Expect tariff 'cascade' effect across slowing global economy, top UN official warns

CNBC

16-07-2025

The leading arm of the United Nations focused on trade and development, UNCTAD, says President Trump's tariff policies are already creating new costs and disruptions in the global supply chain, and for less developed nations that trade with the U.S., the worst economic fallout hasn't hit yet.
"We already see a disruption in the global supply chain," said Rebeca Grynspan, Secretary General of UNCTAD. "Many of the CEOs sit and wait, because if there is no predictability, and what you need for trade and investment is predictability and trust," she added.
Earlier this year, UNCTAD released data showing global investment back at financial crisis era levels. The UN arm is also forecasting one-half a percentage point to be shaved off of global growth this year.
"We are worried the high level of uncertainty is paralyzing business decisions, which is impacting trade, resulting in trade being revised downward," Grynspan said of the lowered global GDP forecast of 2.3%, down from 2.8%. "This is a lot," she said. "This is already much lower than the growth we experienced in the last decade," she added.
U.S. consumer inflation increased in June, a spike attributed to higher prices on consumer goods imported from foreign countries, though the Trump administration says tariffs do not cause inflation.
Vietnam, Cambodia, and Malaysia, three Asian countries that benefited from the "China Plus One" supply chain strategy that saw more manufacturing move to these countries, are seeing an impact as supply chains shift again, Grynspan said. Trump has threatened to add a 40% tariff onto any good that uses what is known as transshipment, with a product's journey starting in China but then moving to nations such as Vietnam to avoid Chinese tariffs.
The layering of tariffs will cause the most economic pain for the least developed nations globally, according to the UN official, with a combination of existing tariffs and Trump tariff threats resulting in a stacking up of trade taxes that could lead to a reduction in exports of over 50%. "This is a cascade," she said.
"It will affect jobs, and it will affect the stability in many countries, where even growth will be lower than the average in the world," Grynspan said. "If you take the least developed countries of the world, 46 countries that are the most vulnerable, we project that their exports could be impacted, as much as 54% down, if the tariffs are put on them," she added.
Cambodia's exports to the U.S. represent more than 10% of its GDP, according to the Center for Global Development. Tariffs imposed by the Trump administration could erase over $4.5 billion in Cambodian exports over the next four years, with garments and travel goods suffering the largest blows, according to research firm Datawheel, with increasing risk to Cambodia's economic and social stability.
Grynspan said while it is a good sign that the Trump administration wants to negotiate trade agreements, these deals are complex and take time to complete, and the current uncertainty is impacting economic growth and investment.
At the same time, another inflationary challenge for the global supply chain has picked up again, with increasing aggression of Houthis towards freight vessels in the Red Sea. Two vessels were attacked in recent weeks, resulting in the sinking of one containership.
"These choke points are very important (to trade)," Grynspan said. "When they are disrupted, the whole system suffers."
She said the latest attack in the Red Sea raised the war premium in marine insurance by 1% above the value of the ship, or as much as $1 million. Added fuel costs as a result of ocean carriers traversing longer routes to avoid the Red Sea adds to inflationary pressures. She said the Red Sea situation alone could add 0.6% to global prices.