Donald Trump’s imposition of strategic tariffs on imports from key trade partners, including China, Canada, and Mexico, is expected to impact global economies, including Nigeria. While the tariffs have led to projected higher prices and slower economic growth in the U.S., their ripple effects could present significant challenges for Nigeria’s recent economic recovery. Analysts are concerned that these tariffs could undermine the recent strengthening of the naira, which reached an eight-month high of N1,474.78/$ at the official exchange market. The easing of dollar demand, aided by fiscal and monetary policies, has created a temporary reprieve for Nigeria’s currency, but these gains may not be sustainable.
The tariffs, particularly those targeting China, have been set at a lower rate than previous tariffs on Canada and Mexico. However, the broader consequences for global inflation are clear, with rising prices in the U.S. prompting the Federal Reserve to potentially adopt restrictive monetary policies. This would lead to higher U.S. interest rates, which could strengthen the dollar and drive foreign investors away from emerging markets, including Nigeria. The last time this occurred, in 2023, global financial markets saw reduced liquidity, which hampered Nigeria’s capital inflows.
As the dollar strengthens, the opportunity cost of holding other currencies rises, putting pressure on foreign exchange markets globally. Analysts warn that Nigeria could face capital flight, reducing the flow of foreign investment and affecting exchange rate stability. Furthermore, if the U.S. continues to raise interest rates, Nigeria might be forced to increase local interest rates, making it more expensive for businesses to secure financing. These developments could exacerbate the economic challenges facing the country.
While the negative impact of Trump’s tariffs is a concern for Nigeria’s economy, some sectors might fare better. The Nigerian stock market, which has shown strong growth since 2020, could remain resilient due to its dominance by domestic investors. However, analysts caution that the interconnectedness of global economies means that Nigeria could still face significant challenges if trade disputes escalate. As Nigeria continues to navigate this uncertainty, the long-term sustainability of the naira’s recovery will be tested.
Beyond tariffs, Trump’s plans to expand shale oil production could further complicate Nigeria’s economic outlook. With the U.S. transitioning from a net importer of oil to a major oil competitor, Nigerian oil exports could face increased competition. A decline in global oil prices, driven by a potential halt in the shale boom, would harm Nigeria’s oil-dependent economy. This could lead to reduced government revenues, affecting budget stability, inflation, and economic growth. The situation could result in weaker oil inflows, which would directly impact the naira’s strength.
Source: Business day