Nigeria Under Trump's Tariffs: Economic Fallout and Policy Options

You may have heard about the news circulating regarding the Trump trade tariffs, which have escalated into a full-blown trade war between China and the USA, with both countries raising tariffs as high as 145% and 125% on goods imported from China to the USA and vice versa. Although this was not solely aimed at the developed economies of the EU, Asia, and North America, Nigeria has also been affected by a new 14% tariff imposed by President Trump. This has prompted the Federal Government of Nigeria to establish a committee to examine the likely effects of these tariffs on Nigeria and explore possible pathways forward.

For those unfamiliar with tariffs, let me provide a brief explanation. Tariffs are taxes imposed by a government on goods imported into its country. They primarily protect local industries from being undercut by foreign countries with cheaper technology, costs, and more favourable foreign exchange rates.

According to the Nigerian Bureau of Statistics (NBS), Nigeria’s trade relations with the USA reached a combined value of ₦31 trillion between 2015 and 2024, peaking at ₦5.5 trillion in 2024. Throughout this period, Nigeria recorded a trade surplus of ₦1.6 trillion, indicating that Nigeria has exported significantly more to the USA than the USA has exported to Nigeria.

Nigeria is undergoing a challenging economic recovery process, characterized by the removal of petrol subsidies and the urgent necessity for the country to enhance the Naira's value after losing nearly 70% of its value against the US dollar since 2023. President Trump's recent tariff increases challenges Nigeria’s recovery efforts.

You might be wondering what the likely effect of these tariff increases on the Nigerian economy are.

One immediate consequence of this policy is the probable reduction in foreign exchange inflows into the country, as this policy is compelling major producers to relocate their production bases to the US. Additionally, exports from Nigeria to the USA will now be more expensive, potentially leading US customers to seek local substitutes, as the demand for these products might be elastic.

Another effect could be nullifying the AGOA benefits enjoyed by African countries. AGOA, or the African Growth and Opportunities Act, was established in May 2000 to strengthen economic ties with sub-Saharan African countries. Under this Act, eligible products from these countries can be imported to the US duty-free. However, the new tariff announcement by the Trump administration has rendered the AGOA arrangement ineffective. This has particularly impacted non-oil exports such as textiles and agricultural products. Furthermore, there are ongoing questions about whether the AGOA Act will be renewed, as it is set to expire this year.

This decision will also influence the federal government’s diversification efforts, hindering its attempts to reduce dependency on oil exports and emphasizing a shift towards non-oil exports.

Another significant effect we have recently witnessed is the Nigerian stock exchange losing ₦550 billion within one week of the tariff announcement. Analysts claim this is the steepest decline; however, market watchers remain hopeful that the tide will turn soon.

Now that we have outlined the likely effects of this tariff announcement, how should the Nigerian government respond?

The first response should be dialogue. The Nigerian government should engage with their US counterparts to reach a mutual agreement that will benefit both the US and Nigeria. This will ensure the Nigerian government can get its economic recovery plan back on track.

Secondly, the Nigerian government should intensify its diversification efforts across other sectors to ensure the country is well protected against any economic shocks arising from policy decisions in different countries, similar to what the US has done.

Finally, the government should explore other export markets, especially by expediting the implementation of the African Continental Free Trade Area (AfCFTA). By doing this, Nigeria will be well-positioned to mitigate the destabilizing effects of these tariff announcements, turning a challenge into a significant opportunity for growth.