Trump’s tariffs: Damage to Ghana and Africa?

The world has been hit by a bombshell.

It was not perhaps unexpected, but unwelcome and highly disruptive to world trade.

Stock markets have plummeted as the shockwaves from President Donald Trump’s tariffs reverberate globally, including in Africa. 

Trump’s so-called ‘Liberation Day’ declaration on Wednesday, April 2, threw the global market into chaos. This is because the USA has introduced highly protectionist policies since the 1930s, severely weakening the global trade system, of which, for decades, the USA has been both architect and champion.

Trump’s tariffs include a baseline, universal 10 per cent duty on all US imports, as well as additional tariffs on ‘worst offender’ countries, including, in Africa, Nigeria and South Africa.

In addition, Trump’s tariffs may lead to the end of a decades-long open trade agreement, the African Growth and Opportunity Act (AGOA).

AGOA not only enabled African manufacturers to export goods into the USA duty-free but is also credited with creating tens of thousands of jobs in some of Africa’s poorest countries.

Established in 2000 during the presidency of Bill Clinton, AGOA was instrumental in helping grow Africa’s exports of textiles, steel and agricultural products to the USA. AGOA was set for a second renewal in 2025. It is now jeopardised by what analysts are calling ‘Trump’s trade war’.

Two of Africa’s largest economies, Nigeria (14 per cent) and South Africa (31 per cent), are among those on Trump’s ‘reciprocal’ tariffs list.

According to Trump, such countries ‘treat us [the USA] badly’ and as a result should be punished.

When Trump states that such countries ‘treat us badly’, what he is referring to are countries that he claims impose high tariffs on American goods or have introduced other barriers to US goods. ‘Reciprocal’ tariffs were due to take effect on Wednesday, April 9.

The universal tariffs began a few days earlier, on April 5.

Nigeria and South Africa are by no means the only African countries badly hit by the tariffs. For example, the small southern African country of Lesotho, which Trump has claimed ‘no one has heard of’, was hit by a 50 per cent tariff rate.

This is the second hammer blow that Lesotho has recently received from the Trump administration.

Lesotho, which carries the second-highest HIV burden of any country, was already trying to deal with the shock of Trump’s sweeping aid cuts earlier that have gutted HIV response efforts across Africa.

Trump’s tariffs and Ghana

As stated above, AGOA has played a crucial role in enabling African manufacturers to export goods to the United States duty-free, significantly contributing to job creation in some of Africa's poorest nations. However, the recent imposition of a ten per cent tariff on Ghanaian exports poses a significant challenge.

This tariff will lead to increased costs for exports under AGOA, making Ghanaian products less competitive and ultimately reducing revenue for these exports.

Consequently, employment within the Ghanaian export ecosystem, which supports numerous direct and indirect jobs, is likely to be adversely affected.

Ghana is a major producer of yams, among other agricultural products like nuts and cocoa, all of which benefit from AGOA.

Many investments have been made to sustain these sectors, but the proposed tariff threatens to diminish returns on investment, causing potential instability and uncertainty.

As profit margins are already slim due to high production costs, this tariff could drive investors to seek opportunities elsewhere, further jeopardising the sector's stability and growth.

In addition to the export sector, the tariff will impact imports from the United States.

Ghana imports significant quantities of essential goods, including cereals, rice, cooking oil and agricultural machinery.

The increased costs associated with these imports could strain the Ghanaian economy, leading to inflation and further problems for the cedi.

Trump’s tariff may also affect Ghana’s government's 24-Hour Economy policy, which seeks to promote production for both exports and local consumption.

This policy aims to enhance agricultural output and manufacturing capabilities. 

As the government seeks to invest in local production, the tariff-induced rise in import costs for necessary machinery could hamper its efforts to revitalise the manufacturing sector.

Again, the tariffs’ impact on loss revenue from exports to the USA is likely to affect the policy’s impact.

Nevertheless, this challenge also presents an opportunity for Ghana to diversify its trade relationships.

The government should actively explore markets beyond the United States, such as Europe, India and China. Furthermore, enhancing intra-African trade through agreements like the African Continental Free Trade Area could reduce dependence on the US market and add value by processing primary products into manufactured goods.

In conclusion, while Trump’s tariff poses significant challenges for Ghana’s economy, it may also provide an impetus for strategic negotiation with America and other trade partners.

By leveraging these opportunities and diversifying trading relationships, Ghana’s government can mitigate the tariff’s negative impacts on both imports and exports, aligning with its broader economic goals.

The writers are an Emeritus Professor of London Metropolitan University, UK and a Political Scientist.