US President Donald Trump’s controversial tariff policies, announced under his “Liberation Day” measures, have created significant ripple effects across the globe, particularly in Africa. These tariffs, aimed at addressing America’s persistent trade deficit, have introduced a new set of challenges for African economies—especially smaller nations like Lesotho and Madagascar. While these countries may not be major players in global trade, the imposition of tariffs is nevertheless detrimental to their economies.
Trump’s approach to tariffs, often referred to by him as “the most beautiful word in the dictionary,” introduces a complex system of taxation that targets nations based on their trade balance with the US. Lesotho, a small, landlocked country known for its diamond exports, and Madagascar, an island nation that mainly exports vanilla and clothing, found themselves in the crosshairs of this strategy. Both nations were hit with particularly steep tariffs: Lesotho received a 50% tariff, the highest imposed under the “Liberation Day” measures, while Madagascar faced a 47% tariff.
This punitive approach stems from the US government’s calculation of trade imbalances, where countries with large trade surpluses with the US are penalized, despite the fact that these nations may export far less in value compared to larger trading partners. Lesotho, for example, exports roughly $55 million worth of diamonds to the US each year but imports very little in return, leading to its designation as one of the “worst offenders” under this new tariff system. Madagascar faces a similar situation with its relatively small exports to the US, predominantly vanilla and clothing.
While the immediate financial impact of these tariffs on African economies might seem limited due to the small volume of trade between Africa and the US, the broader implications are far-reaching. The uncertainty triggered by these tariff announcements is reverberating through African markets and creating new challenges for businesses, policymakers, and trade regulators across the continent.
In a bid to ease the mounting concerns, Trump backtracked slightly and announced a 90-day reprieve for all affected countries, during which only the baseline 10% tariff would apply. This temporary measure, however, does little to allay the ongoing uncertainty surrounding the situation. While the reprieve offers a brief respite, the broader question remains: what comes next?
Daniel Silke, a political economy analyst based in Cape Town, explains that the constant changes in tariff policy have unleashed tremendous uncertainty within global markets. He points out that markets abhor uncertainty, and for developing countries like those in Africa, this volatility can result in reduced investor confidence, leading to a decline in foreign investments and capital inflows.
Cheta Nwanze, founder of Lagos-based SBM Intelligence, suggests that while the immediate impact of tariffs on African economies may be limited, the market disruption caused by these policies could affect investor sentiment, which in turn could negatively influence capital flows into Africa. Nwanze emphasizes that many African countries have large informal economies—with Nigeria’s oil sector being a prime example where economic dynamics are not as affected by global trade fluctuations. As a result, local markets may remain insulated from the direct consequences of these tariff disputes. However, the informal sector’s reliance on global markets could still create challenges in the long term.
Though Africa’s direct trade relations with the US may not be extensive, the continent is not immune to the broader geopolitical consequences of the US-China trade war. The US-China trade war has already led to a significant drop in trade between the two largest global economies, and this trend is projected to worsen. The World Trade Organization (WTO) predicts an 80% decline in US-China merchandise trade by 2025. With this disruption, China is expected to redirect a large portion of its goods to other markets, including Africa. While this may offer short-term benefits in terms of cheaper Chinese products, it also poses a significant risk to Africa’s local manufacturing industries, which will be unable to compete with the low prices of Chinese goods flooding the market.
The rise in Chinese exports to Africa could be seen as a double-edged sword. On one hand, cheaper products may benefit African consumers, but on the other hand, the subsidized prices could severely undercut local industries, making it difficult for African manufacturers to compete and stunting economic development.
Silke also warns of the political fallout that could arise from the growing tensions between the US and China. African countries may find themselves caught in the middle of a geostrategic tug-of-war, with some nations potentially aligning themselves more closely with Washington, while others turn to China. This divide could undermine efforts to create a unified trading bloc in Africa, such as the African Continental Free Trade Area (AfCFTA), which seeks to harmonize trade regulations and promote intra-African trade.
As these tensions grow, African countries may face a more difficult task in balancing their trade relations with these two powerful nations, creating further geopolitical instability in the region. This situation could significantly hinder the continent’s ability to establish a cohesive and effective trading network that benefits all African countries equally.
Another key consequence of Trump’s tariff war is its potential impact on foreign exchange markets. The US dollar, which initially strengthened in the wake of Trump’s tariff announcements, may begin to weaken due to the inflationary pressures these tariffs cause. According to Goldman Sachs, the dollar could depreciate by as much as 10% against major currencies, driven by lower GDP growth and reduced investor confidence in the US economy.
A weaker dollar might have some benefits for African economies, particularly when it comes to imported goods priced in dollars. These goods would become relatively cheaper, potentially reducing inflationary pressures. However, the extent of these benefits depends on political stability within African nations, as they would need to ensure that their domestic currencies maintain value to capitalize on these changes.
Additionally, the tariff-induced rise in interest rates in the US could have wider-reaching consequences, including higher borrowing costs for African nations. These countries, many of which have dollar-denominated debt, could face increased financial strain as they struggle to manage higher debt repayments. This could lead to more debt-related challenges across the continent, especially in countries with already high debt levels.
One of the more immediate consequences of Trump’s tariff regime is the likely death of the Africa Growth and Opportunity Act (AGOA), which has been a crucial pillar for Africa’s trade relations with the US. AGOA allows eligible African countries to export a wide range of goods to the US without facing tariffs. However, with the introduction of tariffs and the broader trade war between the US and China, AGOA’s future is uncertain. This could be a major blow to many African countries that have relied on AGOA for duty-free access to the US market.
While the direct impact of Trump’s tariffs on African economies remains uncertain, the broader geopolitical, economic, and market consequences are clear. The disruption of global trade, the political fallout from the US-China conflict, and the weakening dollar could all contribute to instability in African economies. Moreover, Africa’s efforts to strengthen its internal trade through the African Continental Free Trade Area (AfCFTA) could be undermined by geopolitical tensions and trade fragmentation.
For African nations, navigating the complexities of the US-China trade war will be a significant challenge. While there are potential benefits from cheap imports and a weaker dollar, the overall economic climate remains precarious. As the world’s economic landscape continues to shift, African countries will need to focus on developing resilient local economies and fostering stronger intra-African trade relations to mitigate the potential fallout from global trade tensions.
