Trump’s economic policies could lower FX inflows, stoke inflation in Nigeria – Agora Report

•  Agora Policy says Donald Trump’s economic policies could lower foreign exchange inflows and stoke inflation in Nigeria
• It said the policies have a direct and indirect impact on Nigeria and other developing economies
• The group added that the ongoing trade wars provide an opportunity for Nigeria to establish itself as a reliable trade partner

Agora Policy, an Abuja-based think tank, says the recent economic policies of the United States have implications for Nigeria regarding low foreign exchange (FX) inflows and higher inflation.

According to a report released on Thursday, February 6, titled, ‘How the Impending Trade Wars May Impact Nigeria,’ Agora Policy said Nigeria and other African countries are not exempt from the direct and indirect impact of the US economic policies.

It would be recalled that on February 2, US President, Donald Trump, imposed new tariffs of up to 25 per cent on Canada, Mexico, and China, with the intent of curbing the inflow of drugs and undocumented immigrants.

The tariff imposition led to a 22-year fall of the Canadian dollar, which rebounded marginally on the hopes that the order would be held off for one month.

Nigeria faces low direct impacts of US policies

Agora Policy noted that the potential of a direct risk of the US new trade policy environment on Nigeria’s domestic economy and opportunities is low.

It said this is because Nigeria has diverse export partners and can always find alternative destinations for its export products, which are mainly petroleum-related.

“In terms of the direct risks to Nigeria from an increasingly trade-restricted environment, the potential is low. As of 2022, the US accounted for 6.95 per cent ($4.4 billion) of Nigeria’s exports and 5.57 per cent ($3.4 billion) of Nigeria’s imports.

“Given the diversity of Nigeria’s export partners and the fact that most of these exports are petroleum-related, which could easily find alternative buyers, the risks of being directly targeted for trade restrictions and for those restrictions to be impactful are very small,” the report stated.

A slow-down in US economy will spill over to Nigeria

On the indirect impact of the ongoing trade wars among the top economic powers on Nigeria, the think tank said the situation could lead to economic slowdown, which will have a spill-over impact on Nigeria’s economy.

It said, “An escalating trade war between the US and China (the two largest economies) and perhaps other economies will most likely lead to a slowdown of the global economy.

“Estimates by the Brookings Institution suggest that the US economy could slow by 0.32 per cent, Canada by three per cent, and Mexico by 3.14 per cent if the planned tariffs and retaliations are implemented.

“The Economist Intelligence Unit suggests a 10 per cent increase in the effective tariff rate with China could slow GDP growth by 0.3 per cent.

 “This slowdown in two of the largest economies will have cascading impacts across the world and will affect most countries, including Nigeria.”

Crude prices will take a hit

The group added that one of the first areas of the Nigerian economy that will suffer the impact of the trade wars is the crude sector as crude prices will become lower than they could have been without the trade-induced slowdown.

It said this will affect forex inflow and limit the potential of naira-denominated fuel prices.

“Given that crude oil and natural gas still account for 90 per cent of Nigeria’s exports, this will significantly affect foreign exchange inflow and subsequently government revenue.

“Although there might be downward pressure on fuel prices, the expected depreciation of the Naira from lower crude oil forex inflows will likely limit the potential for naira-denominated fuel prices.

“How serious the impact of lower oil prices becomes depends on how significant the drop in prices of crude oil is,” it stated.

Trade wars will exacerbate inflation

Another potential indirect impact of the trade wars, according to Agora Policy, is the likely exacerbation of global inflationary pressures because of a more restricted trading environment.

It said the situation will lead to higher production costs, which would result in elevated imported inflation and skyrocket prices of goods and services.

The group stated, “The second indirect impact will likely come through an increase in global inflation due to a more restricted trading environment. 

 “The reality of global value chains means that many products depend on inputs from goods that cross international borders.

“A more restricted trade environment means higher production costs, which in turn leads to higher prices. These elevated prices could affect Nigeria through imported inflation, potentially worsening our current inflation challenge or at least slowing down efforts to reduce it. 

 “As experienced during the COVID-19 pandemic, disruptions to global supply chains can lead to higher inflation everywhere, even in places that may not be directly integrated into global chains.”

Opportunities for Nigeria

The think tank further stressed the need for Nigeria to increase its participation in the global trade arena to reduce the risks from the US tariff impositions and trade wars.

It said opportunities abound for Nigeria if it establishes itself as a reliable trade partner and solidifies its export potential.

Agora Policy noted, “Regardless of whether the tariff wars materialise or not, most countries will likely want to reduce their exposure to any single nation and minimise the risk of trade dependence being used as leverage for other policy objectives.

“This presents opportunities for third-party countries like Nigeria to increase their participation in the global trade arena. 

“Of course, the fundamentals remain necessary—we need to establish ourselves as a reliable and capable trading partner. 

“Currently, we have not achieved this status in most sectors besides crude oil. But there is no inherent barrier preventing us from improving our position.

“However, the likely reorganisation of global supply chains also presents a unique opportunity for Nigeria to position itself as an alternative trading partner, particularly given our strategic location and large domestic market.”

IMF warns of global risks from Trump’s proposed economic policies

Meanwhile, TheRadar earlier reported that the International Monetary Fund (IMF) raised concerns over potential global economic disruptions stemming from the policies of incoming U.S. President Donald Trump.

The IMF highlighted that Trump’s proposed tariffs could escalate trade tensions, disrupt supply chains, and distort trade flows.