US president Donald Trump’s tariffs – which reflect the view that economic interconnectedness is a strategic weapon to wield, rather than a shared opportunity to cultivate – are likely to entrench, and even widen, the divide between rich and poor countries.
While US president Donald Trump’s “reciprocal” tariffs have been the subject of much discussion and analysis, their impact on developing economies has not received nearly as much attention as it deserves.
In fact, Trump’s tariffs – which reflect the view that economic interconnectedness is a strategic weapon to wield, rather than a shared opportunity to cultivate – are likely to entrench, and even widen, the divide between rich and poor countries.
We analysed 88 economies affected by the US tariffs announced on July 31 and which took effect last month, including the European Union’s 27 economies (disaggregated), but excluding eight statistical outliers (the four richest and four poorest economies).
We found a statistically significant negative correlation, -0.34 (p≈0.0012), between those tariffs and countries’ per capita GDP. Put simply: the lower a country’s income, the higher the tariff burden it is likely to bear.
For the 42 economies with per capita GDP below US$10,000, the average tariff rate is 20.3%. For the 19 economies with per capita GDP above US$35,000, that rate falls to just 14.5%.
This flies in the face of the World Trade Organization’s (WTO) Generalized System of Preferences, which has historically granted developing economies, especially least-developed countries, preferential treatment.
Low-income economies typically depend on exports, often to advanced-economy markets, of a narrow range of primary commodities or low-end manufactured goods with narrow profit margins (often less than 5%). Textiles account for about 44% of Sri Lanka’s exports (25.5% of which went to the US in 2022) and provide a third of its manufacturing jobs.
In Bangladesh, garments make up 83% of exports, with nearly one-fifth going to the US in 2025. Because such countries wield little pricing power in global markets, higher US tariffs leave their exporters with two options: slash prices or surrender market share. Either way, a decline in foreign-exchange earnings is all but inevitable.
Many developing countries rely on foreign exchange to service their external debts and pay for essential imports (such as fuel and food). As the squeeze in dollar revenues undermines their ability to repay their debts, depreciation pressures on local currencies will grow, further exacerbating the debt burden. Whatever fiscal space countries might have had for investment in critical needs like infrastructure, education, and healthcare will vanish.
In 2022-23, this vicious cycle of lagging exports, foreign-exchange shortfalls, and mounting debts forced Ghana to suspend debt payments, drove Sri Lanka into sovereign default, and caused Argentina’s currency to collapse.
Now, a new wave of debt and currency crises may be forming – caused not by a conventional financial shock or commodity slump, but by a deliberate policy pursued by the world’s largest economy.
But the consequences of Trump’s tariffs extend even further. The WTO grants preferential treatment to low-income countries not only to enable them to increase their export revenues, but also to help them attract foreign direct investment (FDI) – with all the associated technology and employment generation – and leverage economies of scale to support industrialisation.
By placing higher tariffs on developing economies, the Trump administration is doing the opposite, effectively discouraging multinational firms from establishing factories in these countries.
In 2023 (the latest year for which data is available), developing economies received just US$435 billion in FDI – the lowest level since 2005. As trade and investment barriers rise, this figure can be expected to fall further.
With investment and technology inflows drying up and access to foreign markets constrained, the prevailing development strategy – export-oriented industrialisation – will become inaccessible to a growing number of lower-income countries, which will remain dependent on activities like primary-commodity extraction and low-end manufacturing.
In this sense, Trump’s tariffs, by impeding development in the countries that need it most, almost seem to be deliberately designed to exacerbate global inequalities. At the same time, the US will also pay a high price; as global demand declines, debt risks proliferate, and geopolitical instability grows.
There is a chance that the world will avoid this fate: a US federal appeals court has ruled that Trump’s reciprocal tariffs are illegal, setting the stage for a legal showdown.
But rather than fight to preserve the illusion of “reciprocity” in tariff schedules, the Trump administration would do well to embrace inclusive rules that narrow disparities and enable developing economies to thrive.
Qiyuan Xu is a senior fellow at the Chinese Academy of Social Sciences. Yutao Huang is a research fellow at the Chinese Academy of Social Sciences.
The views expressed are those of the writers and do not necessarily reflect those of FMT.
