Policy Brief 143, 28 May 2025
Impact of Global Trade Tensions on Developing Countries: How to respond to a reset of the global economic system
By Yuefen Li
The recent unilateral, significant and broad-ranging tariff hikes by the new United States administration have triggered unprecedented trade tension in the world and led to significant downward revisions of the world’s economic and trade growth projections for 2025 and beyond. The main aims of the U.S.’ trade policies are complex and strategic, not only about reducing the trade and fiscal deficits, but also addressing the dollar overvaluation problem, “reconfigur(ing) the global trading and financial systems to America’s benefit”, promoting economic “fairness” and “making America great again”. As what has frequently happened before, the poor countries are disproportionally affected by the negative repercussions of these policies, owing to their financial and capacity constraints and weaknesses to absorb the impact. This short paper analyses through which channels and to what degree trade tension would introduce economic, financial and political stability risks for developing countries, particularly in financially distressed developing countries. A few policy recommendations are also briefly mentioned.