US tariffs could shrink global trade by 3%: UN economist

United Nations: Global trade could shrink by three per cent and exports could see a shift from markets such as the US and China to India, Canada and Brazil due to tariffs imposed by the US, a top UN economist has said. US President Donald Trump unveiled a massive tariff plan last week. The White House later announced a 90-day pause on “reciprocal tariffs” for most countries except China, which in turn decided to impose 125 per cent tariffs on US imports.

“Global trade could shrink by 3 per cent, with significant long-term shifts in trade patterns and economic integration," International Trade Centre Executive Director Pamela Coke-Hamilton said in Geneva on Friday.

"For example, exports from Mexico—which have been highly impacted—are shifting from markets such as the US, China, Europe and even other Latin American countries, with modest gains instead in Canada and Brazil, and to a lesser extent, India,” she said.

Similarly, Vietnamese exports are redirecting away from the US, Mexico and China, while increasing substantially towards Middle East and North Africa (MENA) markets, the EU, Korea and others, she said.

Citing the example of apparel, Coke-Hamilton said that textiles is a top industry in terms of economic activity and employment for developing countries.

In this context, she said that Bangladesh, the world’s second-largest apparel exporter, would face a reciprocal tariff of 37 per cent, should it come into effect, which could lead to a loss of $3.3 billion in annual exports to the US by 2029.   

She added that a key part of the solution for developing countries to navigate any global shocks—be it a pandemic, climate disaster or sudden changes in policies—lies in prioritising three areas -diversification, value addition and regional integration.  “So there are opportunities for developing countries not just to navigate times of uncertainty, but to proactively prepare for the long haul,” she said.

Coke-Hamilton said that initial estimates, developed with the French economics research institute CEPII, calculated before the announcement of the 90-day pause and the additional tariff hikes on China, indicate that by 2040, the effect of the so-called “reciprocal” tariffs and initial countermeasures could reduce global GDP by 0.7 per cent.

Countries like Mexico, China and Thailand—but also countries in Southern Africa—are among the most affected, alongside the United States itself.   On China's decision to impose 125 per cent tariffs on US imports, Asia Society Policy Institute (ASPI) Vice President and Managing Director, Washington DC Wendy Cutler said that with China’s announcement of further tariff hikes against US imports, it’s clear that hopes that China would blink first in this trade war are misplaced.

“China is in for the long haul. Beijing has also admitted that it has reached the endpoint in retaliating with tariffs, perhaps signalling that it has lots of other tools in its arsenal that could be activated further should the US respond today with additional measures,” she said.

She added that the steep tariffs now in place—145 per cent for Chinese imports to the US and 125 per cent for US imports to China—virtually halt all goods trade between the two largest economies in the world.

“How long these tariffs remain in place is an open question, but at some point, both Washington and Beijing will recognise the need to re-engage and manage this deteriorating situation,” she said.

ASPI's Vice President of International Security and Diplomacy Daniel Russel said that Chinese President Xi Jinping isn’t backing down, but he’s not blowing things up either.

He’s “betting that Trump’s tariff tantrum will collapse under the weight of the US market response,” Russel said.

He added that Beijing is shifting away from symmetrical retaliatory tariffs, signalling that it’s done playing Trump’s escalation game and instead is playing for the long-term strategic advantage.

“By declaring it will ‘ignore’ future US tariff hikes, Beijing is not trying to win the trade war—it’s trying to outlast it and to outmanoeuvre Trump. Beijing’s goals are to buffer its economy, expand diplomatic clout, and keep pressure on US allies to hedge. Xi’s Southeast Asia tour is part of a strategy to shore up China’s economic ties in the region while Washington lashes out and alienates its partners,” Russel said.