US President Donald Trump has promised to roll out a wave of tariff policy measures that are expected to shake the global economy dubbed Liberation Day. You may be wondering what the recent fuss about tariffs is about.
Since his re-ascension to the presidency in January 2025, Trump has issued several executive orders which have introduced major policy shifts across various sectors.
Among these include tariff measures, which are considered as part of his administration’s broader trade policy targeted at addressing imbalances and protecting domestic industries.
As at March 24th, Trump had imposed new 20 percent duty on Chinese imports, 25 percent duties on global steel and aluminium imports and 25 percent tariffs on imports from Canada and Mexico.
Some media reports indicate that the Trump administration is considering a 20 percent tariffs plan on most imports to the US to be announced on 2nd April 2025.
These tariffs have been justified by the US government under the International Emergency Economic Powers Act (IEEPA) as measures to combat threats to US national security, including issues such as drug trafficking.
Experts, however, see a different, more economic, motive in these tariff policy decisions and foresee a resurgence of trade wars marked by imposition of retaliatory tariffs by directly affected countries and political jurisdictions such as China, Canada, Mexico, United Kingdom and the European Union.
President Trump has signalled intentions to aggressively apply tariffs to reduce reliance on goods made outside the US, empower and reinvigorate US manufacturing by protecting US industries from what he sees as unfair competition from foreign companies and to mobilise more tax revenue for the federal government.
What are tariffs?
Tariffs are taxes that a government imposes on imports. They serve as a key instrument in trade policy, influencing economic activity and diplomatic relations.
Tariffs generally fall into two categories: ad valorem, which are calculated as a percentage of the goods’ value, and specific tariffs, which are charged as a fixed amount per unit of goods. Governments use tariffs for several reasons, including:
Generating revenue: As taxes on imported goods, they are one of the mechanisms adopted by countries to generate revenues.
Protecting domestic industries: By making imported goods more expensive, tariffs can make locally produced products more competitive
Deployed as a diplomatic tool: Governments impose trade restrictions to influence foreign policies, such as enforcing treaty obligations, responding to human rights violations, or addressing security concerns.
In cases of trade disputes, governments may introduce tariffs to penalise adversaries or as a retaliatory measure against trade barriers imposed by other nations. How do tariffs affect businesses and consumers?
The impact of tariffs is typically felt by importers, who often pass the increased costs to consumers in the form of higher prices. For businesses, tariffs can significantly raise the cost of importing goods, leading to higher operational expenses and, in some cases, reduced profitability.
In some cases, businesses may be forced to pay lower dividends to its shareholders due to a lower share price. This is attributed to thin profit margins as a result of tariffs. Consumers may also experience a decline in purchasing power, as higher prices on imported goods can limit their ability to buy essential or desirable products.
Restrictions on tariffs
Despite their broad application, tariffs are subject to international regulations, particularly for countries that are members of the World Trade Organization (WTO).
Under WTO rules, States must adhere to the Most-Favoured Nation (MFN) principle, which requires them to apply the same tariff rates to all WTO members unless a special free trade agreement (FTA) is in place.
Additionally, WTO members commit to bound tariffs, which are the maximum rates they agree to enforce. While some countries choose to impose tariffs below their bound rates to spur trade, they may still implement higher rates as trade defence measures, such as anti-dumping duties to counter unfairly low-priced imports or national security tariffs to protect critical industries.
Many countries also enter into FTAs, which allow them to set lower or zero tariffs on imports from their trading partners. These agreements help foster stronger economic ties and reduce trade barriers between participating nations.
Some countries go further by forming customs unions, such as the European Union (EU) Customs Union, where member states eliminate tariffs on goods traded among themselves while applying a common external tariff to imports from non-member countries.
In an interconnected global economy, tariffs remain a significant tool for shaping trade dynamics, balancing domestic economic interests, and responding to geopolitical challenges.
However, their impact is complex, often requiring careful consideration of both economic benefits and potential drawbacks for businesses and consumers alike.
What are the implications of the US tariffs for African economies?
While currently not directly targeted at African countries, the recent wave of US government tariffs will have significant implications for economies in the African continent considering the intricate link of Africa economies with several countries, which have been targeted by the trade tariffs. The overall impact of US - imposed tariffs can be argued to be both positive and negative:
Shift in trade dynamics with China: If the US maintains trade barriers against China, the latter may seek alternative markets for its surplus products.
This could result in an increased influx of Chinese goods into Africa, leading to market saturation. China is already sub-Saharan Africa’s largest bilateral trading partner, accounting for 20 percent of the region’s exports and 16 percent of its imports as of 2023.
In East Africa, exports to China have been rising, with the East African Community (EAC) sending 23.8 percent and 22.8 percent of its total exports to China in 2023 and 2024 respectively.
Increased import costs and trade deficits: An oversupply of Chinese products in Africa may lead to trade imbalances, particularly if these goods are cheaper.
Additionally, Chinese manufacturers, facing reduced demand in the US, may shift production costs onto buyers in Africa, raising consumer prices. This could further strain national economies, particularly those heavily reliant on imports.
Opportunities for investment in production and manufacturing: With US tariffs discouraging Chinese exports, companies are reassessing cross-border investments, restructuring supply chains, and considering relocating production facilities.
While some businesses are moving operations to the US to avoid tariffs, others are shifting to regions unaffected by these measures.
This presents an opportunity for Africa to position itself as an alternative manufacturing and production hub, reducing dependency on Chinese imports and mitigating rising production costs linked to tariffs.
Potential decline in diaspora remittances: If Trump’s tariff policies trigger inflation and economic instability in the US, African diaspora workers may struggle to maintain current remittance levels.
Historically, economic downturns in the US have led to a decline in remittances, weakening African currencies and raising the cost of living. A reduction in remittance inflows could also deplete foreign exchange reserves, as seen in Kenya, limiting African countries’ ability to import essential goods.
US tariffs on countries imposing VAT: Trump’s proposal to impose tariffs on countries with a VAT system could negatively affect African economies. Many African nations rely on VAT to generate revenue.
If the US imposes retaliatory tariffs on African exports, it could make them less competitive, reducing trade revenue and economic growth.
