Elevate Economics

The media is awash with second, third round effects of Trump’s tariffs, from higher yields on US gilts, fire sales of US bonds, the SNP500 being down then up overnight to how Americans have been shot in the foot, whether it be impacts of tariff retaliation on US agriculture, or pushing up costs for the very industries Trump’s seeking to bolster.(1) However, among the most devastating impacts have been those on the economies of Global South countries like Sri Lanka and Cambodia, such as those relying on garment exports to US or small scale farmers exporting cocoa beans and women in Bangladeshi factories (2). The tariffs will also add to the debt of already heavily indebted poor countries. (2)

Trumps tariffs are an opportunity and an imperative for nations to re-orient exports and reduce reliance on US markets, diversify export destinations and create more regional trade agreements. They should be a signal to for Global South nations to create more trade among themselves (e.g. India and Bangladesh textiles agreements) and more regional trade blocs, and for us, it highlights even more the importance of the EU export market. ‘Friend-shoring’ and reducing far-flung trade will reduce overreliance on US and reduce the negative ecological impact of international trade on the planet. Additionally, more could be said about when tariffs ARE appropriate as well as when they are not, and of the longer term structural changes to economies.

Friend-shoring, essentially involves shifting the sourcing of inputs to countries that are politically and economically aligned in order to prioritise supply chain resilience, reduce geopolitical risk and increase environmental sustainability over solely decisions to minimise cost. One example of friend-shoring relates to the India-Bangladesh Textile Alliance 2018 which lead to a 31% reduction in water pollution through shared water treatment technologies and standards and reduced carbon emissions by 1.2 million tonnes annually through the shorter supply chains. (3)

Tariffs should be reserved to help level playing fields, for infant industries and low-income South countries to develop, by diversifying their economy and reducing economic reliance, by protecting their fledgling industry until they reach a threshold and the economies of scale to become self-sufficient.

They were used in 1950s-1970s by Global South countries to develop self-sufficiency in key industries post-independence to reduce reliance on imports former colonial powers. This is called Import Substitution Industrialisation (ISI), where newly independent countries selectively protected key industries from competition from industrialised nations to produce those goods domestically. This draws on the ‘infant industry argument’ for protectionism that we teach at A-level.

Where it was done well ISI was an important strategy for Global South countries to help redress inequitable colonial relations after independence 1950s-1970s; to develop self-sufficiency (and some comparative advantage) in higher value-added sectors.(4) Examples can be drawn from Mexico, Brazil, India, Korea and Egypt to Nigeria before the IMF reversed some of it. Nigeria, for example becoming self-sufficient in cement production and textiles by 1980s creating hundreds of thousands of jobs and India becoming self-sufficient in the steel industry.(4)

Trump’s Tariffs on the other hand are massively out of place. They protect established US industry and promote their inefficiency, where Chinese manufacturing technology can simply do it better and cheaper! The tariffs shooting Americans in the foot.

This reduces the chance and depth of vulnerability to external shocks due to impulsive, poorly thought-out economic policies. Such as those being experienced by Sri Lanka, Cambodia and Bangladesh which have seen industries been hit. (2) Ironically, tariffs were essential to the success of the export orientation that famously led to the success of the East Asian tigers in 1970s-80s (Singapore, Taiwan South Korea, Hong Kong). (5)

ISI is something I teach as an inward strategy for development at A-level. Trumps tariffs can’t be justified on this basis, or any, when it hurts those he seeks to support, and promotes inefficiency. They highlight the imperative and opportunity to reorient economies to reduce reliance on US and reduce economic and political shocks through friend-shoring.

Friend-shoring for the UK will mean reducing reliance on US and increasing bilateral trade with EU. According to the BBC, the UK exported almost £60bn worth of goods to the US last year, mostly machinery, cars and pharmaceuticals. A 25% tariff has been put on UK car exports, as well as steel and aluminium products, in addition to the 10% tariffs.

Friend-shoring in Global South may emphasise the importance of regional free trade agreements, such as Mercosur (Latin America), and AfCFTA (African nations). Friend-shoring will help to reduce the ecological destruction on the planet from far flung trade.

To summarise. There are three benefits in the long run of re-orienting economies towards more regional trade:

1) Industries in Global South nations like in Sri Lanka and Cambodia reduce economic reliance on the US market

…natural resource rich nations in general reduce dependence on the markets former colonial powers (the BRICS nations have econ might and have burgeoning middle and high income market groups as alternative markets)

2) Reduce vulnerability to external economic and political shocks from interdependence. 

3) Reduce the negative impact of far-flung international trade on the planet 🌍  by engaging in more friend-shoring.

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Data sources and notes:

*1 Trump tariffs shooting Americans in the foot: According to Tax Foundation the Trump tariffs will reduce after-tax income by an average of 1.9 percent and amount to an average tax
increase of more than $1,900 per US household in 2025. https://taxfoundation.org/research/all/federal/trump-tariffs-trade-war/. According to Food Canada — the second-largest importer of U.S. agriculture products in 2024 — retaliated with a 25% tariff on its import of U.S. agricultural products. https://www.fb.org/market-intel/tallying-up-the-latest-retaliatory-tariffs

The $29 trillion Treasury market saw a massive sell off following Trump’s initial announcement about tariffs, driving Trump to announce a 90-day pause for countries other than China- Reuters. https://www.reuters.com/markets/us/what-just-happened-us-treasury-market-2025-04-10/

*2 Trumps tariffs are punishing Global South countries with rates as high as 49% for Cambodia, 37% for Bangladesh, and 48% for Laos. ‘These tariffs could push production costs down to the least able to pay, squeezing the incomes of small farmers and workers in factories.’ – The Guardian. As highlighted in the Guardian, Sri Lanka, which has an economy 0.3% the size of the US’s, faces a 44% tariff. Countries like Sri Lanka rely heavily on garment exports to the US, is likely to hit GDP and jobs hard and reduce its ability to make debt loan repayments.

*3. Friendshoring example: India and Bangladesh Textile Alliance 2018. Data source: South Asian Textile Research Institute (2022). “Regional Cooperation for Sustainable Textiles.” SATRI Annual Report.

*4 Examples of successful ISI. Through import restrictions and investment incentives, domestic cement production capacity grew from 600,000 tons in 1970 to over 5 million tons in Nigeria by 1985 and its textile sector grew to become the third-largest in Africa by 1985, employing over 200,000 workers directly.

– Forrest, T. (1993). Politics and Economic Development in Nigeria. Westview Press

– Bevan, D., Collier, P., & Gunning, J. W. (1999). The Political Economy of Poverty, Equity, and Growth: Nigeria and Indonesia. Oxford University Press.

– Gereffi, G., & Wyman, D. L. (Eds.). (1990). Manufacturing Miracles: Paths of Industrialization in Latin America and East Asia. Princeton University Press.

Countries that have found the most success with ISI typically used ISI as a transitional strategy to achieve self-sufficiency rather than permanent policy, combined protection with export promotion to maintain competitive pressure on domestic industries (to avoid x-inefficiency) and are those that invested heavily in education and technology development.

*5 An example of successful ISI by South Korea (one of the ‘East Asian Tigers’)

In 1960s-80s South Korea combined ISI with export promotion, notably in the automotive, shipbuilding and electronics industries.

• Hyundai Motors started with assembly line production and progressed up the value-added chain to manufacturing its first fully Korean made car by 1975.
• From virtually no shipbuilding production in the 1960s, South Korea became the world’s largest shipbuilder by the 1980s, with companies like Hyundai Heavy Industries capturing over 20% of global market share.
• Companies like Samsung, initially protected by import barriers, were able to develop domestic capacity before becoming global exporters.