Trade wars in a fragmented world: Tariffs and the developing economies

Question 1 (Marks: 100)

Trade wars in a fragmented world: Tariffs and the developing economies

The second Trump administration announced sweeping tariff increases, including a 10-percentage- point hike on all imports (excluding Canada and Mexico under the USMCA) and a staggering 60- percentage-point increase on Chinese goods. These measures, framed as tools to “reindustrialise” the U.S. and reduce trade deficits, triggered immediate retaliation from trading partners, disrupting global supply chains and amplifying uncertainty in international markets. The Peterson Institute for International Economics (PIIE) projected a 0.5% decline in global GDP, with developing economies— particularly those reliant on preferential trade agreements—facing severe vulnerabilities.

The African Growth and Opportunity Act (AGOA), which grants duty-free access to the U.S. market for eligible Sub-Saharan African countries, became a critical flashpoint. While AGOA beneficiaries like Lesotho initially seemed insulated, secondary effects of the tariffs rippled through regional supply chains. For example, South Africa—a key automotive exporter to the U.S.—saw its car exports plunge by 73% in the first quarter of 2025 (Reuters, 2025).

The PIIE and CEPII models diverged on outcomes: CEPII emphasised trade diversion benefits for Mexico, while PIIE warned of systemic risks from dollar depreciation and investor flight. For Lesotho, the tariffs exposed structural weaknesses—overreliance on AGOA, lack of export diversification, and inflexible labour markets. The country’s textile factories, operating on razor-thin margins in a perfectly competitive global market, faced existential threats as U.S. retailers shifted orders to tariff-exempt Central America under the CAFTA-DR agreement.

SOURCES:
Bouët, A., Sall, L. M., & Zheng, Y. (2024). Trump 2.0 tariffs: What cost for the world
economy? (Policy Brief No. 49). CEPII. https://www.cepii.fr/PDF_PUB/pb/2024/pb2024-49.pdf McKibbin, W. J., Noland, M., & Shuetrim, G. (2025). The global economic effects of Trump’s 2025 tariffs (Working Paper 25-13). Peterson Institute for International Economics. PIIE. https://www.piie.com/sites/default/files/2025-06/wp25-13.pdf
Reuters. (2025). South African car exports to U.S. plunge as Trump tariffs
bite. https://www.reuters.com/world/africa/south-african-car-exports-us-plunge-trump-tariffs- bite-2025-07-14/

REQUIRED:

You have been appointed the lead Economist advising the current SADC leadership.
Based on your research on the impact of Trump’s tariff policies on developing economies, prepare a policy brief of a maximum of 4000 words that includes the following:

• Title of Policy Brief
• Executive Summary
• Scope of the Problem(s)
• Methodology
• Body
• Conclusion
• Reference List (at least 15 Academic sources)
• Appendices

The body of the policy brief should address the following:
• Analyse the economic rationale behind Trump’s tariff policies using microeconomic principles.
• Evaluate the impact of tariff policies on global supply chains and trade flows.
• Discuss the specific challenges faced by industries in SADC (e.g., Lesotho’s textile industry, South Africa’s automotive industry, etc.) using market-structure analysis.
• Evaluate mitigation strategies for SADC-based SMEs/industries against tariffs.
• Provide Long-term implications and policy recommendations.

NOTE:
• Support your arguments with data, evidence, and relevant theoretical frameworks.
• Engage critically with existing research and provide local perspectives from your company or industry.
• Maintain a clear and concise writing style with proper citations and references.
• Refer to the rubric for the marking guidelines.

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Answer 1:

Title: SADC Economies and Their Policy Responses to Trump’s 2025 Tariff Shock
Executive Summary: There has been significant import duties being introduced by the 2025 Trump government, particularly a 60% hike on Chinese goods and 10% on all others. As a result of this, there has been significant retaliation from the Chinese economy, and it has had a negative impact on all the developing economies around the world including those in SADC. The impact of being significantly dependent on the US market is also felt by the South African automotive industry. The main focus of this analysis is on identifying the main purpose behind these tariffs and how they have affected the trade flows, and finally it proposes mitigation strategies especially for the SADC industries.
Scope of the problem:

• Lack of adequate resources within SADC which affects their ability to adapt to tariff shifts.
• Structural economic weaknesses in the form of rigid labour markets, lack of diversity and vulnerability. 

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