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Global trade is going through a turbulent year due to United States (US) President Donald Trump's tariff coupled with policy uncertainty. Least Developed Countries (LDC), especially export-oriented ones like Bangladesh, will face severe repercussions due to their concentration of trade on a small number of products as well as their limited resources to deal with setbacks.
These are the general observations made by the latest Global Trade Outlook and Statistics report, released in the third week of this month by the World Trade Organization (WTO) Secretariat. It said that the volume of world merchandise trade is expected to decline by 0.2 per cent in 2025 under current conditions, meaning suspension of Trump's reciprocal tariffs for three months. The situation will aggravate if the US president ultimately withdraws the suspension and applies his reciprocal tariffs. There will also be a broader spillover of trade policy uncertainty (TPU). Both these could lead to a sharper decline of global goods trade by 1.50 per cent in global goods trade and hurt export-oriented LDCs, added the WTO report.
To project the impact of reciprocal tariffs and TPU on trade and gross domestic product (GDP) globally and regionally, WTO conducted a modelling analysis of TPU, providing four cumulative trade policy scenarios. It showed that global trade might decline by 0.5 per cent to 4.3 per cent under four scenarios: only US TPU, actual tariffs, reciprocal tariffs, and TPU spreads. Under the third and fourth scenarios, LDCs' global trade may drop by 0.40 per cent and 0.90 per cent, respectively, while LDCs' combined gross domestic product (GDP) is likely to drop by 0.07 per cent and 0.74 per cent, respectively.
Interestingly, LDCs are projected to see their exports rise in the second scenario when LDCs' global trade may increase by 0.90 per cent. "The reason is that some LDCs - for example, Cambodia, Bangladesh and Lesotho - can expand their exports to the United States because their exports are highly dependent on products for which China currently has a large import share in total US imports, such as clothing and textiles, as well as electronic equipment," said the WTO report. That's why these LDCs may benefit from shifting demand towards their products. The WTO report categorically noted that the recent rise in tariffs and uncertainty is projected to positively impact merchandise trade flows of LDCs in the current year as export volume may grow by 4.80 per cent, and import growth should be 7.60 per cent.
Undoubtedly, it is a glimmer of hope for the LDCs. These countries are generally among the most vulnerable to external economic shocks. It is to be noted that the value of the global merchandise exports of the LDCs surged by 5.60 per cent to US$275 billion in the last year from $ 260 billion in 2023 when LDCs global exports had declined by 2.0 per cent from $266 billion in 2022. The surge slightly increased the share of LDCs in world exports at 1.12 per cent, an all-time high, in the last year, which was 1.09 per cent in 2023. Merchandise imports of LDCs also jumped by 3.20 per cent to $349 billion from $338 billion in 2023. Earlier in 2022, LDCs global import stood at $361billion in 2022. The share of LDCs in world imports also increased slightly to 1.41 per cent in 2024 from 1.39 per cent in 2023 but matched the previous peak of 1.41 per cent in 2022.
At present, 37 of the 166 members of the WTO are LDCs. The total number of LDCs is 45, as per the United Nations (UN) list, of which 15 are at various stages of graduation. Of these, three LDCs, Bangladesh, Lao PDR, and Nepal, will be graduated by the end of 2026.
As the Trump tariff is mainly designed to hit China, there will be a decline in Chinese exports to the US market. The WTO report projected that most regions will see a fall in exports to the US, with the most significant reduction for China (77 per cent). However, the report also highlights a promising trend-Asia (excluding China) and in particular LDCs are projected to take over some of the lost market share of China facing higher tariffs. This presents an opportunity for LDCs to expand their global market presence.
In other words, trade diversion will benefit the LDCs, and their combined exports to the US may increase by 22 per cent in the current year. As a result, LDCs' export share to the US market will stand at 3.2 percentage points, while China's share will drop by 10.50 per cent. US is the third largest market for LDCs combined exports while China and European Union (EU) are the first and second largest destinations respectively.
At present Bangladesh is the leading exporter of LDCs as country shares more than one-fifth of the LDC's total exports. Again, the US is the leading market for Bangladeshi goods, and the country's exports to the US stood at $8.36 billion in 2024. Last year, the country also faced an average of 15.70 per cent import tariffs in the US market. Trump imposed a 37.50 per cent reciprocal tariff on imports from Bangladesh in the first week of this month, along with various tariff rates on some other countries. Although he later suspended it for three months, it is uncertain about what he will do ultimately.
As predicted by the WTO, the potential trade diversion from China presents an opportunity for Bangladesh, although it is difficult to estimate. Theoretically, trade diversion occurs when 'tariff causes imports to shift from low-cost countries to higher-cost countries.' In other words, trade diversion is undesirable due to its 'concentration on production in countries with a higher opportunity cost and lower comparative advantage.' However, Trump's tariff may fuel trade diversion from China for the time being. It is crucial for Bangladesh to seize this opportunity and strategically enhance its exports to the US market.