Reproducibility package for Tariffs As Catalysts: The Potential Development Dividend

This note examines the implications of recent trade policy changes for developing countries. After the US-China bilateral tariffs increased in 2018-19, the exports of a few third countries increased but the development benefits were less significant. The tariffs more widely applied in 2025 could hurt developing economies, especially in the sectors that are more exposed and face higher tariffs. But the eventual costs need not be large once countries diversify their exports away from high tariff countries. Furthermore, the costs of foreign protection will be more than offset if countries respond with comprehensive reforms of their own trade policies. If tariff liberalization were not selective but extended to all trading partners, the gains for developing countries would be more than three times larger than the cost of higher foreign tariffs. If reforms also addressed the significant non-tariff barriers to trade in goods and services, the development benefits would be greatly magnified. For example, the liberalization of service trade that took place in Viet Nam in the period 2008-2016 generated a sizeable increase in productivity both in the services sectors (2.9% yearly over the period 2008-2016), as well as in the manufacturing sectors using services as intermediate inputs (3.1% yearly).