The Depths of Globalization: Inside the Ripple Effects of the U.S. Trade War

By: Ridhi Dondeti

Photo by iStock/wildpixel

On February 1st, 2025, President Trump issued new tariffs on Canada, Mexico, and China. This added an additional 25% tariff on Canadian and Mexican imports and a 10% tariff on Chinese imports (Bown, 2025). In the eyes of the Trump administration, the tariffs were an attempt to suppress illegal immigration and harmful drugs such as fentanyl from entering the country (Brown, 2025). What ultimately led to the tariffs escalating to a trade war between the U.S. and countries such as China, Canada, and Mexico; however, was the aggressive escalation and retaliation by the Trump administration after the affected countries responded. The U.S.-China trade war is not unfamiliar, with its origins dating back to the first Trump administration and some of those tariffs being kept during the Biden administration (Council on Foreign Relations, 2025). However, the tariff escalation has led to ramifications across the world, specifically developing countries seeing increased costs to export and the need to quickly change trade routes (Raihan & Sen, 2025).

While some developing countries, such as Cambodia and Indonesia, have diversified their trade and reduced labor costs, only a few have fully done so due to limited resources, a small labor supply, and higher transportation costs (Cotterill & Fleming, 2025). This lack of resources lead to broken supply chains because developing countries would only be able to produce at a level of output lower than its optimal level of output, causing developing countries to quickly find other countries to export to. Take, for instance, Pakistan, which has historically aligned itself with China more than the U.S. Retaliatory tariffs on China raise costs for imported products and thus change trade flows to other markets (Harvard Kennedy School, 2025). While larger, more developed countries can quickly adapt and diversify their trade in response to tariffs, developing countries often struggle to do so. Developing countries are unique to global supply chains and the global economy because of their ability to trade and export natural resources, agricultural products, manufactured goods, and more. This makes them the backbone of the supply chain and uniquely vulnerable during a trade war. Countries such as Nepal, Pakistan, and the Philippines have seen their exports decrease by upwards of five percent, which in turn decreases the country's Gross Domestic Product (GDP) and leads to negative economic growth; this negative growth can also be seen in the cases of Thailand, Malaysia, Brazil, and Vietnam (Cotterill & Fleming, 2025).

As developing economies see the impacts of the trade war, international organizations have found a growing need to support developing countries. In a report by the World Bank, the organization has warned of a potentially global economic fallout due to the magnitude of the trade war. This was demonstrated through their adjusted global growth forecast for 2025, in which the predicted growth rate decreased by 0.4%, citing high tariffs and global uncertainty as the main reasons. The report also found that by 2027, the GDP per capita for developing countries would be six percent less than pre-COVID-19 levels, costing roughly 20 years of economic recovery (Shalal, 2025). Moreover, global growth, and especially growth among developing countries, is predicted to be at its slowest compared to the 2008 global economic crisis (Cotterill & Fleming, 2025). This presents an even greater need for global economic policy reform to ensure that developing countries can continue to grow amid international trade turmoil.

To alleviate the repercussions of recent U.S. tariff policies that small developing countries face, the World Bank should work with developing countries through multinational organizations such as the African Union (AU), the Southern Common Market (MERCOSUR), and others to establish policies that develop a series of trade chains that allow all developing countries to rely on each other with low trade barriers, such as tariffs. This could also be achieved by developing countries establishing their own multinational organization. While this may lead to issues with trade dependence among other developing countries, it can be argued that this would alternatively lead to more trade diversification because thai form of trade would reduce external shocks from predominantly trading with developed countries and lead to more stable economies with the consistent sharing of technology and skills, addressing issues that developing countries have been attempting to avoid. By further reinforcing this specific trade system, developing countries would not only engage in fruitful trading with low tariffs among other developing countries, but also among other developed countries, such as those in the EU, that consistently trade with developing countries because these developing countries would have more stable economies that are easier for developed countries to rely on for trade (Kaskina, 2025).

Ultimately, the U.S.-China trade war extends beyond the relationship between the two countries: it is a global phenomenon that even affects the low and middle classes throughout developing countries due to price changes. Developing countries can engage in trade with other developed countries, such as those involved in the EU. However, encouraging a system of trade among developing countries would allow for further trade diversification: a system that can be relied upon as trade wars, especially those between the U.S. and China, escalate.

The views expressed in this publication are the authors' own and do not necessarily reflect the position of The Rice Journal of Public Policy, its staff, or its Editorial Board.

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References

Brown, C. P. (2025, November 25). Trump’s Trade War Timeline 2.0: An up-to-date guide | PIIE. https://www.piie.com/blogs/realtime-economics/2025/trumps-trade-war-timeline-20-date-guide

Cotterill, J., & Fleming, S. (2025, June 10). Trade wars to weigh on two-thirds of developing countries, World Bank warns. Financial Times. https://www.ft.com/content/70fc473d-79b4-4e75-bd8f-9fa721690d02

Council on Foreign Relations. (2025, October 31). The U.S.-China Trade relationship. Council on Foreign Relations. https://www.cfr.org/backgrounder/contentious-us-china-trade-relationship

Explainer: How do tariffs work and how will they impact the American and global economy?. Harvard Kennedy School. (2025, April 9). https://www.hks.harvard.edu/faculty-research/policy-topics/public-finance/explainer-how-do-tariffs-work-and-how-will-they

Kaskina, R. (2025, April). Trade regimes applicable to developing countries. https://www.europarl.europa.eu/factsheets/en/sheet/162/trade-regimes-applicable-to-developing-countries

Raihan, S., & Sen, K. (2025, May 6). How Trump’s Tariffs Could Hit Developing Economies – Even Those Not Involved in the Trade War. TESS. https://tessforum.org/latest/how-trumps-tariffs-could-hit-developing-economies-even-those-not-involved-in-the-trade-war

Shalal, A. (2025, June 10). World Bank cuts global growth forecast as trade tensions heighten uncertainty. https://www.reuters.com/world/china/world-bank-slashes-global-growth-forecast-trade-tensions-bite-2025-06-10/