Assessing Implications of Trumps Tariffs on Intra East Africa’s Regional and International Trade
By Moses Kulaba, Governance and Economic Policy Centre
Effective 5th April 2025 (with a pause of 90 days) the US President Donald Trump slapped a global tariff of 10% on all exports to the US. The US tariffs has caused a lot of turbulence and uncertainty about the future of the WTO rules based global trade as we knew it. The future of EAC -US trade is unknown and during this period loses will be counted particularly in the agriculture, textiles, apparel and handcrafts sector. However, in the midst of turbulence, the EAC has an opportunity of re-inventing its intra-regional and international trade, and perhaps emerging stronger. This policy brief analyses the implications of the US tariffs on EAC intra-regional trade and what options the member states can take.
Background on EAC -US Trade Relations and Trade Flows
The East African Community (EAC) and Sub-Saharan Africa generally have been major trading partners with the United States for decades and so far, the fastest growing markets in the world according to the International Monetary Fund. The US has signed multiple trade agreements allowing smooth trade flows across the two regions, with the US enjoying an overwhelming trade surplus for decades. In 2008 the U.S. signed Trade and Investment Framework Agreements (TIFA) with the EAC regional economic block in 2008.
The purpose of the TIFA was to strengthen the United States-EAC trade and investment relationship, expand and diversify bilateral trade, and improve the climate for business between U.S. and East African firms. Earlier in 2000 the US had passed the African Growth Opportunity Act (AGOA), a trade preference program that allowed selected goods from EAC duty free market entrance into the United States. AGOA had helped expand and diversify African exports to the United States, while at the same time fostering an improved business environment in many African countries through the application of eligibility requirements. In 2015, the U.S. Congress extended AGOA through 2025.
According to the Office of US Trade Representative data the U.S. goods exports to East African Community in 2022 were $1.1 billion, up 2.0 percent ($22 million) from 2021 and up 15 percent from 2012. U.S. goods imports from East African Community totaled $1.3 billion in 2022, up 40.4 percent ($367 million) from 2021, and up 121 percent from 2012. The U.S. trade balance with East African Community shifted from a goods trade surplus of $211 million in 2021 to a goods trade deficit of $135 million in 2022[1].Although the US suffered a goods trade deficit in 2022, it has continued to enjoy trade surpluses with individual EAC member Countries as reported by the US trade Administration.
Table of US-EAC Trade flows and Surplus for 2023-2024
|
Country |
Total Goods Trade with US 2024 (USD) |
US Exports (2024) |
US Imports (2024) |
Surplus (2024) |
% Increase in Surplus compared to 2023 |
|
Kenya |
1.5Bln |
782.5Mln |
737.3Mln |
45.2Mln |
110 (454.6Mln) |
|
Tanzania |
778.1Mln |
573.4Mln |
204.7Mln |
368.7Mln |
45.8 (115.8Mln) |
|
Uganda |
238.9 Mln |
106.3 Mln |
132.6 Mln |
26.3Mln |
574.3 ($31.9Mln) |
|
Rwanda |
75.0Mln |
44.8Mln |
30.2Mln |
14.5Mln |
4,060 (($14.2Mln) |
|
Democratic Republic of Congo |
576.4Mln |
253.3Mln |
323.1Mln |
69.8M |
20.9 ($18.4 Mln) |
|
Burundi |
$10.4Mln |
$6.6Mln |
$3.7Mln |
$2.9Mln |
224.3 (5.2Mln) |
|
South Sudan |
$60.1Mln |
$59.3 Mln |
$0.8Mln |
$58.5 Mln |
16.0(8.1Mln) |
|
Somalia |
$51.6Mln |
$49.1 Mln |
$2.5 Mln |
$46.6Mln |
0 |
Source: Office of US Trade Representative data analyzed and presented by GEPC researcher
Over the years, through its trade diplomacy, the US had cemented long lasting relations paving way for other strategic economic, political and security relations, with the EAC member states including defense. With the new tariff wall, if not changed, this long-term relationship could be bound for a new trajectory.
Knock-on Effects of Tariffs
Tariffs have knock offs whose effects can trickle down the goods and services value chain in many ways, affecting both producers, exporters and consumers down the trade supply chain.
A tariff is a duty imposed by a national government, customs territory, or supranational union on imports of goods. Besides being a source of revenue, import duties can also be a form of regulation of foreign trade and policy that burden foreign products to encourage or safeguard domestic industry[1]. At their core, tariffs are simple: they raise the domestic price of imported goods. But their effects ripple through the economy in complex ways – altering prices, wages, exchange rates and trade patterns.
Simply put, a tariff is a tax on imported products. It creates a difference between the world price and the domestic price of a product. Tariffs raise the price of imported goods relative to domestic goods (good produced at home). For example, if a US Tarif of 10% is applied on world price of coffee of USD200, the domestic price of coffee in the US market becomes USD 220 per kilogram. The government collects the difference of USD20 dollar as tariff revenue to finance other public expenditures.
Tariffs can also affect the world price of a product, particularly when they are imposed by a large economy. The logic is that higher domestic prices reduce domestic demand, which in turn lowers world demand, and thus world prices. In our example, the world price might fall to $150 after the tariff is imposed, resulting in a domestic price of $165. In this case, part of the tariff is effectively paid by foreign producers[2].
This cost-shifting creates incentives for large economies to unilaterally impose tariffs. However, this so-called optimal tariff argument overlooks the possibility of retaliation. If country A imposes tariffs on country B, country B has an incentive to respond in kind. The end result is a trade war that leaves both sides worse off[3].
With the current US tariffs, the prices of goods entering into the US market will increase by 10%. For example, the price of coffee will increase by 10% making it more expensive for Americans to afford. Similarly, the costs for other agricultural products, textiles and handcrafts will suffer the same fate. The resultant effect of this will be a low demand for these goods in the US markets affecting EAC farmers and exporters. We can further illustrate this with a simple of the effects of the tariffs on handicrafts from the EAC.
Because of increased tariffs and a decline in demand for the Makonde carvings, the exporter of Makonde Carvings and paintings will buy less. The Makonde carver and painter in Mtwara and Mwenge will lose business and sell less. The transporter of Makonde carvings will have little business and therefore send a few trucks to collect and deliver the carvings to Dar es Salaam. The exporter will send a few containers and therefore the port handlers and clearing firms will have no business. The Makonde artist may completely close and ultimately the transporter and port handler may lay off staff. A similar experience can be the same for the Coffee producer in Uganda and Kenya, whose knock off effect of the US tariffs will trickle down the supply chain in a similar manner.
Tariffs in the Context of WTO and GATT rules
In the World Trade Organisation (WTO) rules-based system, when countries agree to open their markets for goods or services, they “bind” their commitments. A country can change its bindings, but only after negotiating with its trading partners, which could mean compensating them for loss of trade[1].
Under the WTO (GATTs, GAT and TRIPs agreements) international trade and commerce is run based on a rule-based system and principles. These include;
- Most-Favoured-Nation (MFN), which requires treating other people equally. Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members[2]
- National Treatment of foreigners and locals equally where by imported and locally-produced goods should be treated equally — at least after the foreign goods have entered the market. This also applies to services, trademarks, copyrights and patents. (Article 3 of GATT, Article 17 of GATS and Article 3 of TRIPS) although there can be some variations in applications depending on an existing arrangement such as a Regional Economic block or once a product, service or item of intellectual property has entered the market can be a subject to customs duty or any other applicable duties.
- National treatment only applies once a product, service or item of intellectual property has entered the market. Therefore, charging customs duty on an import is not a violation of national treatment even if locally-produced products are not charged an equivalent tax.
- Freer trade gradually through negotiations and reducing of trade barriers such customs duties (tariffs), import bans or quotas, selective restriction on quantities, bureaucracy and exchange rate policies.
- Predictability of trade through binding commitments and transparency. This encourages investment, job creation and consumers can enjoy the benefits of competition
- Promotion of fair competition, with an allowance of a limited. number of tariffs for limited protection, allowing thriving of domestic industry and protection against entry of harmful products.
- Generally, encouraging development and economic reforms aimed at increasing global trade flows and particularly allowing less developed countries to equally enjoy benefits of the global trade system.
Tariffs as Tools for Trade Policy and Geopolitical Statecraft
Tariffs are not universally banned from trade policy. Tariffs can be a useful tool for protecting domestic industries, generating revenue, and supporting economic development, especially in developing countries. They can equally be used as a foreign policy instrument to advance economic diplomatic ties between nations.
According to the WTO, tariffs must not be used as weapon for trade distortion, carry the risk of increased costs for businesses and consumers, potentially stifling economic growth and competitiveness. However, the recent US Trump measures reorganize the rules on International Trade. Tariffs are now used as a political tool for advancing geopolitical and national security interests, including cajoling other trading partners and WTO member states into curving in to pressure aimed at achieving domestic political gains.
There are contending views (including from the US Council on Foreign Relations) that according to the WTO rules, the US Trump tariffs are illegal, arbitrary, based on a wrong formular, not reciprocal, distortionary[1] and must be fought either at the WTO or through reciprocal measures taken by affected Countries. Poor application of tariffs can spark a contagion effect of tariffs wars across nations.
Implications on EAC Trade and economic growth
- Rise in prices of EAC Export products in the US market by a commensurate percentage in response to the tariff charges unless the EAC exporters absorb or the US government cushions the consumers in someways
- Decline in export volumes EAC goods to the US by a commensurate percentage decline, depending on the tariff elasticity of the good affected by the US imposed tariffs
- Increase in import driven inflationary pressures in the EAC causing on the already current inflationary pressures in the EAC region
- Potential slow down in the regional economic growth in line with the IMF projected global economic slowdown of 2.8% in 2025 due to disruptions in global trade
- Shortage in supply of US dollars due to declining inflow from trade with the US. This could exert some depreciation of domestic currencies, as the dollar demand to purchase imports increases.
- Incentivize the rise in the use of Tariffs and blockades by countries in the region as tools for trade policy and coercion to achieve specific strategic interests, as countries mimic US behavior
EAC Response options for Trade Creation and Diversion to new markets
To date the EAC as a regional block has remained silent while its respective member states have decided to individually not to retaliate. Uganda’s Ministry of Finance, clearly stated that it had taken a decision not to retaliate[2]. Similar statements were made by Kenya’s Ministry of Trade[3].
Uganda’s trade volumes with the US were small and the US was a major beneficiary of this trade relationship, enjoying a goods trade surplus, while its nationals enjoyed cheap high quality agricultural exports such as coffee, tea, fruits and handcrafts from the EAC.
The AGOA partnership agreement was bound to expire at the end of 2025 and the US and EAC were already on the road towards negotiating new trade arrangements, if AGOA was not extended. Moreover, some Countries such as Uganda, Burundi, South Sudan and Somalia were not eligible for AGOA in 2024 due to among others sanctions imposed by the US for various reasons (including conflicts, human and political rights violations) and were already searching for markets elsewhere.
The EAC as a regional block was pushing for increased intra-regional trade. The East African Business Council, an apex body of businesses and companies, has always been concerned with low volumes of intra EAC trade as compared to other economic regions.
This has been widely linked to existence of tariff and non-tariff barriers, including stringent rules of origin, Stay of Applications which allows member states to charge or exempt different tariffs on some specific goods different from the Common External Tariff, differences in taxes such VAT, Income Taxes and Exercise duties. It was further concerned with the bilateral negotiations of trade deals with third parties. The East African Business Council (EABC) advocated and has been pushing the EAC to continue negotiating the EAC-EU Economic Partnership Agreements (EPA) and the EAC-UK EPA as a region to avoid creating mistrust and distortion of the EAC Common External Tariff (CET)[4]
The new US tariffs therefore offer the EAC and Sub-Saharan Africa region with a window of an opportunity to disconnect itself from the US markets by deepening intra-regional trade, diversifying and diverting its trade to other regions such as Africa via Africa Continental Free Trade Area (AfCFTA), the EU, the Middle East and China.
AFCTA offers flexible rules and unfettered free access to a market population of about 1.3 billion people and a combined GDP of approximately US$ 3.4 trillion[5]. The AfCFTA aims to eliminate trade barriers and boost intra-Africa trade. In particular, it is to advance trade in value-added production across all service sectors of the African Economy[6]. There are a lot of opportunities in the AfCFTA for the Private sector in the EAC as it offers a larger and diversified market for goods and services. According to President Museveni Uganda will now focus on African markets[7]
The EU has been a major trading partner and EU trade in goods (imports and exports) with the EAC has risen steadily comparatively to 2007 volumes[8] In 2023 the EU trade in goods and services with the EAC region amounted to EUR106Bln. The EU trade in services amounted to EUR 5.9bln. If compared to 2022 the EU trade in goods with the EAC region reached EUR 5.7bln while imports from the EAC were EUR4.9bln. Exports in services were valued at EUR3.0Bln compared to EUR2.9 bln imported from the EAC[9]. The major exports to the EU from the East African Community are mainly coffee, cut flowers, tea, tobacco, fish and vegetables. Imports from the EU into the region are dominated by machinery and mechanical appliances, equipment and parts, vehicles and pharmaceutical products[10]. Kenya and Tanzania were the leading EU trade partners.
China is already a major trading partner with the EAC and had surpassed the EU and the US. In 2023, China was the largest source of imports for the East African Community (EAC), with imports valued at $11 billion. The EAC’s exports to China in the same year were valued at $15.8 billion. China is closely followed by the United Arab Emirates (UAE) at US$6.4 billion in 2023[11].
From the statistics, the EAC already enjoys a trade surplus with China. Although there are concerns over unethical business conducts, including the risk of stifling industrial growth by flooding the EAC with cheap substandard goods, China remains a huge market of about 1billion people, it is the second largest economy in the world and the largest one in RCEP with a GDP of 16,325 billion USD in 2022 (World Bank, 2023). Chinese demand for EAC products is enormous and projected to grow.
The EAC also has an opportunity of benefiting from arbitrage practices, whereby producers from highly US tariffed countries set up business to produce, buy, sell or reroute their products via the EAC to take advantage of the tax and price differences. In this case highly taxed countries such as China and Lesotho would be interested in setting up business in EAC. Kenya has already made a move with President Ruto’s visit to Beijing to attract Chinese businesses to set business in Nairobi.
Recommendations
For this to happen, the EAC and its member states will have to
- Diversify, Divert and Create trade. This happens when new or existing regional economic grouping (Free Trade Areas or Customs Unions) leads to creation of new trade that never existed before or leads to shifts in trade flows from efficient nonmember exporters to non-efficient member exporters among others due to preferential tariffs charged amongst member states.
- Invest in processing and industrial production of agricultural products and raw materials into finished products that can be sold or consumed locally and in the new markets
- Address existing tariffs and non-tariff barriers to trade such as VAT, Excise duties, income taxes, bureaucracy and infrastructure which have been an obstacle to intra-regional trade.
- Revive old economic partnerships with the EU and explore new partnerships with the EU, South America, Middle East and China
- Establish linkages between the farmers and manufacturer so as to create value and sustainable supply chains of quality products for the market
- Address political differences, instability and conflicts affecting cordial economic cooperation and free flow of goods across EAC and African borders.
References
European Commission: Trade and Security available at https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/east-african-community-eac_en
Ralph Ossa; Views of the Chief Economist, World Trade Organisation, available at: https://www.wto.org/english/blogs_e/ce_ralph_ossa_e/blog_ro_11apr25_e.htm accessed 14 April 2025
The New Times (May 02, 2025) available at https://www.newtimes.co.rw/article/21152/news/africa/eabcs-adrian-raphael-njau-advocates-for-stronger-eac-market
WTO; Principles of the Trading system available at: https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm#:~:text=In%20the%20WTO%2C%20when%20countries,the%20case%20in%20developing%20countries.
[1] https://www.cfr.org/blog/five-things-know-about-trumps-tariffs
[2] Mr Ramadhan Ggobi , Permanent Secretary for Treasury made these remarks while addressing a press conference at the Ministry of Finance
[3] Mr Lee Kinyanjui, PS for Trade, Kenya in an Interview with Citizen TV available on Citizen digital via https://www.citizen.digital/news/what-it-means-for-kenya-after-us-imposes-10-export-tariff-trade-cs-kinyanjui-n360379
[4] https://www.newtimes.co.rw/article/21152/news/africa/eabcs-adrian-raphael-njau-advocates-for-stronger-eac-market
[5] https://au-afcfta.org/about/
[6] ibid
[7] https://eastleighvoice.co.ke/african%20markets/140091/museveni-says-uganda-to-focus-on-african-markets-amid-us-tariff-hike
[8] https://www.europarl.europa.eu/RegData/etudes/BRIE/2024/766228/EPRS_BRI(2024)766228_EN.pdf
[9] ibid
[10] https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/east-african-community-eac_en
[11] https://www.eac.int/trade/79-sector/trade#:~:text=China%20is%20the%20dominant%20source,US%246.4%20billion%20in%2020