Ibrahim Malleck, Managing Partner, Ebonia Capital
President Trump’s decision to levy tariffs* unilaterally at a global level, has sent the world economy into a tailspin.
His mercantilism, unprecedented since the Great Depression of the 1930s, has created deep uncertainty in global markets. This has caused financial markets to plummet, sparked a shift from multilateral to bilateral and regional trade strategies, and triggered a trade war with China.
Since President Trump’s ‘Liberation Day’ speech on April 2nd, the US administration has not only openly flouted multilateralism in international commerce, but has also sent confusing signals to its global partners. The initial tariffs have been reduced to 10% for all countries bar China, as well as existing 25% levies on steel, aluminium and the automotive industry. More recently this has been further amended to also exclude items such as smartphones, laptops, and certain electronics, from China . Such an inconsistent approach, which is at odds with World Trade Organisation (WTO) guidelines, has exacerbated the growing level of uncertainty and market volatility at a global level.
Multilateral Trade as an engine for Growth
. After the Second World War, the USA emerged as the dominant international economic power and played a key role in establishing the General Agreement on Tariffs and Trade (GATT) . Through several rounds of negotiations, GATT aimed to reduce tariff and non-tariff barriers, curb protectionism, and promote sustainable growth in international trade.
In 1995, the GATT was replaced by the WTO, which followed the same path of liberalising global trade, and providing its members with a forum to settle trade disputes. The 166 member countries of the WTO remain bound by the rules set-out by the GATT at its creation in 1947. Article 1, which emphasises the concept of ‘Most-Favoured-Nation’ , puts forward the fundamental concept of a multilateral, rules-based global trading system, whereby signatory countries need to treat all their trading partners equally.
Article 1 was completely blown away on 2 April 2025, with President Trump clearly making the point in his ‘Liberation Day’ speech that, with the levy of tariffs across the board, the US government no longer played by the multilateral rule book. Since 1947, GATT, and subsequently the WTO, have strived to create a rules-based system based on reducing protectionist measures and promoting multilateral decision-taking. This brought about long periods of growth internationally, which has now been put at risk with the tariff levies.
The Global Hierarchy
Since President Trump started to play hard-ball with Canada, Mexico and China, with new tariffs across a wide range of inputs and finished goods, he has been upfront about his intention to ‘re-balance’ the US trade deficit and bring jobs back to the USA. The aim is also to generate revenues to make up for internal tax cuts promised during his electoral campaign. Although this might appeal to many of his voters, it remains a highly simplistic and flawed assessment of international trade as a policy instrument.
The USA sits at the top of the global economic hierarchy, powered by the world’s largest economy with a GDP of USD 30 trillion and massive import markets for finished goods and inputs worth USD 3.35 trillion in 2024. Its dominant position is further reinforced by the role of the USD as both the global trading currency and the world’s leading reserve currency.
President Trump has understood that, in the short term, he holds the cards. The size of the US market for the import of traded goods such as textiles, footwear, electronics, automotive parts, and so forth, renders the ability of exporting nations such as Vietnam, Indonesia, Taiwan or South Africa, amongst others, to immediately shift to new markets practically impossible. They can only try to cut bilateral deals with the US administration to ensure continued export flows, which maintain employment and FX receipts in their respective economies. A head-on collision with the USA, for such exporters, will only bring about macro-economic and social instability in their home economies.
The end of the Bretton Woods system in the early 1970s, which de-linked the USD from gold and introduced free-floating exchange rates, marked a major shift in the global monetary system. This, along with the financial liberalisation of the early 1980s that further integrated financial markets globally, strengthened the role of the USD in international trade and finance.Despite efforts by the BRIC nations and China’s continued push through its ‘Belt and Road’ initiative, the USD remains the top currency for global trade flows and the world’s main reserve currency. With deep financial markets and strong institutions, the USA continues to be the preferred destination for global financial assets, all dollow domminatied of course. All dollar denominated of course. Together with its huge market for goods and services, this dollar dominance remains the bedrock of US international economic policy and geopolitical strategy.
What's Next?
The coming weeks will be crucial in determining to what extent global growth will suffer from Trump’s unilateral mercantilist decisions. Countries have reacted differently to the ever-changing signals from the US administration. China is standing its ground in terms of a tit-for-tat retaliation. Canada, Mexico and the EU remain openly critical of the current levies with their own initial retaliatory tariffs which strategically targeted crucial sectors and Republican-voting states, but with a stated preference to negotiate especially after the 90-day window where rates were reduced, in most cases to 10%. The situation remains more problematic for emerging and less developed countries, particularly those with large export-manufacturing sectors, given the potential backlash of reduced revenues from the US market.
Economists have estimated the impact of recent events, with the OECD predicting a reduction in their initial global GDP growth forecasts from 3.3% to 3% in 2025 , and with the US economy looking to grow at a much slower pace than in 2024. Indeed, a blanket minimum tariff of 10%, albeit with several countries entering bilateral negotiations with the USA to reach a win-win solution, will reduce trade flows, and directly reduce growth. This will cause undue harm in terms of a slow-down of economic activity, the clear possibility of rising unemployment in export industries (very often in low-paying jobs where skills cannot be transferred easily to other industries), and of course a loss of efficiency with resources shifted to less productive areas due to protectionist measures. And as always, the more vulnerable economies will be most at risk.
The current trade war not only diverts resources away from their most efficient use, but does so at the expense of the end-consumer. When President Trump looks to build-up the US manufacturing base, or force a Taiwanese chip-maker to relocate production to the US, the labour and capital costs involved will make the end-product more expensive. The immediate impact on the US economy will be rising inflationary pressures which will hit the average consumer, with estimates of USD4,400- annually per household in increased prices. Moreover, as industry trends have shown, industrial growth in the US has relied on growing automation to replace labour, thus reducing any potential impact of tariffs on job creation in the USA.
A lack of Visibility and growing Uncertainty
The only constant since the start of the tariff escalations has been the ability of the US administration to change its decisions from one day to the next. Starting with differing tariffs on all countries (at rates devoid of any economic sense), and then moving to a flat 10% across the board (with a few exceptions), governments no longer know what to expect next. The escalation of the trade war with China, with levies on both sides above 100%, will have a substantial impact on international trade flows if not addressed immediately. This creates inefficiencies across the economy, for example in the form of lobby groups pushing for their goods to be exempted, as well as uncertainty around forward planning.
Uncertainty reduces the ability of economic agents to plan forward, immediately delaying any investment expenditures. Risk levels (both real and perceived) will increase across industries, negatively impacting everything from manufacturing and services, to financial flows towards growth industries. According to Moody’s, the current level of uncertainty in global trade policy will undermine both business and consumer confidence,
“The additional protectionist tools increase the complexity and cost of global trade and weaken growth prospects, especially for trade-reliant economies, as well as many industries. Uncertainty is already weighing on business confidence and delaying investment.”
This renders potential lowering of both Moody’s outlooks and ratings a real possibility for many countries, and will further reduce risk appetites, especially in financial markets where we could quickly head to a situation of tightening liquidity and higher costs. Growth capital will become less accessible and more expensive, with emerging and developing economies particularly at risk.
Potential impact on Mauritius
There is a real possibility of stagflation hitting major economies following the recent tariff hikes. Rising prices in the US, coupled with a slowdown of economic activity globally, will hurt open economies like Mauritius. Mauritian exports to the USA account for about 10% of the total, with exports at USD 234M and imports at USD 48M in 2024, and with the clear possibility of the AGOA (https://ustr.gov/issue-areas/trade-development/preference-programs/african-growth-and-opportunity-act-agoa) not being renewed in September 2025, the direct impact of a 10% tariff will cause initial pain in certain sectors, both locally and across several African countries. Indeed, the initial worse-case scenario of a 40% tariff on Mauritian exports to the USA highlights a potential loss of 9.4% in terms of such flows, with sectors such as apparel, live animals and precious stones particularly under threat.
What remains more worrying is the medium-term, indirect impact. The threat of stagflation in developed economies will have serious repercussions across our export sectors, but also on our tourism numbers as well as financial flows. Any economic slowdown in France, Germany, the UK, and South Africa, will put pressure on the number of tourist arrivals on the island, at a time when we are already seeing a year-on-year drop of these numbers, with Q1 2025 down by 5.8% compared to Q1 2024 in terms of tourist arrivals. Moreover, the real threat of a global slowdown might reduce investment flows that pass through our Global Business sector, further constraining the availability of Mauritius to generate foreign exchange.
The Financial Crisis of 2008, brought about by losses in mortgage-backed assets in the USA, caused a global downturn with developed nations directly hit, while emerging economies and less developed nations suffered from indirect consequences, including a considerable tightening of liquidity within international banking. As in 2008, the current trade war, will negatively affect open-economies like Mauritius indirectly, through a reduction in the ability to access competitively-priced liquidity for growth and development. This will further strain our already heavily indebted economy, which is burdened by a worrying current account deficit. It will also force us to be extremely cautious with future social and investment spending, especially given the real threat of a Moody’s downgrade to junk status if we fail to implement fiscal consolidation measures.
Resilience to External Shocks
It is evident that there needs to be an immediate strategy in terms of our economic diplomacy towards the USA to mitigate the risks to our export industry, and the message must be conveyed to the American administration urgently, amidst current on-going negotiations around the Chagos Archipelago.
We should also concentrate on making our economy more resilient to external shocks. When we were hit by
Covid in 2020, most of the measures focussed on supporting the economy, and unfortunately no hard decisions were taken in terms of our productivity levels, continued reliance on food imports, incentivising innovation (with new sectors attracting FDI) and ensuring rupee stability to control inflation. We lost an opportunity then to kick-start structural reforms and we should not repeat that mistake.
Some very hard decisions will have to be taken by the current Government, and the forthcoming Budget should provide incentives towards stimulating productive efficiency (both labour and capital) and innovation , a clear strategy of stabilising the Rupee and controlling the growth of our money supply (to reduce our import bill and inflationary pressures), and a framework to help Mauritian companies who need to explore new export markets (the AfCFTA as a priority). The current Government will need to make some very tough decisions in the near future. The forthcoming Budget should include incentives to boost productive efficiency—both labour and capital—as well as foster innovation. It should also outline a clear strategy to stabilise the Rupee, control money supply growth to ease the import bill and inflation, and support Mauritian companies in accessing new export markets, with a strong focus on the AfCFTA.
These are areas that remain under our control and that should be tackled immediately (as part of a wider medium term growth strategy) if we want to be more resilient and ready for the next economic shock that will hit us.
Economic shocks and geopolitical pressure points, which now seem to occur more regularly, will continue to hurt small island states like Mauritius, given our liberal economic model geared towards global markets for goods and services. We can no longer assume that we will stay immune to external shocks, and remain unprepared for future disruptions, especially in a new era of protectionism and market disruptions. Our priority must now be on building our socio-economic resilience, as well as carefully fostering strong links with our chosen strategic partners.
Conclusion
The global rules-based, multilateral trading order is currently under threat. Small island-state economies, such as Mauritius, need to re-adjust their short-term decisions given the current levels of economic uncertainty and market volatility. America’s global pre-eminence is at risk in the present environment and this will have a considerable impact at an international level. We must immediately work on our economic resilience and create a national framework, which includes macro-economic buffers, that allows us to be better prepared for future disruptions, and with the added ability to be flexible enough as a country to react at short notice.
*a tariff is a tax imposed by one country on goods and services imported from another country. Any tariff is paid by the importer at point of entry and in most cases, passed onto the end-consumer in terms of higher prices.
Main photo: Port Louis Harbour, Mauritius. Flickr
Charles Telfair Centre is an independent nonpartisan not for profit organisation and does not take specific positions. All views, positions, and conclusions expressed in our publications are solely those of the author(s).
