The global economic and financial order stands at the precipice of a seismic shift. Within just 24 hours of the new US administration taking office, the early outlines of its vision were already signalling profound changes in how America engages with the world.

Warnings about currency manipulation, coupled with proposals to create a Department of External Revenue, hint at a trajectory that could redefine international trade and finance. Policies aimed at reshoring manufacturing, imposing steep tariffs and realigning energy and technology priorities have sent ripples – if not outright shockwaves – through global financial markets.

For emerging markets and developing economies, the fallout could demand a fundamental recalibration of trade strategies, financing models and approaches to sovereign debt management and development aid. The longstanding reliance on multilateral frameworks and the global financial safety net may no longer be a given. These nations could find themselves navigating these policy shifts independently, analysing their impact and formulating responses in an environment marked by heightened uncertainty.

When viewed through the lens of financial channels – capital flows, exchange rates and investment patterns – the implications of the US policy reset for the global South become clear. These nations are poised to experience the brunt of these changes through five critical financial pathways.

What to expect for the global South

One headline policy is the imposition of a 25% tariff on imports from Canada and Mexico starting 1 February 2025. Proposals for broader tariffs potentially target Brics nations, disrupting global trade flows and directly affecting developing economies. Higher tariffs can reduce trade surpluses for export-heavy Brics nations like China and India, potentially causing a decline in foreign exchange reserves or an increase in debt financing. For developing countries reliant on Brics supply chains, this may reduce trade finance opportunities and cross-border lending.

The tariffs are expected to strengthen the US dollar, putting downward pressure on the currencies of the developing world. This could exacerbate debt vulnerabilities for nations with sizeable dollar-denominated debt burdens, common among global South economies. Markets typically react to protectionist measures with increased risk aversion, leading to capital outflows from emerging markets as investors seek the safety of US assets, pushing up borrowing costs for developing nations.

Second, the administration's energy policies, including dismantling electric vehicle mandates and boosting fossil fuel industries, could have mixed consequences for Brics and resource-dependent economies. Russia and Brazil, as significant oil and gas exporters, might see a short-term boost in demand.

However, the global transition towards green finance could be undermined, creating uncertainty in renewable energy investments in emerging markets. Energy-exporting nations in the global South may face declining valuations of their sovereign-owned funds if the emphasis on fossil fuels deters investments in sustainable infrastructure, affecting fiscal stability.

Third, the administration's ban on items with connected software from ‘countries of concern’, including China, marks a significant shift in US-China technological relations. Reduced technological collaboration may deter US venture capital and private equity investments in emerging markets tied to Chinese technology supply chains, slowing the growth of tech startups in countries like India and South Africa. The Brics bloc might seek to strengthen intra-regional financial co-operation to offset these restrictions, with initiatives like cross-border payments in local currencies or Brics development bank funding for tech projects gaining momentum.

Influenced by US policy signals, private investors may scale back commitments to climate-related investments in developing economies, widening the gap in climate finance. Countries like China and India may push harder for regional initiatives, such as climate resilience funds, to mobilise resources. However, limited fiscal space in global South countries could constrain their ability to catalyse private sector investment.

Fourth, emerging markets and Brics nations often depend on access to international financial markets to fund development. Protectionist measures, combined with potential Federal Reserve tightening, could pose risks. Rising interest rates in the US and a stronger dollar will increase debt-servicing costs for countries with significant external debt, intensifying the risk of sovereign debt crises, especially in lower-income global South countries. Investor concerns over geopolitical tensions could reduce access to US capital markets, pushing Brics nations to issue bonds in local currencies or explore alternatives like green bonds in Asian and Middle Eastern markets.

And fifth, the retreat from multilateralism under the ‘America first’ doctrine could accelerate Brics nations' efforts to reshape the global financial architecture. Brics might enhance the role of the New Development Bank and explore initiatives like a Brics reserve currency to reduce reliance on the US dollar. China's advances in central bank digital currencies and cross-border payment systems could gain traction as an alternative to the Swift network, potentially reducing the dollar's dominance in trade finance.

A moment of reckoning

The US administration’s policies present a critical moment of reckoning for the global South and Brics nations. The financial channels – trade, energy, technology, debt and geopolitical realignment – are all poised for significant disruption.

However, amid these challenges lies an opportunity to foster greater economic resilience and independence. The path forward will require strategic adaptability, bold structural reforms and the creation of robust institutions to strengthen political and social stability –prerequisites for the global South’s sustained growth and prosperity.

This period of uncertainty could catalyse reform and rebuilding efforts across the developing world, reducing reliance on advanced economies for financing, market access and leniency in meeting global economic and financial standards. It opens the door for greater co-operation within the global South or even for China and India to assume more prominent roles as economic and financial partners to other developing nations.

By diversifying trade partnerships, fostering regional co-operation and innovating in critical areas such as climate finance, digital payments, technology, space and artificial intelligence, the global South can mitigate the fallout of US protectionism and carve out a more autonomous path forward. Scenario-based planning and strategic foresight are essential for these nations to identify common ground, assess potential outcomes and craft cohesive responses. The stakes are high, and a lack of coordinated action could leave them vulnerable to economic polarisation.

The US, too, must tread carefully. Overextending protectionist policies could provoke collective retaliation from the global South – many of these nations are significant producers of primary goods essential to the US economy and vital markets for American-made products.

The question remains: will the nations of the global South rise to this challenge, leveraging disruption as a springboard for transformation? Or will the ripple effects of ‘America first’ policies leave them struggling to keep pace in an increasingly divided and competitive global economy? The answers will define not just their future, but the contours of the global economic order in the years to come.

This article was also published by Observer Research Foundation America.