China Research

A discussion forum on emerging markets, mainly China – from a macro, micro, institutional and corporate angle.

U.S. tariff developments remain important to many emerging markets

August 21, 2025

Many emerging markets and less developed countries are closely linked to the development of the United States; according to my own definition emerging markets have taken more structural steps in a promising direction than all the clearly lagging developing countries in the world. Growth and market potential is simply more favorable in emerging economies.

This is why Western investors, financial and academic analysts often emphasize on emerging economies. I myself have been doing this for many years at Linnaeus University. Many analytical tools for the studies of emerging markets are similar to those being applied to advanced countries – but quite a number of these analytical tools are also different or have to be used additionally. For example, institutional conditions like transparency and the quality of statistics or ethics are different. But also the interpretation of widely published statistics – such as for GDP growth and inflation – differs normally between developed and less developed countries for the same statistical number.  

Examples of emerging countries are – when quoting the IMF (see https://www.imf.org/en/Publications/WEO ) – in alphabetical order: Argentina, Brazil, Chile, China, Colombia, Egypt, India, Indonesia, Kazakhstan, Lebanon, Malaysia, Mexico, Nigeria, Peru, the Philippines, Russia, South Africa, Turkey, and the Ukraine. So much in general terms.

Strong impact of the U.S. on emerging markets’ exports    

As much as one sixth of total exports from the emerging and developing world goes these days to the U.S. Many of these countries are, particularly hit by raised U.S. tariffs – also since tariffs for many of these countries have been raised unevenly. This could mean new conditions for competition.

Emerging countries for which the U.S. is the main market for their exports are listed in the following table (https://www.cia.gov/the-world-factbook/field/exports-partners/). One could find there in 2023, for example, the U.S. as the number one export market for Mexico (76 % of total exports), Cambodia (36 %), Vietnam (28 %), Columbia (27% ), Sri Lanka (22 %), Ecuador (22 %), India (19 %), Thailand (18%), Bangladesh (16 %), Kenya (10 %) and as the number two market for Chile (16 %), Peru (14 %), The Philippines (13 %), Malaysia (12 %), Brazil (10%), Indonesia (9 %) and South Africa (8 %) among others.

Conclusion:  When looking at the tariffs that have been (preliminarily?) implemented by President Trump (see https://dimerco.com/news-press/us-tariff-update-2025/ ), one can recognize that the emerging markets quoted above (and many others) are heavily hit by the American protectionist tariffs – meaning a negative impact on the potential output of these emerging countries. Logically, the less developed countries are hoping that (more) free trade will come back not too far away – and so do many Western corporations which could benefit themselves from better export conditions of emerging countries to the U.S. Such a development would improve GDP growth in emerging countries and their future  inflow of new U.S. dollars for widened imports – and, thus, create improving Western market conditions in parts of the emerging market area as well.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University

The EU-Mercosur free trade agreement – welcome but not without problems

December 9, 2024

The EU and the five active Mercosur countries – Brazil, Argentina, Uruguay, Paraguay and since recently Bolivia – finally made it, quite surprisingly when the trade deal with the EU really happened; highly desired by many corporations – but it took 25 years of trade talks to get there (https://ec.europa.eu/commission/presscorner/detail/en/qanda_24_6245). Initial reactions were mostly positive but not unisono. A number of obstacles for a good development of the agreement still have to be eliminated or improved, both in the short and the longer run.

Some (still) opposing EU countries

It is generally expected that the new free-trade agreement will be particularly beneficial to EU countries when it comes to the export of investment goods, cars, pharmaceuticals, many services and other products with currently high tariffs. For Mercosur countries, particularly exports of agricultural products and critical minerals to the EU promise to become more attractive – however, some EU countries with still large agricultural production certainly dislike the new trade agreement. Altogether, there are particularly three striking problems to be tackled.

Problem no 1: To get the EU to join the deal

It certainly won’t be an easy call to convince reluctant EU countries with a relatively high share of agricultural production such as France, Italy, Poland and the Netherlands to join the agreement with Mercosur. This trade agreement must be approved by 15 of the 27 EU states which totally must represent 65 percent of the whole EU population. A simple majority by the European Parliament is also needed.

Problem no 2: Exaggerated expectations directly after such a deal.

I remember quite well the strongly positive expectations for mutual trade gains from previous (free) trade agreements that covered other geographic areas. However, in most of these cases very positive predictions never came true or it took a long time until major achievements could be noticed. For example, the big Southeast Asian & Pacific trade deal by the name of Regional Comprehensive Economic Partnership (RCEP, https://crsreports.congress.gov/product/pdf/IF/IF11891) from 2020 still remains quite unobserved; despite the fact that the member countries – with China on the top – stand for almost 30 percent of global GDP.  Limited enthusiasm for the RCEP can be particularly referred to poor customs administration, delivery delays and lack of transparency. Thus, a main objective for the EU-Mercosur agreement should therefore focus on acceptable or good institutional conditions. This may be difficult.

Problem no 3: Economic imbalances and weak growth in Mercosur countries

When looking at the two largest Mercosur countries – Brazil and Argentina – they have been characterized by really disappointing growth performances in the past decades, Argentina even more than Brazil. Varying changes of economic policy regimes have not helped so far. Both countries have been underperforming during many years. Thus, potential growth is quite low in Mercosur countries. Reforms of the institutional framework are badly needed. The EU – Mercosur deal may hopefully speed up necessary improvements, also when it comes to productivity.

Summary: The EU-Mercosur agreement can be interpreted as an important signal to the opponents of free trade – but has its limits due to Brazil’s and Argentina’s insufficient growth performance. Hopefully, future policy changes will improve the growth outlook.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University

Emerging markets and a strong dollar

May 27, 2024

Emerging markets are usually more sensitive to weak current account balances than advanced countries. A deficit in the balance on current account urges for a currency inflow since it implies a debt for imports vis-a-vis other countries that has to be paid. This inflow can be done in the three following ways:

¤ by receiving currency reserves via foreign direct investment (which often does not work as an available or sufficient financial source),

¤ by borrowing money in foreign currency (mostly in U.S. dollar, USD), or

¤ by selling stocks, bonds, etc to foreign investors (if such financial products exist in the emerging country and foreign demand for these papers is there).

Statistics show that emerging markets borrow the lion share of their foreign credits in USD which may be challenging in times when the American dollar is strong on global currency markets. This is actually the case. Serving existing debt in USD uses to be even much more challenging.

By the way: During a meeting the other day with American financial analysts, I heard the view that the USD historically tended to be strong when investments in research and development (R&D) in the U.S. were high. This is explained by an increasing demand for American technology stocks and also foreign action for FDI in the U.S., thus leading to a high demand for the dollar and therefore to the strengthening of the American currency. I am not quite sure about the general validity of this suggested correlation. But it can be observed that such conditions can be found these days.

Back to emerging markets. What we can see today is an increasing willingness of certain emerging markets to avoid or decrease new borrowing in USD. However, this is not easy to achieve since USD markets function by far as the biggest global supplier of new loans, also to emerging markets. 

The ongoing situation with the strong dollar is, of course, particularly difficult for emerging countries with high indebtedness in USD. Such countries may be found in all continents – countries that are or have been reporting growing pressure on their currencies in 2024 such as the Nigerian Naira, the Egyptian Pound, the Turkish Lira, the Indonesian rupee, the Argentine peso or the Brazilian real (watch for this the following IMF table: https://stats.bis.org/statx/srs/table/e2?m=USD). Of course, some of these and other weak currencies of emerging markets have also been impacted by other negative factors than the strong dollar, for example domestic political ones.

At the same time, there are also countries trying to reduce their exposure to the dollar (which also can be seen in the IMF table quoted above). Indonesia is such an example. However, such a trend will not be easy to achieve – but Thailand actually managed it in the past few decades. Perhaps another option may gain momentum as it is currently the case in South East Asia, i.e. trying to expand borrowing within the region at the expense of the USD.  

Conclusion: Analysts of emerging markets should watch the further development of the USD and its impact on indepted emerging markets.

Hubert Fromlet Affiliate Professor at the School of Business and Economics, Linnaeus University
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