Donald Trump’s tariffs are expected to test the naira rebound as the United States’ president flexes muscles with trade partners.
Donald Trump, upon assuming office as the 47th president of the United States, imposed painful but strategic tariffs on imports from Canada, Mexico, and China. Given Trump’s history, additional tariffs on China were unsurprising. According to The Economist, the tariffs on China are at a “lower rate than those imposed on Canada and Mexico.”
Projections suggest that American consumers should brace for higher prices and potentially slower economic growth. But beyond the U.S., this development could have ripple effects on Nigeria’s economy in ways that many may not have anticipated.
BusinessDay recently reported that the naira appreciated to an eight-month high of N1,474.78/$ at the official foreign exchange (FX) market last Friday, as dollar demand eased due to a raft of fiscal and monetary policies. However, concerns are growing that Trump’s new tariffs could undermine this recent gain.
According to Bello, “The types of goods subject to high tariffs will influence inflationary pressures in the United States. As prices rise gradually, the U.S. Federal Reserve is likely to respond with a restrictive monetary policy, which will mean higher interest rates.”
This is where Nigeria may feel the impact, according to analysts. Higher U.S. interest rates would strengthen the dollar, increasing the opportunity cost of holding other currencies. “We saw this play out in 2023 when global financial markets dried up due to aggressive Fed rate hikes,” Bello added.
Read also: Trump’s tariffs trigger global stock slump, dollar rise amid trade war fears
A stronger dollar could push foreign investors to the sidelines in Nigeria, limiting capital inflows and affecting exchange rate stability. Additionally, Bello warned that “interest rates in the local currency may have to rise further, making the cost of funding significantly higher for businesses.”
However, not all sectors may feel the heat equally. Bello noted that the equities market, which has experienced double-digit growth since 2020, may remain resilient. “Domestic investors dominate the Nigerian stock market, so the impact may not be as pronounced. Still, economies of the world need one another, and I hope global leaders can reach a compromise,” he said.
As the situation unfolds, Nigeria must navigate the uncertainties of Trump’s trade policies while safeguarding its fragile economic recovery. The coming months will test whether the naira’s recent gains are truly sustainable or just a temporary reprieve.
Trump is also planning to pump more shale oil. The shale boom has upended the global market, turning the United States from a keen buyer of Nigerian oil to an aggressive competitor.
If the shale boom grounds to a halt, it will increase supply in the global oil market, a development that will automatically lead to lower oil prices that would hurt Nigeria’s economy.
Prolonged low oil prices could impact Nigeria’s budget stability and government spending, with knock-on effects on inflation and economic growth as Nigeria heavily relies on oil exports for government revenue and foreign exchange.
This will hurt inflows, which will weaken the naira.
“Reduced oil revenue could lead to a chain reaction impacting not only the government’s budget but also other industries and households reliant on oil-sector jobs,” Aisha Mohammed, an energy analyst at the Lagos-based Centre for Development Studies, said.
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