A Proposal to Limit the Harm of US Tariffs on the World’s Poorest Countries

US policy has long been to encourage economic growth in the world’s poorest countries: not least, wealthier countries are less likely to collapse into civil war and provide haven for terrorists, more likely to protect their citizens (and thereby the rest of the world) against infectious threats, and are less likely to require US humanitarian support. That was the reasoning behind the first Trump administration’s focus on a journey to self-reliance for poorer countries as well as bipartisan efforts including the African Growth and Opportunity Act, or AGOA, that gives countries in the world’s poorest region preferential access to the US market. AGOA in particular is built on the understanding that development happens faster when countries export more.

Meanwhile the new tariff regime rolled out by the US administration last week and (only) partially paused on Wednesday appears driven by the desire to end the US trade deficit. But look at the poorest countries in the world: low-income countries with a GNI per capita below $1,145, or less than 1.5 percent of US income per capita. The US runs a billion-dollar trade surplus with the group as a whole, and surpluses with 18 out of 26 low-income countries. The low-income country responsible for the largest US trade deficit, Madagascar, accounts for just 0.03 percent—three ten thousandths—of US imports. On that score, it is an utter irrelevance.

US imports from those countries are worth a total of $2.8 billion, or a little less than one half of a percent of their gross national income. Not a lot in aggregate, but it still suggests that low income country exports to the US are significant, especially for some countries. Lesotho, for example, sees exports to the US worth 14 percent of the country’s GNI, is now tariffed at 10 percent and faces the threat of a 50 percent rate. Madagascar’s exports to the US are worth 6 percent of its GNI and the country still faces the threat of a 47 percent tariff.

Add in lower-middle-income countries: those with a GNI per capita above the low-income threshold but still below $4,515, or about one eighteenth of US income. That gets you to 77 countries, 46 of which the US runs a trade surplus with. Two of the exceptions are big: Vietnam and India account for about seven percent of US imports and both run large surpluses. But leave them aside, and the US trade deficit with the other 75 countries is worth about three percent of the US global trade deficit. Take out The Philippines, Cambodia, Bangladesh, Pakistan, Nicaragua, Nigeria and Sri Lanka, and that drops to 0.2 percent.

If the administration put in place an automatic tariff exemption system for low- and lower- middle-income countries that ran a trade deficit with the United States and/or accounted for less than 0.1 percent of US imports, it would cover 68 out of the 77 countries—the other nine are listed above. Amongst AGOA countries, all but Nigeria, South Africa, Mauritius, and Botswana would be exempt (and oil from Nigeria is exempt regardless). The exempted countries are utterly irrelevant to concerns about the overall US trade deficit and it makes no sense to exert effort negotiating with them to change trade policies if that is the concern. Regarding tax revenue, the 68 countries account for a sum total of about $30 billion in US imports. Assume optimistically that would convert into about $3 billion of tariff revenues under the new system, that accounts for about three and a half hours-worth of federal spending.

It would be better for the US and global economy if the new tariffs were rolled back everywhere. But it would at least help continue the journey to self-reliance through greater potential for export-led growth if the poorest countries, economies that are utterly marginal to the US trade deficit and revenue raising through tariffs, were rapidly exempted.

Table. Low- and lower-middle-income countries and US trade

Data source: World Bank WITS (2022 data)