifts into LDCs, further dampening potential benefits. The paper said that beyond trade, tariff shocks affect LDCs through investment, debt, and currency channels. Many LDCs have already suffered currency depreciation – 11 countries saw more than 30% depreciation from 2022 to 2023 – raising debt service burdens and squeezing fiscal space. The compounded effect is a likely slowdown in GDP growth, it added. UN-DESA cut its LDC growth forecast to 4.1% in 2025 and 3.8% in 2026, well below the 7% SDG target. For graduating countries, this undermines the financial and social support needed to sustain their transition, it said. The paper argued that LDC graduation prospects are impacted primarily through three channels. First, trade with both the United States and other partners is impacted. Impacts are country-specific, depending on future tariffs on both the LDC and its competitors, the importance of merchandise exports overall and of the United States market in particular. On average, graduating LDCs are affected more than LDCs that are not yet graduating, said the paper. However, looking forward, effects can also be discerned on the prospects of several LDCs that are approaching the graduation pipeline. Second, the growth channel reduces the future income of LDCs, not only because of reduced exports but also because of increased uncertainty affecting economic activity more broadly, possibly further delaying future graduations. As a third channel, the reduced export earnings affect the balance of payments position of LDCs, possibly creating financial risks, especially for LDCs with high external debts, said the paper. The paper concluded by suggesting that to pursue a collective approach, solidarity will be critical, both within LDCs and between LDCs and other countries and country groupings in various forums, if the uncertainty of tariff regime in the US has to be tackled. Individually, even larger LDCs have only a marginal economic or political weight in the international arena. Hence, despite the heterogeneity among LDCs on trade issues, acting as a group and using their established group structures under the United Nations and WTO, would increase leverage in international discussions, it said. There is a need to collectively rethink and rework the pathways out of the LDC development category, it added. +
|
||
