Nigeria faces FX, economic risk as 14% US tariff  disrupts trade ties

A new chapter in the unfolding saga of US trade policy was written on April 2, 2025, as President Donald Trump unveiled a 14 per cent tariff on all goods imported from Nigeria. This move, part of a broad protectionist strategy targeting numerous nations, builds upon a 10 per cent baseline tariff imposed on virtually all imports into the U.S, with significantly higher levies applied to countries deemed to have unfavorable trade balances with Washington.

The White House frames this aggressive policy as a necessary step to rectify perceived trade imbalances and revitalise American manufacturing. However, the announcement has been met with widespread apprehension, both domestically and internationally, triggering concerns about potential disruptions to global trade flows and the delicate balance of diplomatic relations.

According to the Trump administration, Nigeria’s existing 27 percent tariff on American goods has created an uneven playing field, disadvantageous to US companies and ultimately impacting American consumers.

President Trump, in his address, positioned the tariff as integral to a broader campaign aimed at safeguarding American industries and compelling foreign trading partners to adhere to what he termed “fair trade” principles.

The U.S president described the tariff the vanguard of a new era of “fair trade,” pledging to “supercharge America’s industrial base” and dismantle foreign market barriers that have long been accused of excluding US products.

“This is one of the most important days in American history. We will supercharge our domestic industrial base. We will pry open foreign markets and break down foreign trade barriers, and ultimately, more production at home will mean stronger competition and lower prices for consumers.

“This will be, indeed, the golden age of Americans coming back. We’re going to come back very strongly,” he stated.

The unveiling of President Trump’s aggressive tariff policy, including the 14 per cent levy on imports from Nigeria, has immediately sent ripples through global financial markets, unleashing a wave of volatility across major U.S. stock indices. Leading economists are cautioning that this escalation in trade protectionism carries a substantial risk of undermining global economic growth, leading to increased consumer prices, and inevitably triggering retaliatory measures from nations directly affected.

Already, both the European Union and China have strongly indicated their intention to implement potential countermeasures, sharply escalating fears of a broader and more damaging trade war. Nigeria, as Africa’s largest economy and a well-established trade partner of the U.S, stands particularly vulnerable to the ensuing fallout. The extensive bilateral trade relationship between the two countries encompasses a wide array of goods and services, including significant volumes of crude oil, agricultural products, machinery, vehicles, and services.

Data from Nigeria’s National Bureau of Statistics (NBS) reveals that in 2024, the trade volume between Nigeria and the U.S  was substantial, with Nigeria’s exports to the U.S. totaling N5.52 trillion. Meanwhile, imports from the U.S.—primarily consisting of crude oil (a key sector now facing tariffs), butanes, and used vehicles stood at N4.07 trillion. Historically, these figures have demonstrated sensitivity to the volatility of global oil prices, changes in U.S. energy policy, and the prevailing domestic economic climate within Nigeria.

Now, as this new wave of U.S. protectionism reshapes global trade dynamics, analysts note that the resilience of Nigeria’s economy will be put to a significant test. Businesses engaged in trade with the U.S. are expected to face new cost pressures and potential market access challenges.

Providing a broader perspective on the potential repercussions for African nations, a recent research publication by the African Export and Import Bank (Afreximbank) highlights that these new U.S. tariffs could lead to a significant reduction in export revenues, an increase in production costs, and a disruption of vital investment flows, particularly for countries with a strong reliance on trade with the U.S.

Specifically regarding Nigeria, the Afreximbank analysis suggests that key exports such as crude oil, cocoa, and rubber could be negatively affected by the imposition of these tariffs. Similarly, Nigeria’s imports of essential goods like wheat, refined petroleum products, and vehicles could also face increased costs.

 According to Afreximbank, the repercussions of these U.S. tariffs are also expected to directly affect the cost of essential goods for Nigerian consumers. The potential for higher tariffs on wheat imports is a significant concern, as it would likely translate into Nigerians facing increased prices for staple foods, particularly bread, noodles, and pastries, which rely heavily on wheat flour. This could exacerbate existing inflationary pressures and further strain household budgets across the country.

Furthermore, the impact extends beyond food items. Imported vehicles are not exempt from these trade measures. As the cost of sourcing vehicles from the U.S. potentially increases due to the tariffs, importers will likely look to cover their profit margins by passing on these additional costs to consumers, leading to a rise in the price of buying cars in the Nigerian market.

Adding a local business perspective, Segun Sopitan, principal partner at Woodridge and Scott Consulting Limited, emphasised the direct impact of the U.S. tariffs on Nigerian businesses engaged in exports. He noted that this development signifies that Nigeria will pay more for Nigerian businesses exporting products into the US. He explained that they will pay more terms of taxes, which obviously then means that the profitability of those transactions will be negatively impacted.

Elaborating on the strategies Nigerian businesses might employ to cope with the new tariffs, Sopitan noted the likelihood of cost pass-through. “For those individual businesses, they will have to find a way to pass that on. So I would imagine that at some point in the value chain, that additional cost will be passed on to a consumer somewhere along that chain,” he said.

Despite acknowledging the challenges posed by the new tariffs, Sopitan concluded that though the tariff is a lot, it’s not significant enough to create a massive negative impact or outlook on Nigeria’s trade balances, on the profitability of export business, on current revenues, and all of that.

In a similar viewpoint, the Center for the Promotion of Private Enterprise (CPPE), stated that Nigeria’s economy may not be significantly impacted by the shocks of the current tariff war imposed by US President Donald Trump’s administration.

This perspective was revealed in a statement issued by Muda Yusuf, the Chief Executive Officer of the CPPE.

The CPPE explained that the Nigerian economy may not be particularly vulnerable to the shocks of the present trade war that President Trump has unleashed, primarily due to the relatively limited direct trade exposure between the two nations. The organisation further noted that Nigeria’s exposure to the US in terms of external trade is typically around 10 percent.

“Nigeria exported 5.7 billion dollars, or 11.3%, of its 50.4 billion dollar total merchandise exports in 2024 to the United States. The Nigerian economy is unlikely to be significantly disrupted by a tariff effect on roughly 10% of total export,” Yusuf stated.

Expanding on the likely global ramifications of the US trade policies, the CPPE highlighted that the United States would experience inflationary pressures as a result of the trade war and the retaliatory tariffs that followed. This could lead to higher prices for American imports into Nigeria.

Furthermore, the CPPE noted that the tariff war is probably going to cause some degree of disruption in global supply chains. Crude oil prices may be impacted, and the prospects for global growth may be dampened. Nigeria’s foreign reserves and income would be impacted by a drop in the price of oil.

This acknowledges the potential downside risks for Nigeria, particularly given its reliance on oil exports and its sensitivity to global economic trends. A disruption in global supply chains could also have wider implications for international trade flows, potentially affecting Nigerian businesses engaged in both imports and exports beyond the US market.

However, the CPPE also pointed to potential opportunities arising from this global trade realignment, stating that there are also chances to find new trading partners around the world.

The CPPE also pointed out that numerous nations impacted by the ongoing trade conflict would look to establish new bilateral economic links, which might open doors for Nigerian investors.

Meanwhile, at the core of these mounting concerns surrounding the US trade policy shift lies the African Growth and Opportunity Act (AGOA). This landmark legislation, enacted in 2000, has provided duty-free access to the U.S. market for eligible Sub-Saharan African countries, including Nigeria, fostering  trade and economic ties. However, the newly imposed tariffs directly place the future of this crucial trade framework in jeopardy.

Nigeria, as a major beneficiary of AGOA, has strategically utilised this preferential access to diversify and expand its exports to the United States, particularly in sectors such as apparel, agricultural produce, and select manufactured goods. This has facilitated economic growth and supported job creation within these industries.

As it stands, the imposition of these tariffs represents a  threat to the progress achieved under AGOA, potentially eroding the competitive advantage Nigerian exporters have enjoyed in the U.S. market.

“We think that President Trump’s 14% reciprocal tariff has cast a shadow over the stability of this trade partnership. While the move is framed as a strategy to safeguard American industry, it risks triggering broader friction, especially if Nigeria responds by exploring alternative trade alliances with China, the European Union, or BRICS countries,” stated analysts at Cowry Asset.

Beyond the direct impact on trade flows, the analysts point out that U.S. investment in Nigeria spans several vital sectors, including oil and gas, technology, and finance. Major American corporations such as Chevron, ExxonMobil, and Microsoft maintain a significant and long-standing presence in the Nigerian market, contributing to economic activity and employment. However, the growing trade tensions stemming from the newly imposed tariffs could potentially dampen investor confidence among these and other US companies operating in Nigeria.

Analysing the development from a macroeconomic perspective, Cowry Asset stated that the imposition of the tariff threatens to exacerbate Nigeria’s existing vulnerabilities. This is as reduced export earnings, particularly from non-oil sectors, could diminish foreign exchange inflows, heightening pressure on the naira.

The analysts added that this could deepen Nigeria’s foreign exchange liquidity crisis, potentially forcing the Central Bank of Nigeria (CBN) to deplete its already stretched reserves or tighten currency controls. They also projected that Inflation is also likely to accelerate, as Nigeria may be compelled to source critical imports like wheat, pharmaceuticals, and industrial machinery from more expensive markets.

 “This would elevate input costs, worsen food inflation, and erode purchasing power. On the geopolitical front, the tariff may prompt Nigeria to recalibrate its foreign policy—deepening ties with alternative partners such as China, the European Union, and the BRICS bloc. It may also look inward, seeking stronger regional cooperation within ECOWAS and the African Union to establish new trade corridors and collective negotiation frameworks,” Cowry Asset stated.

While the U.S. administration frames the tariff as a strategic measure to safeguard American industry and jobs, Cowry Asset analysts point out that it carries a significant risk of triggering broader friction in international trade relations. This risk is particularly pronounced if Nigeria chooses to respond to the U.S. tariffs by exploring alternative trade alliances with major global players such as China, the European Union, or the BRICS countries.

“On the geopolitical front, the tariff may prompt Nigeria to recalibrate its foreign policy—deepening ties with alternative partners such as China, the European Union, and the BRICS bloc. It may also look inward, seeking stronger regional cooperation within ECOWAS and the African Union to establish new trade corridors and collective negotiation frameworks,”Cowry Asset added.