A New Paradigm of Trade and Development? Potential Effects of Trump’s Tariffs for Emerging Markets

As deglobalization trends like the recent universal tariffs announced by President Donald Trump arise and geopolitical tensions and conflicts continue to generate supply chain disruptions, many trade-reliant emerging markets are taking a reactive stance and rethinking their long-term development paradigms. Uncertain context raises concerns on the implications of universal tariffs for these economies and considerations they must account for when formulating their growth strategies.

Trade and manufacturing

A first-layer insight on the universal tariffs would be that the Trump administration wants to leave behind multilateral approaches and negotiate with each country to reduce or eliminate trade deficits. A second-layer insight is that the administration is looking to have companies that moved production abroad bring manufacturing and jobs back to the U.S.

Looking ahead, trying to turn the U.S. trade deficit into a surplus through universal tariffs may bring about unemployment and inflationary wage adjustments. This is relevant as production capabilities are regionally distributed, and the U.S. is already positioned in the higher value-added segments of most value chains. As an example, according to Harvard University’s Atlas of Economic Complexity, U.S. exports rank among the most complex globally (the most value-added) while being also the global leader in services exports, according to the United Nations Commission on Trade and Development (UNCTAD).

If tariffs were to remain, the U.S. could face inflationary pressures as production inputs become more expensive. Unemployment could increase as inflation hampers demand and production; wages may see downward pressure as low value-added manufacturing jobs return to the U.S.

Negotiation, integration opportunities – Emerging markets could see a wide range of outcomes from tariff turmoil.

Countries impacted by the tariffs, including emerging markets, have a few short-term options: they can retaliate; find new markets for their exports; comply with U.S. demands; or select multiple options. Some emerging economies like Vietnam, Malaysia, and Mexico, which rely on international trade, are faced with a dilemma: on one hand, they want to continue exporting to the U.S., not only because it is a large and attractive market, but also because they are already integrated in automotive, electronics, and machinery sectors. On the other hand, these and other emerging markets must find new trading partners since the deglobalization and managed trade trends do not seem to be going away.

While China may be better positioned for a trade war with the U.S., most emerging markets will have to juggle between diversification and negotiation/compliance with U.S. terms, as retaliation might cause more problems than it would solve.

However, the universal tariff policy could create a window of opportunity for emerging economies to diversify their exports and create new trade blocs. Although trade negotiations can take several years, incentives can shorten that timeline. For example, the United Kingdom has signed trade agreements with over 70 countries, including rollover deals with 63 countries, since it left the European Union. This would not be new to many of those emerging economies, since according to the UNCTAD’s 2024 Trade and Development Report, South-South trade (between developing countries) has more than doubled to $5.6 trillion from 2007 to 2023.

Shifts in manufacturing and assets

While international trade became a growth engine for developing economies during the last few decades as many focused on low-complexity manufacturing through labor cost advantages, it is now an obsolete strategy. According to the UNCTAD, global manufacturing-led export growth is declining, while services-led export growth is booming. To the extent that emerging economies and their private sectors transition from low- to high-complexity manufacturing and services, innovation and higher productivity will follow, which in turn could help them become higher-income economies.

There is, however, a caveat. Modern high-complexity manufacturing and the development of intangible assets (e.g., brand, software, data, and patented technology) are capital-intensive and require a highly technical workforce, which cannot be achieved without developed domestic capital markets, innovative regulatory frameworks, and STEM programs that foster innovation. These conditions are usually insufficient in emerging markets. This weakness, combined with an uneven playing field between developed and developing countries, will be a barrier for emerging economies unless they solve it.

About the author

Pedro De La Rosa, MBA ’25, is an Emerging Markets Institute Fellow at the Samuel Curtis Johnson Graduate School of Management. Passionate about finance, trade and development, he was an investment banking summer associate at New York Bay Capital, focusing on capital raising for private transactions in Latin America. Pre-MBA, De La Rosa was a senior economist at the Embassy of Mexico in Washington, D.C., where he promoted foreign direct investment and cross-border supply chains between the U.S. and Mexico.

All views expressed in articles published on the Emerging Markets Institute webpage are those of the author(s) and should not be taken as reflecting the views of the Emerging Markets Institute.