How Trump trade war fallout could affect Nigeria, Africa

President Donald Trump’s imposition of tariffs on Mexico, Canada, and China threatens to disrupt the global trading system.

Trump, as projected by his political and economic stance, is set to prioritise exports, disincentivise imports, regulate capital movement, and centralise currency decisions, all in the pursuit of strengthening the U.S. domestic economy and prioritising American interests.

The administration’s 10 percent tariffs on all Chinese goods have already begun, while the 25 percent tariffs on all goods from Canada and Mexico have been postponed for a month.

These measures have triggered retaliatory actions from the affected countries.

While the immediate effect of the move will be felt in the US, Canada, China and Mexico, African economies, particularly Nigeria could take a hit as the move is expected to fuel global inflation and disrupt supply chain.

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These developments pose significant challenges for Nigeria and Africa as their economies lack the internal resilience to withstand external shocks.

Okonjo Iweala, director-general of the World Trade Organisation recently warned that the tit-for-tat tariff war between countries will have serious consequences on global GDP.

“We’ve done some work and decided that if we break into two geopolitically divided trading blocs, we would end up with a 6.4 percent loss of global real GDP in the longer term,” Iweala explained. “It’s like losing the economies of Japan and Korea combined.”

For Africa, the trade war is bad news. The continent will hate to get stuck in the crossfire between the West and China and since the region trades with China as much as it does with the U.S. and Europe combined, any decoupling of the two blocs into separate trading arms will leave the continent in a dangerous dilemma.

For Nigeria, Trump’s aggressive trade policies could present challenges and opportunities. Historically, the trade relationship between Nigeria and the U.S. has been strongly shaped by Nigeria’s oil exports to the U.S. market, with the latter serving as a leading buyer of Nigerian crude oil in 2024.

According to data from the Nigerian Bureau of Statistics, the United States has contributed significantly to Nigeria’s exports, with N5 billion worth of goods exported in the first nine months of 2024.

Also, Trump’s inward-looking industrial policies and the global push for environmentally friendly manufacturing could challenge key Nigerian industries, such as oil and agriculture, where compliance with new standards may become costlier. The UN warns that restrictive trade measures could stifle growth in strategic sectors crucial to Nigeria’s economy.

The potential appreciation of the U.S. dollar, driven by geopolitical tensions, may further complicate Nigeria’s trade landscape. Given that most of Nigeria’s international transactions are dollar-denominated, any fluctuations in the dollar’s value could influence the country’s trade forecasts.

According to analysts, most industries are set to be affected. The energy sector, including fossil fuels and renewable, is particularly vulnerable to trade disputes. Not only are oil and gas major imports and exports, but the complex supply chain needed to produce clean energy technologies is deeply reliant on global trade.

They noted that the Nigerian economy will face three major trade threats from Trump’s trade policies.

Oil market disruptions

Nigeria’s economy is largely dependent on crude oil exports, and Trump’s National Energy Emergency could have substantial implications for the country. The Trump administration’s plans to expand domestic crude oil production are expected to lead to an oil glut, potentially crashing global prices.

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There are concerns that Nigeria faces significant risks in addressing the uncertain economic situation, which could potentially worsen the country’s already fragile economic conditions if proactive policies and measures are not implemented.

Also, reduced imports of fossil fuels from Nigeria by the U.S. could lead to a decrease in crude oil revenues, while increased U.S. exports could create additional competition for Nigeria in global export markets, potentially undermining its competitive advantage.

Trump also announced plans to impose tariffs on oil and gas imports, which are expected to be implemented by February 18, 2025. This will further strain the global energy market.

African Growth and Opportunity Act

The African Growth and Opportunity Act (AGOA), a U.S. trade initiative established in 2000, allows African nations to export various products, especially non-oil goods, to the United States on favourable terms, thereby promoting economic development and trade on the continent. It has been renewed and amended several times since then.

The U.S. trade pact with Africa which allows over 6,000 products to be exported to the US duty-free will end later this year with the expectation of it not being renewed by the President Trump administration.

Nigeria has yet to substantially increase its exports to the world’s biggest economy. However, South Africa, Kenya, Madagascar, Lesotho, and Ghana dominated the non-oil AGOA exports, with Nigeria’s exports mainly dominated by crude oil.

“We didn’t benefit from AGOA because we are not competitive. It is not just to export at zero-duty but to compete favourably,” Segun Kadir-Ajayi, director general of the Manufacturers Association of Nigeria (MAN), said Wednesday during the Presidential Luncheon for Media.

“We need to do a lot domestically to make our products competitive so we can compete favourably in those markets,” Ajayi added.

African and Nigerian markets

As the U.S., Mexico, Canada and China engage in a trade war, disruptions in the global supply chain will shift trade dynamics. African economies largely depend on stable international markets for exports and imports.

If trade tensions persist, foreign direct investment in African markets could be reduced as businesses in the Western economies will be focused on protecting their domestic industries.

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Also, any slowdown in the North American economy due to the war could affect remittances from the Nigerian and African diaspora in the U.S. and Canada.

According to the World Bank, remittances from Nigerians living abroad reached $20bn in 2023, slightly lower than the $21bn a year earlier, and still about a third of the entire flow to sub-Saharan Africa for the year.

The flow is projected to reach $26bn in the next two years, making it a hard-to-ignore source of foreign income and one the monetary authorities want to be reflected in the value of the naira.

A decline in remittances could further weaken Nigeria’s naira currency.