Over the past year, developing countries have experienced important changes in their tariff treatment by the world’s two largest economies – the US and China.

The new set of country-specific tariffs imposed by the US has raised trade barriers to imports in general, and has also shuffled countries’ relative positions in the US market. Many developing countries now face especially high “reciprocal” tariffs, while others are subject only to a 10% baseline tariff. Moreover, effective 30 September 2025, the African Growth and Opportunity Act (AGOA) expired. AGOA had made 32 African countries eligible for duty-free access to the US market for a long list of products, most notably in the apparel sector.

Meanwhile, China’s treatment of imports from developing countries has moved in the other direction. In December 2024, China expanded the list of products eligible for zero tariffs in its preferential programme for the least-developed countries (LDCs). For the 43 LDCs maintaining diplomatic relations with China, all products now enter China duty-free – a modest liberalisation relative to the previous situation where some products of LDCs were ineligible for these preferences. In June 2025, China further pledged to expand this duty-free treatment to almost all African countries. If fully implemented, this initiative would eliminate Chinese tariffs on exports of 20 African countries not currently classified as LDCs.

This set of policy changes is likely to affect developing countries in complex ways. This is due in part to the incidence of the policies themselves. For example, the Republic of Congo is simultaneously facing the loss of AGOA, a newly advantageous (relative to other US trade partners) bilateral US tariff of 10%, and a potential reduction of Chinese tariffs to zero. But the situation is complex also because the effects of such changes in trade preferences on the exports of developing countries are likely to be highly heterogeneous across countries and products.

Various studies have examined the impact of the offer of trade preferences on recipients’ exports. Gil-Pareja et al. (2014), Ornelas and Ritel (2020) and Van Biesebroeck and Zaurino (forthcoming) consider a wide set of trade preference programmes for developing countries, finding generally positive effects but also substantial heterogeneity across programmes, beneficiaries, and products (see also Ritel and Ornelas 2018). Among studies focusing on AGOA, early work by Frazer and Van Biesebroeck (2010) found positive effects (see also Van Biesebroeck and Frazer 2007), but Fernandes et al. (2021, 2023) conclude that initially large impacts on trade levelled off in later years, especially for the apparel sector.

Another set of studies has considered the consequences of losses of eligibility for trade preferences. Hakobyan (2020) examines temporary expirations of the US Generalized System of Preferences (GSP) programme, while Kassa et al. (2025) study the removal of individual countries’ eligibility for AGOA. Borchert and Di Ubaldo (2020, 2024) consider the impact of a 2014 reform of the EU’s GSP programme, which involved the withdrawal of preferences in some cases while reducing the risk of such withdrawal in others (see also Di Ubaldo and Borchert 2021). These studies all indicate negative impacts of losses of trade preferences on exports, but highlight significant differences across products and countries.

Our recent work (Forge et al. 2024) takes a closer look into the heterogeneous impacts of trade preferences for developing countries. We focus on one of the main policy goals of trade preference programmes: to promote the diversification of developing countries’ exports, by encouraging flows of currently exported goods to new markets, as well as the entry of newly exported product lines.

Our study is motivated by the idea that a tariff reduction by an importer for a particular product may have no effect at all on a country whose firms are far from the margin between exporting and not exporting. In theory, if the productivity of a country’s (potential) leading firm is too low, or the cost of exporting faced by firms is too large, a reduced tariff may not be sufficient to encourage a new export flow.

Based on this idea, we argue that we can predict which countries might respond positively to particular tariff changes by observing pre-existing trade patterns. If we see that a country is already exporting the same product to another destination and/or exporting similar products to the same importer, it is more likely that the conditions are in place for firms in this country to initiate a new trade flow in response to lower tariffs. In other words, tariff cuts for developing countries should be more likely to encourage incremental diversification across destinations and/or related product categories, rather than ‘leaps’ to entirely new export sectors.

We test this hypothesis by considering the impacts of a wave of tariff reductions targeted at LDCs in the late 1990s and early 2000s. These trade preferences were implemented after the end of the Uruguay Round of global trade negotiations, which included a call for improved trade preferences for LDCs. We study 22 waves of tariff cuts by wealthy countries during this period, mostly in the form of expansions of countries’ GSP programmes for LDCs, but also including AGOA. The timing and scope of each of these reforms is displayed in Table 1.

Table 1 Reforms of OECD importers’ programmes for LDCs, 1996-2013

Notes: The table lists the trade preference programme reforms we study. “EBA” refers to the EU’s Everything but Arms programme, and “MAI” refers to Canada’s Market Access Initiative, both of which were expansions of existing GSP programs for LDCs. For each importing country, the “Countries” column refers to the number of exporters receiving tariff cuts due to at least one program reform, while “Products” refers to the total number of six-digit Harmonized System (HS) products whose tariffs were reduced by at least one reform.

The extent of trade diversification among the countries receiving these preferences is very low. For the 69 developing countries and nine major importers involved in the reforms we study, as of 1996 (the beginning of our sample period), the probability that any particular product was exported to a given importer by a country was 0.8% on average. In other words, for 99.2% of exporter-importer-product combinations, there was no observed trade in that year. At the end of our sample period 18 years later, despite widespread growth in global trade flows, this share had fallen only to 98.6%.

To analyse the impact of tariff cuts in this context, we begin by estimating their effects without considering the potential heterogeneity discussed above. We find that the effect of a tariff cut was to increase the probability of a nonzero trade flow (by exporter, importer, and product in a given year) by 0.16 percentage points. Considering the very small share of positive trade flows in total, this is a relatively large effect.

But which exporters and products were affected? To better understand this, we define an ‘export experience’ variable that captures the initial situation of ‘adjacent’ trade flows. More specifically, we identify all cases in which at least one of the following was true as of the beginning of our sample period: (1) a country already exported the same product to another importer; and/or (2) a country already exported another product in the same category to the same importer. We define product categories according to the two-digit headings in the Harmonized System (HS) classification – for example, a knitted cotton cardigan is a (six-digit) product, while knitted apparel in general is a (two-digit) product category.

The key step in our study is to conduct our analysis separately for cases with and without export experience. The results are striking: in the absence of adjacent trade flows, a tariff reduction is estimated to increase the probability of exporting by only 0.04 percentage points. When we break down this estimate according to the size of the tariff cut, we find that this impact is entirely concentrated among the top 10% largest reductions. Meanwhile, in cases with export experience, the effect of a tariff reduction is more than 30 times larger, raising the incidence of trade flows by 1.35 percentage points. Figure 1 shows how these effects play out over time: even after a decade of improved trade preferences, their estimated impact is very small if initial export experience is absent.

Figure 1 Effects of a reduction in tariffs by export experience

Notes: The figure displays the estimated year-by-year effects of a reduction in tariffs as part of a trade preference programme reform, with 95% confidence intervals. The horizontal axis represents the number of years since the tariff reduction. All estimates are relative to the year before the reform (year -1). The vertical axis shows the size of the increase in the probability of exporting, in percentage points, due to a tariff cut.

Our findings suggest that to predict the possible effects of recent changes in US and Chinese tariffs, and also to understand some of the heterogeneous impacts observed in the past, a marginal logic should be applied. Across the developing world, the realignment of production is likely to follow the realignment of tariffs only where tariff changes are actually sufficient to affect trade flows. Industrial clusters that have already built trading relationships with major importers may face meaningful harm from US tariff rises, or benefit from China’s policy changes. But in many other cases, gains or losses in a country’s relative tariff treatment might have little influence on its firms’ entry or exit from the US or Chinese markets.

References

Borchert, I and M Di Ubaldo (2020), “Go Ahead and Trade: The Effect of Uncertainty Removal in the EU’s GSP Scheme”, European University Institute Working Paper RSCAS 2020/15.

Borchert, I and M Di Ubaldo (2024), “The Trade Impact of Surprise Graduations from the EU’s GSP Scheme”, University of Sussex Business School Working Paper 12-2024.

Di Ubaldo, M and I Borchert (2021), “Trade Preferences Need Predictability”, VoxEU.org, 11 January.

Fernandes, A M, A Forero, H Maemir and A Mattoo (2023), “Are Trade Preferences a Panacea? The Export Impact of the African Growth and Opportunity Act”, World Development 162, 106114.

Fernandes, A M, A Forero, H Maemir and A Mattoo (2021), “The Longer-Term Impact of the African Growth and Opportunity Act”, VoxEU.org, 14 April.

Forge, F, J Garred and K L Kwon (2024), “When are Tariff Cuts Not Enough? Heterogeneous Effects of Trade Preferences for the Least Developed Countries”, Journal of International Economics 152, 103971.

Frazer, G and J Van Biesebroeck (2010), “Trade Growth Under the African Growth and Opportunity Act”, Review of Economics and Statistics 92(1): 128-144.

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Van Biesebroeck, J and G Frazer (2007), “Trade Policy as Development Policy”, VoxEU.org, 7 August.

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