Read more about the article The Global Impact of President Trump’s Reciprocal Tariffs: Implications for Developing Countries

The Global Impact of President Trump’s Reciprocal Tariffs: Implications for Developing Countries

President Donald Trump's "Reciprocal Tariff" policy, announced on April 2, 2025 (dubbed "Liberation Day"), represents one of the most significant shifts in U.S. trade policy in nearly a century. Trump’s policy imposes a baseline 10% tariff on all imports and additional country-specific tariffs that range from 10% to 50% for countries designated as having "non-reciprocal trading practices" with the U.S. These specific tariffs are determined based on each country’s bilateral trade balance with the U.S. Postponements and bilateral trade negotiations started after April 9, 2025. This paper develops a two-country general equilibrium model to analyze the economic implications of the originally announced “Reciprocal Tariff” policy, with particular emphasis on developing countries. Initially characterized by a trade deficit in the U.S. and asymmetric tariff structures, the model explores the effects of the U.S. unilaterally raising its tariffs to match those of its trading partners. We incorporate comparative advantage (CA), sectoral heterogeneity, and the interaction of tariff policy with monetary policy. The results suggest that while tariff equalization can reduce trade imbalances and improve U.S. terms of trade, it generates efficiency losses and results in ambiguous welfare outcomes. A calibrated policy mix is required to balance trade, inflation, growth, and equity objectives. While the administration framed these tariff reciprocal measures as essential for addressing trade imbalances and strengthening American manufacturing, our analysis identifies significant economic repercussions for developing economies. Key findings include the disproportionate impact on developing nations with export-oriented growth strategies, disruption of global value chains, potential reversal of development gains, and acute vulnerability for many African and Asian nations that face some of the highest tariff rates. The policy would likely trigger structural economic changes in the global trading system, with implications that extend well beyond the immediate tariff impacts.

Continue ReadingThe Global Impact of President Trump’s Reciprocal Tariffs: Implications for Developing Countries
Read more about the article From Bretton Woods to Braided Path: Navigating MDB Dynamics Amid Global Shifts

From Bretton Woods to Braided Path: Navigating MDB Dynamics Amid Global Shifts

Within an ever-evolving system of multilateral development banks (MDB) currently reshaped by four structural geo-economic trends, the emergence of new MDBs like the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB) carries great geopolitical significance. Yet the new MDBs, attuned to institutional and operational realities, have not upended the MDB system. Their relationship with long-established MDBs such as the World Bank currently resembles not a fork in the road, but a braided path–marked by both convergence and divergence, cooperation and manageable competition.

Continue ReadingFrom Bretton Woods to Braided Path: Navigating MDB Dynamics Amid Global Shifts
Read more about the article Growth Implications of a Fractured Trading System

Growth Implications of a Fractured Trading System

- The costs are greater the deeper the trade fragmentation. - Reduced knowledge diffusion due to technological decoupling is a powerful negative amplifier of the trade channel. - Emerging markets and low-income countries are most at risk from trade and technology fragmentation. - Transition costs can be considerable, in some cases even exceeding the final trading impact. - The estimates provided are not the upper bound. The G20 might not address issues of national security directly, but there's much they can do, especially regarding the trade-offs between resilience and efficiency, designing policies to avoid resorting to the least discretionary breadth.

Continue ReadingGrowth Implications of a Fractured Trading System
Read more about the article Africa’s Minerals Will Shape the Future of Global Power

Africa’s Minerals Will Shape the Future of Global Power

As the US-China rivalry intensifies, both powers are courting mineral-rich African countries in an effort to secure critical raw materials. Translating Africa's vast natural-resource wealth into lasting development requires an infrastructure-led strategy that delivers long-term value for local communities.

Continue ReadingAfrica’s Minerals Will Shape the Future of Global Power
Read more about the article The Spring of Tariff Regret

The Spring of Tariff Regret

The IMF has reviewed the global growth downward, highlighting the impacts of Trump's tariff war and warning about financial and economic risks. Although the negative effects of tariffs have already been “somewhat priced in,” according to Tobias Adrian (IMF), equity and bond prices could “certainly” fall further if negotiations fail. So, it’s either successful negotiations or further stress and downgrades.

Continue ReadingThe Spring of Tariff Regret
Read more about the article Capital, Labor, and Land in the Digital Transition

Capital, Labor, and Land in the Digital Transition

The digital revolution is bringing about a dramatic shift in power, from labor to capital. We assess what the impact of this transformation might be on land as a factor of production. The digital revolution is not happening in a historical vacuum. It unfolds within a framework of confrontation or collusion between market forces and government forces. Depending on the market power that companies can exercise, the digital transition will have different impacts on income distributions between capital, labor, and land, as well as on income distribution within capital itself. This digital transition is advancing during a period of history marked by the worsening of four major crises, the effects of which are interconnected: international, environmental, democratic, and distributive. Urban land management, based on collective purpose, must be recognized as a strategic asset in building a future in which progress is guided by equity, resilience, and social responsibility, with human dignity and the environment at the center of decisions.

Continue ReadingCapital, Labor, and Land in the Digital Transition
Read more about the article The Automotive Transition on the Road to Decarbonization

The Automotive Transition on the Road to Decarbonization

The road to decarbonizing the planet runs through the energy transition, which includes the shift from fossil-fueled cars to renewable energy vehicles. This automotive transition is unfolding as a true revolution in the industry. The evolution toward electric and hybrid vehicles has come in tandem with the ascent of Chinese producers. In the current context of geopolitical and technological rivalries, the automotive transition has been marked by an intense trade war, with implications for the trajectory of decarbonization.

Continue ReadingThe Automotive Transition on the Road to Decarbonization
Read more about the article Pathways for Reconciling New Industrial Policy and International Cooperation for Global Goods

Pathways for Reconciling New Industrial Policy and International Cooperation for Global Goods

The resurgence of Neo protectionism as a reality is creating a pressing need to establish New Industrial Policies (NIPs) capable of striking a balance between Global Value Chains (GVC) managers' quest for efficiency and policy makers' need for more increasing resilience or national security in a turmoiled geopolitical landscape. Furthermore, although NIPs might pursue legitimate non-economic objectives, they are often captured by vested interests, resulting in protectionist measures. These policies produce negative spillovers, jeopardizing other countries’ development perspectives. This policy brief posits that countries embracing industrial policies with trade diversion components must allocate efforts to implement additional trade liberalization in sectors where the affected exporting countries have comparative advantages as compensation for the negative spillovers their unilateral domestic policies impose on third countries. This highlights the need to establish a structured system that penalizes protectionist countries for exceeding predetermined limits on subsidies and distortive measures. This policy brief also recommends that advanced economies implementing industrial policies with high amounts of embodied subsidies contribute to an international fund dedicated to financing developing economies' access to new green technologies. This approach acknowledges the undeniable push towards aggressive industrial policies, yet simultaneously strives to establish a framework to temper this emerging trend. This mechanism aligns with the principles of economic fairness and encourages nations to adopt less distortive behaviors in their pursuit of economic security or resilience to shocks.

Continue ReadingPathways for Reconciling New Industrial Policy and International Cooperation for Global Goods
Read more about the article The U.S. Elections Will Have Worldwide Economic Consequences

The U.S. Elections Will Have Worldwide Economic Consequences

Kamala and Trump have different proposals regarding tariffs, taxes, energy and immigration. If you believe that the ongoing global warming is due to carbon emissions and desire a transition to renewable energy worldwide, and if you believe that trade between countries is not a “zero-sum game”, you already know who you will be rooting for.

Continue ReadingThe U.S. Elections Will Have Worldwide Economic Consequences
Read more about the article The Rich World’s Immigration Conundrum

The Rich World’s Immigration Conundrum

Fourteen high-income countries have shown how immigration can help offset declining fertility rates and maintain population levels. But with anti-immigrant sentiment on the rise, politicians in these countries face a difficult choice: welcoming foreigners or facing the economic challenges brought about by an aging population.

Continue ReadingThe Rich World’s Immigration Conundrum
Read more about the article Politics and Climate Change
Red clock partially under turbulent water with wind blown rain, stormy sky background

Politics and Climate Change

The evidence that the damage from climate change has already arrived and will increase is irrefutable. The situation will only get worse if the world fails to reduce carbon emissions—which will depend on countries establishing and fulfilling appropriate NDCs. Recent political developments in countries with significant influence on this trajectory do not seem promising. We can only hope that this evolution does not bring greater consequences for the ‘road to decarbonization’.

Continue ReadingPolitics and Climate Change
Read more about the article (Videos) Global Economy + Digital Currencies

(Videos) Global Economy + Digital Currencies

The global economy is expected to stabilize for the first time in three years, but more weakly than in previous recoveries, according to a new report from the World Bank. Inflation, higher interest rates, as well as trade and geopolitical tensions could make this decade more sluggish than the last one ------------- Explore the evolution, impact, and future trends of digital currencies with our Senior Fellow, Mr. Otaviano Canuto. In this insightful video, he sheds light on how digital currencies are transforming global markets and what to expect in the coming years.

Continue Reading(Videos) Global Economy + Digital Currencies
Read more about the article The Reform of the Global Financial Architecture: Toward a System that Delivers for the South

The Reform of the Global Financial Architecture: Toward a System that Delivers for the South

The Policy Center for the New South and the Atlantic Council Africa Center have jointly released a report on “The Reform of the Global Financial Architecture: Toward a System that Delivers for the South,” by Otaviano Canuto, Hafez Ghanem, Youssef El Jai, and Stéphane Le Bouder. This report issues specific and urgent calls for reform, including more representative global governance, increasing the World Bank’s operational and financial capacity, prioritizing programs that would integrate Africa into the global economy, connecting the continent’s critical infrastructure and trade routes, and increasing participation and collaboration with bilateral public and private lenders and investors, such as China, sovereign wealth funds, and multinationals. 2024 marks eighty years of the Bretton Woods system. It is crucial to implement extensive reforms and substantial policies to support African nations’ efforts and maximize their chances to unleash their immense economic potential. These recommendations presented during the 2024 IMF-World Bank Spring Meetings reflect the urgency of both operational and more inclusive reforms for the African continent.

Continue ReadingThe Reform of the Global Financial Architecture: Toward a System that Delivers for the South
Read more about the article China’s Economic Growth on Target Despite Challenges

China’s Economic Growth on Target Despite Challenges

IMF projects China's economic growth at 4.6% and 4.1% for this year and next. China's official target is 5%. Six challenges to China's economic growth include the real estate sector, local government debt, domestic demand, external resistance to China's exports, change in foreign investor sentiment, and demographic decline. Despite challenges, China's economic growth remained steady in Q1 2024, with exports and manufacturing investment compensating for the drag from the property sector.

Continue ReadingChina’s Economic Growth on Target Despite Challenges
Read more about the article The Global War of Subsidies

The Global War of Subsidies

Janet Yellen warns China against flooding the world with cheap exports of clean energy. Excess industrial capacity and government support in China's clean energy sector were discussed by US Treasury officials. The US, EU, South Korea, Japan, and Australia are implementing subsidy programs to protect their domestic industries and compete with China.

Continue ReadingThe Global War of Subsidies