As China vows to ‘fight to the end’ and the UK says ‘nothing (is) off the table’, the repercussions of Trump’s tariff announcements show little sign of abating.
Last week, the US announced a series of tariffs on imports that it plans to impose on countries all around the world. Lower-income countries with high debt payments are all set to be hit with tariffs. Of the 20 lower-income countries with the highest external debt payments, all have been hit with tariffs of at least 10% – Sri Lanka, one of 54 countries in debt crisis, is facing an eye-watering 44% tariff on exports to America.
We’re already facing the worst global debt crisis in thirty years. Here are three ways Trump’s tariff announcement will make it worse.
- The impact on raw material exports
Many of the lower-income countries with the highest debt burdens are reliant on exports of raw materials and commodities like oil, metals and cash crops to higher income countries such as the US. The prices for these commodities are highly sensitive to changes in the global market and tend to rise and fall in line with economic booms and downturns.
These fluctuations in price can have huge repercussions for countries that rely on such exports – downturns often make the debt situation worse for countries that may already be in crisis.
- The falling price of the dollar isn’t helping countries in crisis
It’s been widely reported that the dollar has been falling against other major currencies, which could – in theory – lower the cost of debt payments as many external debts are owed in dollars. However, the falling value of the dollar has been matched by falls in the value of currencies for many countries with high debt levels, cancelling out any possible benefits.
Some currencies – like the Kenyan schilling and the Egyptian pound – have fallen in value against the dollar, by around 2%, in the last week.
- Borrowing costs are increasing
For the 20 countries with the highest external debt payments, borrowing costs for their governments were already high – now they’re going even higher. Last week the yield – the return that private investors would expect to make on loans to these governments – went up 2 percentage points to an average of 12%. This doesn’t impact debt payments now, but it does mean future loans will cost more – or countries will be able to borrow less from private lenders.
- Global economic downturn
The biggest impact of rising tariffs may end up being the wider economic impact. If these tariffs take effect, and are followed by economic downturn around the world, countries that rely on exports of raw materials and commodities will be badly hit. Ultimately, these countries, many of which are already facing debt crisis, will either have to cut spending on public services like education and healthcare, or stop paying and seek debt relief.
It’s a pretty grim picture, but there is hope. This year is the biggest global movement for debt cancellation in decades – campaigners and activists around the world are calling for action on the debt crisis. And with millions in the lowest-income countries in the world facing even more economic turmoil, it’s more important than ever that we get debts cancelled.
It’s a moment to hope – and a moment to act. Will you join the campaign to Cancel Debt, Choose Hope, and add your name to thousands of others who are calling on world leaders to take urgent action on the debt crisis?