Panic grips world’s factory hubs after Trump tariff whiplash
Exporters in the poorest countries are grappling with cancelled orders, upended livelihoods and the impossibility of knowing what to do next
The night before US President Donald Trump's tariffs were set to kick off this week, Rubana Huq convened an emergency meeting of some of Bangladesh's most prominent exporters.
From her living room in an upscale part of Dhaka, the group that supplies brands like H&M and Dollar Tree couldn't quite believe how the US was suddenly treating the world's poorest nations. They spoke about how the levies would devastate their factories, and expressed anxiety about rejigging supply chains.
The frustration boiled over for Ahsan Khan Chowdhury, whose company counts 150,000 employees.
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"We are one of the poorest countries on God's earth," he said in exasperation. "What have we done to deserve the wrath of the United States of America?"
Trump's proposed duties fall heaviest on nations with little leverage to negotiate, in places where daily incomes hover around a few dollars and livelihoods rely on selling cheap goods to the US - an economy 60 times larger than Bangladesh. What's worse, for years US-backed development agencies have encouraged the South Asian nation to pull itself out of poverty through exporting clothing.
Over a chaotic, confusing week - when Trump implemented, then paused, his harshest tariffs yet on dozens of countries - the developing world has woken up to a bleak, new reality. For more than 70 years, many emerging nations, especially in Asia, have become the low-cost manufacturer to the US, the world's biggest consumer. Americans import everything from trousers sewn in Bangladesh to vanilla grown in Madagascar. Trump is now upending that model with his declaration of "Liberation Day." In Vietnam, potential levies of 46% on America-bound exports set off panic in factories across metropolises like Hanoi and Ho Chi Minh City.
Apart from China, where Trump raised tariffs to 125%, countries flagged for steeper US taxes now have at least another 90 days of reprieve. Should the White House move forward, the duties could carry dire consequences for emerging economies, especially against the backdrop of last month's cuts to most US foreign aid.
"It's a stay of execution," said Zachary Abuza, a professor at the National War College in Washington who focuses on Southeast Asian politics. "They're still on death row, and this is a very mercurial president who could change his mind."
By playing hardball with vulnerable, impoverished countries making non-strategic goods like clothing or shoes, Trump has signaled that he's willing to jeopardize decades of international development and soft power in pursuit of balancing trade deficits.
Many impacted African nations have, for years, relied on tariff-free access to the US. Others, like Pakistan and Sri Lanka, lean on bodies like the International Monetary Fund to keep their economies afloat, or are caught under the weight of wars and conflict. From his list of countries, Trump planned to apply the steepest tariff to Lesotho, one of Africa's poorest. Officials there warn that the economy could collapse entirely if the US presses on with its master plan.
Outside a factory in Phnom Penh, Cambodia's capital, 45-year-old Sou Samnang was feeling despondent this week. Much of her $200 monthly paycheck goes toward supporting family and paying down a small loan for a motorbike. There's simply no wiggle room if she abruptly loses her job.
"I don't know what to do," she said.
Waiting in the wings is China. By pumping billions of dollars into building ports and railways in poorer countries, and extracting political support in exchange, Beijing now wants to capitalize on the chaos and strengthen its trade ties. President Xi Jinping has meetings lined up next week in Cambodia, Vietnam and Malaysia.
"For over a decade, Washington rallied countries by pointing to China's bullying, lawbreaking and unfair economic practices," said Lynn Kuok, the Lee Kuan Yew Chair in Southeast Asia Studies at the Brookings Institution. "Now, it risks being accused of exactly that."
Across Asia, where the tariffs would be especially damaging, feelings of whiplash prevailed throughout the week.
In Cambodia, officials initially downplayed a 49% duty, convinced that Trump would walk it back, since the nation mainly exports cheap, labor-intensive goods. Last year, total trade with the US reached an estimated $13 billion, 97% of which were exports from Cambodia.
When it became clear that the White House was serious, Cambodia scrambled into action. Officials and business leaders mulled how to negotiate with the US. Some expressed concerns about their ability as a small economy to get Trump's ear, said Casey Barnett, the president of the American Chamber of Commerce in Cambodia, who participated in the chats.
"Cambodia simply doesn't buy American goods," he said, adding that one of the country's biggest imports from the US is used cars. "They can't even afford to buy a new vehicle from the US."
After Trump paused most of the tariffs on Wednesday, implementing only 10% across the board except for in China, everybody seemed to be looking to cut deals.
Thomas Lim, the managing director of LNL (Cambodia) Co. Ltd., a logistics firm in Phnom Penh, said his American clients hastily suspended shipments early Wednesday - only to change their minds once Trump deferred the hardest-line duties.
"I believe, during this 90 days, the carriers will take the opportunity to increase trade rates," said Lim, who estimates that shipping prices could surge around 25% during May and June.
These supply chains aren't random. For decades, the blueprint for poor countries to get rich has remained mostly the same: move farmers into factories, identify a niche and sell those products to the world. That roadmap lifted hundreds of millions from poverty in China and elsewhere, giving rise to a period of dramatic growth.
In recent years, as trade relations between Washington and Beijing frayed, big business looked to diversify. The China Plus One strategy spread the wealth around, offering a lifeline to places like Vietnam, where factories making shoes for brands like Nike Inc. yielded more jobs in Southeast Asia and cheaper goods for American consumers. More than one-quarter of Vietnam's gross domestic product depends on shipments to the US, according to Bloomberg Economics.
But over the past several years, returns from export-oriented industrialization have begun to dwindle, battered by rising automation, post-pandemic inflation and a surge in protectionist policies in richer countries.
Trump's proposed measures - raising trade barriers to a point not seen for more than a century - would be a death knell to the model, said Dani Rodrik, a leading economist at Harvard University.
"Tariffs are really the last straw," he said. "Developing countries need a new strategy."
In Bangladesh, which sold more than $8 billion of garments last year to the US, about a fifth of its total, exporters are already feeling the pinch. Some said American buyers are demanding that Bangladeshi companies absorb the full cost of proposed 37% tariffs - an impossible ask, given razor-thin margins.
A cutthroat price war has commenced, with exporters competing to win over fewer customers in more amenable markets, such as Europe.
Huq, the managing director of the Mohammadi Group, a garments-focused conglomerate, said one Spain-based customer abruptly cancelled two orders for hundreds of thousands of cotton shirts. She later learned that a supplier in Cambodia had swooped in with a better deal.
"Buyers move for even one cent less," she said.
Prior to Trump backing down on Wednesday, markets hemorrhaged trillions of dollars, with some of the steepest slides since the start of the pandemic in 2020. For many business owners, the takeaway seemed clear: Pare exposure to the US or risk more costly surprises.
Sim Thai Ha Phuong, the owner of Thai Son S.P. Co. Ltd., which runs two garment factories in southern Vietnam, learned her lesson during the 2008 financial crash. Her sales were "severely hit," she said. Since then, Sim has cut back in North America, building a client base that's largely Russian, European and Australian.
"I understood I had to make an effort to diversify my markets," she said.
But finding new customers in a world where low-end manufactured goods are already in oversupply will be tough, said Rehman Naseem, the chief executive of Fazal Cloth Mills Ltd. in Pakistan, where about 80% of the country's exports to the US are textiles.
"There is no country that's facing textile product shortages," he said. "It's impossible especially in such a short timeframe to find other markets."
Whether fallout from the levies bolsters China's geopolitical might - or pushes more business its way - remains to be seen. Earlier this year, Singapore's defense minister said regional perceptions of the US had shifted from "liberator" to "landlord seeking rent." After the termination of USAID contracts, China stepped up to fund projects related to child literacy and development in Cambodia.
Even so, there's the potential of overreach, with growing concerns that China might push too deep into other nations to minimize damage from its own tariff woes. That could put small, local firms out of business, and irk world leaders who might otherwise be open to inking new deals with China given Trump's unpredictability.
"It's not all smooth sailing for Beijing," said Peter Mumford, who leads coverage of Southeast Asia for the Eurasia Group, a political risk consultancy. "The trade war between the US and China may exacerbate the flood of low-cost Chinese imports into the region."
On the ground, these debates remain abstractions for now. Throughout a tense week, Bangladesh's garment factories were still going full-throttle, the faint smell of irons filling large, industrial spaces.
On the outskirts of Dhaka, at a facility run by the Urmi Group, hundreds of workers in green uniforms fed strips of fabric through sewing machines. Among them was Sheuly Akter, 30, a quality inspector who supports a family of seven with her husband.
There's no telling what happens next for Bangladesh, she said, except that everybody will have to work harder, faster and longer to make up for lost business. Akter said her livelihood depends on it.
"I don't think buyers will pay the extra tariff," she said. "I'm worried."
- With assistance from Arun Devnath, Anusha Ondaatjie, Kamran Haider, Francesca Stevens, John Boudreau, Nguyen Dieu Tu Uyen, Faseeh Mangi, Antony Sguazzin, Neil Munshi, and Mathabiso Ralengau
