Trump’s ‘reciprocal’ tariffs can be debilitating for poor nations, UN commerce physique warns | USAEMALL.com

Welcome back. Donald Trump’s suspension of his “liberation day” tariffs prompted sighs of relief in much of the world. But it’s worth remembering that, as things stand, they are still due to come into force in a matter of weeks.

For our first story today, I discussed with a senior UN trade official what this would mean for development in some of the world’s poorest countries. Also today, we pick through the details of a major change of course from the world’s biggest climate-focused banking coalition.

We’ll be off on Friday, returning to your inbox on Monday. See you then.

economic development

Trump tariffs prompt rare rebuke from UN trade body

If US President Donald Trump were trying to craft a trade policy that would impede the development of low-income nations all over the world, the “reciprocal” tariffs he announced on April 2 would have been an excellent start.

Last week, Trump suspended the full implementation of those elevated tariffs for 90 days, meaning that they are set to come into force in July. For millions of people in developing nations, that would be a serious blow — as an unusual intervention this week from the UN Trade and Development body (Unctad) has highlighted.

Perhaps the greatest perversity of the formula behind Trump’s “liberation day” tariffs is that it reserves special punishment for nations that have made a start on developing their economies through export-led growth, but are not yet rich enough to import much from the US.

Lesotho, which got the highest Trump tariff of any nation before the more recent escalation of the trade war with China, is a case in point. The landlocked southern African country was hit with a tariff rate of 50 per cent. That’s because it exported $237mn of goods to the US last year, but only imported $2.8mn in the other direction.

This trade imbalance is unsurprising when you consider that Lesotho’s per capita GDP is a little over $900, making it one of the 20 poorest countries in the world. Trump’s tariffs threaten to worsen that poverty. Lesotho’s US exports are worth more than 10 per cent of its GDP. Worse, they are mainly in the highly competitive, low-margin clothing sector. A tariff at the planned level could leave its exporters unable to compete.

This destructive dynamic has prompted Unctad to wade in, breaking with its normal practice of avoiding specific criticisms of individual countries’ policies.

On Monday, the body published a report warning about the damaging impact that the tariffs would have on low-income countries. It argued that “vulnerable and small economies, whose activities have a negligible effect on trade deficits, should be exempt from new tariff hikes”. The US’s net imports from Lesotho, for example, amount to 0.019 per cent of the global US trade deficit.

“This will represent a source of instability for these countries, and will make it even more difficult for them to eventually buy products from the US,” Luz Maria de la Mora, Unctad’s director of international trade and commodities, told me yesterday.

She said all 44 economies listed by the UN as “least developed countries” should be exempted from the “reciprocal” tariffs should they come into force, as well as the 10 per cent baseline tariff that has already been applied.

Four of the five countries hardest hit by the “reciprocal” tariffs are least developed countries, including Cambodia (49 per cent), Laos (48 per cent) and Madagascar (47 per cent).

De la Mora called on major economies to push for relief for low-income nations as part of their engagement with the US on the new tariffs. “These countries don’t need to be hurt,” she said.

Net-zero banking alliance

Unpacking the NZBA’s bonfire of the rules

Being a member of the Net-Zero Banking Alliance just got a heck of a lot easier.

The body announced yesterday that a majority of its 128 member banks have voted to eliminate a host of rules, approving a new framework that, as we wrote last month, looked to many like a lowering of ambition.

The NZBA’s organisers are hoping that the far looser requirements will stem further defections — following a rush of exits by most US and Japanese members — and encourage new members from developing nations to sign up.

They might be right on that, but others are less pleased. The weakened rules have already led Dutch bank Triodos to quit the NZBA, saying the new approach did not “align with our own climate ambition”.

Here’s what you need to know about the change:

What’s missing?

The new version of the NZBA commitment statement, to be signed by all members, is a much shorter document than the one it replaces.

The previous version featured a string of mandatory commitments including a pledge to align all financing with a scenario in which global carbon dioxide emissions reach net zero by 2050, with global warming limited to 1.5C. Members were also required to publish annual updates on their progress in reducing their “financed emissions”, for review by UN officials.

The new version, in contrast, is peppered with phrases stating that members “may”, or “are welcome” to take various measures. The document does say that each member bank “aims to align financing and business strategies with the Paris Agreement” (my italics), but this is much softer than the clear commitment in the prior document.

The only sentence that sounds like a firm commitment is this one:

We have independently chosen to support the transition to a low-carbon economy by setting and publishing individual science-based, near-term targets (or to do so within 18 months of joining), progress against targets, and transition plans.

And even this, a footnote makes clear, is to be approached on “a comply or explain basis”.

Meanwhile, the NZBA’s revised governance document has lost the whole section on its “accountability mechanism”, which detailed how the body would kick out banks that didn’t meet the membership requirements.

Phase 2

According to Shargiil Bashir, the sustainability head at First Abu Dhabi Bank who is currently serving as head of the NZBA’s steering group, this marks a second stage of the body’s work.

“Before the NZBA was set up [in 2021], no bank had set targets aligned with the Paris Agreement,” Bashir told me, adding that more than 100 banks had now done so. “Now, the next phase is about how do we go from targets to implementation?”

He argued that authorities in many major economies had now introduced regulations around climate-related financial disclosures, reducing the need for mandatory requirements from the NZBA.

And despite the removal of the formal accountability mechanism, he stressed that all members would still be expected to publish climate targets and transition plans, and could be removed by the steering group for persistently failing to meet the commitment statement pledge.

The body would now have a new focus on “capacity building” and knowledge sharing, Bashir said, including on driving progress among members from developing countries. “We know that some of the geographies’ pathway to net zero looks different,” Bashir added.

A different animal

Some sort of change of course at the NZBA had become inevitable. As the likelihood of limiting global warming to 1.5C has shrunk, the financial tensions for banks committing themselves to pursuing that target were becoming increasingly difficult.

A rush of exits by US institutions, triggered in part by Trump’s re-election, threatened to become a global exodus. And the existing membership requirements had clearly weighed on sign-ups from developing countries, which have so far accounted for a disproportionately small proportion of NZBA members.

The NZBA should now be seen mainly as a forum for discussion and cooperation, rather than a body that sets and enforces standards around ambitious climate action. That creates an opportunity for other bodies to play an expanded role — including the Science Based Targets initiative, which last month gave its stamp of approval to targets set by the Netherlands’ ING, the first such accreditation it has given to a major international bank.

The NZBA’s policy shift may yet give a boost to its global reach — but banks seeking a rigorous benchmark for best-in-class climate ambition will need to look elsewhere.

Smart reads

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Staying the course Why has oil major TotalEnergies stuck to its green energy investment plans, while rivals BP and Shell have pulled back?

Risk off Accounting group PwC has pulled back from more than a dozen countries as it seeks to reduce the risk of scandals.