President Donald Trump has kept his attachment to tariffs unsecret. He has been frequently featured in the branding of “The Most Beautiful Words in the Dictionary.”
So, when we spoke from the White House at the beginning of April, the president announced the “liberation date” measures to impose swept tariffs on countries around the world, it may not have been surprising to markets and policymakers.
But we may be allowed to be surprised by the country chosen for the small state of Lesotho, especially for its harsh treatment. Lesotho, which exported mainly diamonds and clothing, received the highest “liberation date” tariff of 50%.
Trump's tariffs were calculated by taking a trade deficit with each US country and dividing that number by the total import value from that country. Almost every country faces a minimum of 10% blankets. Poor countries like Lesotho, which export roughly $55 million worth of diamonds to the United States each year but rarely import them, have been found to be “the worst criminals.”
Madagascar, which imports most of the time while exporting relatively modest amounts of vanilla and clothing to the United States, was similarly criticized under this calculation. East African islands suffered 47% tariffs as a result of perceived trade disparities.
“The massive and sustainable annual US trade obstacles have stoked screams from manufacturing bases, hampered their ability to expand sophisticated domestic manufacturing capabilities, undermined key supply chains and provided industrial industrial bases that rely on foreign enemies,” according to an executive order seeking to explain the idea behind the move.
“The lack of interaction in our bilateral trade relationships will lead to a substantial portion of a large, sustainable annual US trade deficit.”
Backtrack provides a temporary rest
There was some rest in Lesotho, Madagascar and all other countries facing sudden tariffs. The week after “liberation day,” Trump temporarily betrayed by announcing that there will be a 90-day suspension for all countries, during which time only a universal 10% baseline tariff will be applied.
This is a series of retaliation and counter-competence, with the exception of China, and at the time of writing, most exports to the US face to face. The American companies exporting to China were hit by a slightly lower percentage of 125%. However, African governments, policymakers and business leaders are still working on fallout, trying to assess what the continent's long-term outcome is.
Daniel Silke, a Cape Town-based political and economic analyst, told African businesses that “the threat of on-off tariffs has unlocked uncertainty in markets around the world.”
“It's an old cliché, but it remains true. The market doesn't like uncertainty, whether it's the world's major capital or the developing world,” he says.
Cheta Nwanze, founder of SBM Intelligence, a Lagos-based geopolitical research firm, is relatively optimistic that tariff effects will be limited to Africa's real economy, but agrees that uncertainty and market disruption will affect investors' feelings, thus the capital will flow to the continent.
“In many African countries, the informal sector is huge. In Nigeria, for example, the oil sector accounts for around 90% of government revenue, but only about 6% of GDP. The overall oil industry employs less than 100,000 people in 200 million countries,” he explains.
Nwanze says these dynamics create “dissonances” in which sectors that are extremely vulnerable to global markets and geopolitical events “create a ton of noise” on issues such as tariffs.
He points out that “from an African perspective, the disappearance of US trade has not had much real effect, as all African countries, except Djibouti, interact with China more than the US.”
Africa has been exposed to a trade war
In this sense, the direct economic impact of tariffs on African countries may be limited, but there is a risk that the continent could be exposed to the consequences of the escalating trade war between Washington, DC and Beijing.
The decline in trade between the two biggest economies in the world is likely to be enormous. The World Trade Organization projected an 80% decline in US-China goods trade in 2025. The International Monetary Fund (IMF) has previously warned that sub-Saharan Africa could be the worst region due to “geoeconomic fragmentation” that arises from trade barriers imposed between the East and West.
Nwanze believes China's demand for African goods and resources remains strong despite potential damages being caused by the economy. “China has been preparing for this for a while. The Belt and Road Initiative can be seen as a 'geographical strategic preparation' in which China has strengthened its internal markets while creating new external markets,” he says.
However, Silke is even more concerned that Africa's economy is being caught up in crossfire. In particular, he believes that a sharp decline in commodity trade between the US and China is likely to create a large amount of Chinese products in the market.
“I think there are many products available from China as a result of these tariffs. Chinese products will no longer be sent to the US. They will likely be offloaded to developing markets and sold at relatively low prices,” Silke told African businesses.
“This is a threat to African manufacturing that cannot compete at these levels. It puts a brake on African ability to produce basic goods and services at affordable prices, as it is difficult to compete with low prices from China.”
Silke also fears that political fallout from US-China tensions will force African countries to potentially choose their dimensions. It will weaken efforts, harmonize trade regulations and promote intra-African trade through initiatives such as the African Continental Free Trade Area (AFCFTA).
“This really puts African countries in a very troublesome position. Some people feel like they can handle Washington more comfortably, while others want to get closer to China,” he says.
“This will bring challenges to the continent that is trying to find commonality when it comes to trade regulations. Countries approaching China are on a different trajectory than countries engaged in close trade ties with Washington,” adds Silke. “This could break the idea of ​​a more unified trading block than Africa can and perhaps should.”
Depreciation of dollars?
The impact of Trump's tariffs on the foreign exchange market could have an impact on the African economy as well. The dollar initially surged against emerging market currencies after winning Trump's election in November, as markets predicted that the market would increase state inflation and the Federal Reserve would increase interest rates and therefore supply the stronger dollar.
However, most analysts expect the disruption caused by the imposition of tariffs could lead to depreciation of the US dollar. For example, Goldman Sachs from Global Investment Bank suggests that GDP growth slows and investors' confidence in the state will drop by 10% against other major currencies.
“We expect the dollar to weaken. Investors will hesitate to invest in the US as a result of the volatility we see and the uncertainty about how tariffs are being applied,” Silke said.
He added that the weaker dollar “provides a little improvement to the African economy” given that imports at a price will be relatively cheap and thus reduce inflationary pressures. However, these benefits will “rely depend on achieving (achieving) the level of domestic political stability in order to maintain the decent value of the national currency on the African economy.
Great risk for African countries is potentially poses from bond market movements. The yields for both the US Treasury in 2010 and 2010 saw a significant increase in the days after the tariff announcement. Currently, the Treasury's yield for 30 years reached 4.87% in late April. This is an increase of almost 25% compared to last September. Silke said that “it means that borrowing costs can become even more troubling. Certainly for the US it will be potentially potential for other parts of the world.”
Nwanze adds that the US's higher interest rate environment, as a result of inflationary pressures caused by the imposition of tariffs, “will definitely have a negative impact on African countries that have been undertaking larger amounts of negative debt.”
Much remains uncertain about what Trump is going to do with trade in the coming months. What seems more clear, as both Silke and Nwanze say, is the death of the African Growth and Opportunity Act (AGOA) – a US government program that allows eligible African countries tax-free access to the US market.
Especially in these early times, it is difficult to accurately predict how much damage the African economy will be inflicted as a result of growing trade tensions. However, as Silke points out, the destruction of the global trade environment would “have a negative impact on the broader global economy.”
“The cloud of recession lies on everyone everywhere, and Africa certainly can't escape it.”
