Tariff escalation is particularly damaging for poorer countries, warns UN report

A new United Nations report expects a disturbing to gloomy trade and economic outlook for the world’s poorer countries in 2026. The UN team does not dare to lay the blame on US President Donald Trump’s tariff blitz but signs are already visible that poor people have begun to suffer from its destabilizing effects.

A chief implication is that in trying to enrich Americans, Trump may be triggering more poverty around the world that could worsen income inequalities, social unrest, terrorism and violence within nations.

These are disturbing prospects against the current backdrop of the Russia-Ukraine war of attrition, the many cruel Jihadist wars across Africa’s Sahel region, and Israel’s continuing strikes on Gaza, the West Bank, Lebanon and Syria.

Highlighting fragilities, UNCTAD, the UN trade and development agency, pointed out that this year’s trade uncertainties are “particularly damaging to smaller and vulnerable developing economies which are asymmetrically affected by tariff escalation and face mounting debt service costs and climate crises”.

“The asymmetry is striking. Economies of the global South today account for over 40 per cent of global output, more than 50 per cent of foreign direct investment inflows and more than 40 per cent of trade,” it noted

Importantly, world trade has evolved beyond the chain of suppliers that has dominated expert discussions in recent years. It is also, notably, the chain of credit lines, payment systems, currency markets and capital flows without which even the most carefully aligned supply chains for goods and services cannot function.

UNCTAD’s annual 2025 report published this month reminds us that behind every shipment, there is a credit line; behind every container, an exchange rate; and behind every trade route, a network of banks.

A critical but often overlooked fact is that over 90% of world trade now depends on trade finance. This means that banks, platforms that clear transactions, and complex financial instruments like derivatives determine who can trade, on what terms and at what cost.

These vital financial enablers of world trade are firmly controlled by the US, and to a lesser extent by the EU, which implies that they can coerce or even throttle any small country’s trade at will by limiting access to financial clearing networks. They can use punitive sanctions to force developing countries to obey their political demands, such as punishing Russia by stifling its oil exports.

Large trading countries like China, India, Indonesia and Brazil can resist coercion to some extent but most others cannot do so. Unlike trade in goods, which is diversified, global finance remains highly concentrated leaving much of the global South on the margins.

The increasing role of financial mechanisms has transformed commodity markets, which are the mainstay of poor country exports. It is now a matter of concern that commodity pricing increasingly reflects financial strategies of intermediaries rather than actual supply and demand. For instance, in global food systems, financial manipulation accounts for over 75 per cent of the earnings of major trading companies.

Producers in developing countries struggle to compete against large multinational enterprises that exploit financial markets for pricing advantages. The share of merchandise exports from developing countries has grown from roughly 30 per cent in 2000, to over 45 per cent today. But they remain peripheral to the equity and bond markets that finance long-term development.

For instance, the West’s market capitalization stands at over three times that of all the other countries, with 40 per cent of the global bond market residing in just the US.

“Sitting on the periphery means that developing countries access credit on far more expensive terms and operate with financial infrastructure lacking the depth and liquidity to support domestic capital formation,” the report said.

US tariffs disproportionately harm developing countries by making exports less competitive, raising costs for consumers in poorer nations, and hindering their long-term development by limiting market access to the crucial U.S. market. They reduce demand for key poorer country exports, e.g., agriculture and textiles, causing job losses, increasing poverty through higher food and other goods prices, and forcing weaker nations to find new markets despite intense global competition.