The Tariff Trap: Emerging Markets Caught Between Opportunity and Risk

The U.S. tariffs under the Trump administration reshaped global trade, presenting both opportunities and risks for emerging markets. As U.S. importers sought alternatives to Chinese goods, countries in Southeast Asia, Latin America, and Africa gained new trade prospects. However, these shifts also brought uncertainty, with some nations caught in the middle of escalating trade tensions. This paper examines how the tariffs impacted trade dynamics for emerging markets, highlighting both the opportunities they seized and the challenges they faced.

Figure 1: U.S.-China Goods Trade (2024)

The escalating trade conflict, driven by tariffs, has reshaped trade opportunities and risks for emerging markets. According to a recent World Bank study, global GDP growth could decrease by 0.5-1.0 percentage points, depending on how long the tariffs last and how widely they are applied. This situation presents new challenges for emerging markets, which are increasingly woven into global supply chains. Economists warn that the potential for a global “trade war”—where nations retaliate with further tariffs or non-tariff barriers—could jeopardize emerging economies that rely heavily on exports. For example, China’s export dependence on the U.S., worth approximately $450 billion in 2024, highlights the vulnerability of emerging markets to retaliatory measures, which could disrupt their economic growth and shift trade opportunities away from traditional markets to more diversified or regional trading partners.

Figure 2: Trade in goods and services between the EU and the US, 2010-2023, in billion euros

By imposing these tariffs, the EU aims to influence the US government’s trade policies while mitigating the risks that emerging markets face due to shifting trade dynamics. The EU’s strategy involves safeguarding European businesses from the competitive pressures introduced by the US tariffs, which have led to increased costs for manufacturers that rely on US imports of aluminium and steel. This shift creates new trade opportunities for emerging markets, which may capitalize on the demand for alternatives to US-produced materials. However, it also exposes these markets to the risks of supply chain disruptions and price volatility as they navigate the changing global trade landscape.

Figure 3: US tech companies – EU Tax, 14 Aug 2017 – 5 Oct 2017

The introduction of new tariffs has reshaped trade dynamics, particularly for emerging markets. For instance, US-based tech giants like Apple, Google, and Amazon, which have significant operations in Europe, now face higher costs due to the increased taxes, estimated to generate around €5 billion annually for the EU. This shift in the economic landscape presents both opportunities and risks for emerging markets. On one hand, it could create openings for companies in these markets to fill gaps left by these US firms, particularly in the tech and e-commerce sectors. On the other hand, it poses risks for businesses reliant on US-European trade relationships, potentially increasing costs or limiting market access. The EU’s move reflects a broader shift toward more assertive economic policies, influencing how emerging markets position themselves within global trade tensions.