Trade Barriers and AI Divide Threaten Developing Nations: UNCTAD Warns of Catastrophic Risks

The United Nations Conference on Trade and Development (UNCTAD) has issued a stark warning: without urgent reforms, tariffs and technological divides could derail economic progress in developing nations, exacerbating inequality and destabilizing global trade. In its latest report, UNCTAD highlights how tariff inequities and the uneven adoption of artificial intelligence (AI) are creating a "catastrophic" risk of deepening divides between rich and poor nations.

Tariff Barriers: Locking Developing Nations into Poverty Traps

UNCTAD’s analysis reveals that while two-thirds of global trade occurs tariff-free under most-favored-nation (MFN) terms or agreements, the remaining third—disproportionately affecting developing economies—faces crippling barriers. Agriculture, a lifeline for many poorer nations, faces MFN duties averaging nearly 20% on exports from developing countries, while textiles and apparel face 6% tariffs. South-South trade (between developing nations) is hampered by average tariffs of 15%, stifling regional integration.

The report emphasizes tariff escalation as a particularly pernicious issue. This practice—imposing higher duties on processed goods than raw materials—discourages value-added manufacturing in developing countries. For instance, processed agricultural goods often face tariffs 2–3 times higher than raw commodities, locking nations into exporting low-margin raw materials.

Data Query:

UNCTAD warns that these barriers are undermining industrialization efforts. While developing economies drove 4% annual trade growth in 2024 (vs. stagnation in advanced economies), their progress slowed sharply in late 2024, with services trade growth collapsing to 1% and goods trade to 0.5% in Q4.

The AI Divide: A $4.8 Trillion Opportunity, But for Whom?

The report also sounds the alarm on AI’s potential to exacerbate inequality. By 2033, AI could generate a market worth $4.8 trillion—equivalent to Germany’s GDP—but its benefits are concentrated in just 100 firms, mostly in the U.S. and China. Meanwhile, 118 countries, primarily in the Global South, are excluded from global AI governance discussions.

The risks are twofold:
1. Job Displacement: Up to 40% of global jobs could be disrupted by AI, disproportionately affecting labor-dependent economies.
2. Technological Dependence: Without access to computing power, data, and skills, developing nations risk becoming mere consumers of AI rather than innovators.

UNCTAD urges developing nations to prioritize infrastructure (e.g., high-speed internet), data access, and workforce reskilling. It also calls for global frameworks, such as a shared AI computing facility and transparency standards akin to ESG metrics, to ensure equitable access.

Geopolitical Tensions and Policy Fragmentation

The report identifies rising protectionism as a key threat. Advanced economies are increasingly tying tariffs and subsidies to economic security and climate goals, while China uses stimulus policies to sustain exports. These moves risk triggering retaliatory measures and distorting competition in sectors like clean energy and critical minerals.

Supply chains are diversifying rather than consolidating, with firms spreading risks across regions instead of relying on "friendshoring" or nearshoring. However, this complexity could strain smaller economies. Meanwhile, trade imbalances are worsening: the U.S. trade deficit with China hit $355 billion in 2024 (up $14 billion in Q4), while China’s surplus reached its highest level since 2022.

Conclusion: A Crossroads for Global Trade

UNCTAD’s findings paint a dire picture: without coordinated action, tariffs and technological divides could cement a two-tiered global economy. Developing nations face a triple threat—stifled industrialization, job losses to AI, and exclusion from governance—while advanced economies risk self-inflicted wounds through protectionism.

Investors should heed these warnings. Sectors like infrastructure (e.g., fiber-optic networks in Africa), renewable energy (to reduce reliance on tariff-heavy exports), and AI training programs in emerging markets may offer long-term opportunities. However, the path to stability requires policymakers to:
- Reform tariff structures to eliminate escalation and reduce South-South trade barriers.
- Foster global AI collaboration to prevent a digital divide.
- Balance industrial policies with multilateral agreements to avoid trade fragmentation.

The stakes are high. As UNCTAD concludes, the choices made in 2025 will determine whether global trade systems become engines of resilience—or relics of a fractured world.