How trade wars and import duties reshape local industries and inflation

When titans of the world get into a trade war, the reverberation is felt across continents. But it’s not only the U.S. or China that get the tremors growing market economies (EMEs) are most prone to the aftershocks of tariffs and import taxes. From inflationary peaks to disruption of industries, the international ripple effect of tariffs has widespread implications.

Knowing Tariff Entanglement

Tariffs, basically taxes on foreign goods, are typically framed as a means to protect home industries and encourage local manufacturing. In fact, they are economic double-edged swords. While they might give temporary protection to some sectors, they also have the potential to trigger inflation, lower competitiveness, and fan uncertainty in market-dependent economies based on international trade.

The recent U.S.-Chinese trade tensions have exposed to what extent the global economy is deeply intertwined. But beyond the main actors, the spillover reaches the developing world countries that rely on stable flows of trade, cheap imports, and export competitiveness.

1. Tariffs and the Inflation Surge in Emerging Markets

For many emerging economies, the first wave of impact comes through inflation. Tariffs on imported goods whether raw materials, fuel, or finished products drive up production costs. These cost increases are often passed down the supply chain, eventually hitting the average consumer’s wallet.

Case in Point: Argentina & Turkey

Argentina and Turkey, both struggling with inflationary environments, saw price pressures escalate due to a surge in import prices fuelled partly by global tariff wars. For these nations, where imports are crucial for daily consumption and industrial production, even a marginal increase in duties elsewhere can cause price volatility at home.

Moreover, many EMEs deal in foreign currency-denominated trade, making them sensitive to exchange rate fluctuations. A tariff-induced shock can lead to depreciation, worsening the inflation spiral.

 

2. Disrupted Supply Chains and Industrial Strain

Trade wars distort global supply chains. In EMEs heavily reliant on intermediate goods or raw materials from tariff-affected regions, this disruption can stall industrial production and strain local businesses.

For example, manufacturers in Vietnam or Malaysia may depend on Chinese semiconductors or American machinery. If these goods are tariffed, the downstream impact can cause production slowdowns, layoffs, and even a shift in investor sentiment.

Industries at the Crossfire

  • Textiles & Apparel: Countries like Bangladesh or India, which export to Western markets, may see reduced demand if Western retailers cut costs due to higher import duties.

  • Electronics: Southeast Asian nations embedded in electronics supply chains face delays and price escalations.

  • Automotives: Tariffs on steel and auto parts impact vehicle assembly costs across Africa, Latin America, and parts of Asia.

3. Export Competitiveness and Market Access

Tariffs also reshape export incentives. When large economies erect trade barriers, they alter the flow of goods globally. Emerging market exporters can find themselves inadvertently priced out of key markets or caught in the crosshairs of retaliatory tariffs.

Let’s consider a Latin American country exporting agricultural products. If the U.S. or EU imposes new duties or quotas, it can shrink demand, leaving local farmers with surplus and reduced income. Similarly, retaliatory tariffs from trading partners can choke exports from developing economies aligned with either side of a global trade conflict.

Silver Lining: Trade Diversion Opportunities

Interestingly, while some nations lose, others gain. Countries like Vietnam, Mexico, and India saw upticks in exports as companies re-routed production away from tariff-heavy regions. This phenomenon, known as trade diversion, can be a double-edged sword—presenting opportunities, but also requiring massive infrastructure and policy shifts to meet demand.

4. Investor Sentiment and Currency Volatility

Global investors are sensitive to trade uncertainty. Tariffs often trigger fears of slowing global growth, affecting foreign direct investment (FDI) and capital inflows into emerging markets. Investors may pull back, fearing supply chain disruptions, regulatory risks, or weakening demand.

This withdrawal leads to local currency depreciation, already a significant concern in fragile economies. A weaker currency further fuels inflation, increases the cost of external debt, and complicates monetary policy.

Currency Crunch Example: Indonesia

When global trade tensions peaked in 2018–19, Indonesia faced capital flight pressures, forcing its central bank to intervene and stabilize the rupiah. Such interventions strain reserves and divert policy focus from growth to stabilization.

5. Policy Responses: Between a Rock and a Hard Place

Emerging markets often walk a tightrope between supporting growth and controlling inflation. When faced with tariff-induced shocks, governments must decide whether to subsidize industries, impose counter-tariffs, or tweak interest rates.

But most EMEs lack the fiscal room or monetary firepower that developed nations have. This limitation narrows policy options and makes them more vulnerable to prolonged trade disputes.

Strategic Shifts Emerging

To mitigate these risks, many EMEs are:

  • Diversifying trade partners

  • Signing regional trade agreements

  • Investing in local manufacturing capacity

  • Digitizing supply chains for resilience

The rise of South-South trade commerce among emerging nations is also a promising trend, offering alternative avenues to mitigate reliance on tariff-heavy markets.

6. Long-Term Reshaping of Global Trade Geography

Over time, repeated tariffs and trade wars are likely to redraw the global trade map. Manufacturing hubs may shift from China to Southeast Asia, Latin America, or Africa. EMEs that position themselves with favorable policies, logistics infrastructure, and political stability could emerge as new global supply chain players.

However, this reshaping is not without growing pains. It requires:

  • Skilled labor development

  • Infrastructure investment

  • Stable financial systems

  • Transparent trade policies

Without these foundational elements, the benefits of trade shifts may remain elusive.

Conclusion: Navigating the New Normal

For emerging market economies, tariffs are not just a foreign policy headline, they are lived experiences. They influence the cost of living, the strength of industries, and the trajectory of development.

While trade wars may be ignited by economic powerhouses, their consequences don’t respect borders. Whether it’s a surge in onion prices in India or a slowdown in garment exports in Cambodia, the ripple effects are real.

As the world inches toward a new phase of global trade marked by fragmentation, regional blocs, and strategic self-reliance emerging markets must rethink their role. The key lies in agility, strategic partnerships, and investing in local resilience.

Because in this tariff-triggered terrain, it’s not just about surviving the storm. It’s about learning how to sail smarter.