After the recent elections in the United States and the inauguration of a new president, U.S. trade policy has shifted significantly toward protectionism. The new administration, led by President Trump announced tariff increases on key trading partners, including Canada, Mexico, and China. A 25% tariff was levied on imports from Canada and Mexico, while a 10% tariff now applies to goods from China. The new administration claims that the move aims to protect domestic industries, reduce illegal immigration, and combat the trafficking of illicit drugs.
In response, China announced retaliatory tariffs with rates of 10% and 15%. These tariff measures mark a departure from decades of relatively liberal trade policies, fundamentally altering the dynamics of international commerce. These escalating trade measures could have significant implications for multinational corporations, including increased costs, supply chain disruptions, and greater regulatory scrutiny, which could also affect Micro, Small, and Medium-sized Enterprises (MSMEs).
While these tariffs mainly target North American and Asian markets, their effects extend beyond these regions. There is a saying, “When America sneezes, the world catches a cold.” African MSMEs, which are increasingly integrated into global supply chains, could “catch a cold” by facing significant direct and indirect impacts. Due to the interconnectedness of trade networks, small businesses in Africa rely on affordable inputs from China and benefit from international trade networks that have traditionally linked them to larger markets and corporations.
MSMEs could experience the effects of rising input costs, disrupted supply chains, and intensified market uncertainty. Conversely, these shifts could also create opportunities for African businesses to enter new markets or diversify their sourcing strategies.
This article looks at how U.S. tariffs on Canada, Mexico, and China could affect MSMEs in Africa. By examining the global ripple effects of trade policies, we touch both on the challenges posed by increased costs and supply chain disruption and the potential opportunities that could arise from trade diversion and market reorientation.
Tariffs
On February 1, 2025, newly elected U.S. President Trump issued executive orders that dramatically reshaped the trade landscape. Under these orders, the president imposed an additional 25% tariff on nearly all imports from Canada and Mexico. While the 25% duty applies to most products from Canada, key exceptions exist. Additionally, products imported from China are now subject to a 10% tariff. This measure targets a broad array of goods, as the new administration intends to address concerns over the flow of certain illicit products and unfair trade practices.
The tariffs are levied in addition to any existing duties and are designed to remain in effect until the U.S. deems that the underlying issues—such as border security and drug trafficking—have been adequately addressed.
The imposition of a 25% tariff represents a sharp departure from the norm, leading to rapid shifts in supply chain strategies and increased uncertainty among businesses that depend on cross-border commerce. Early analyses indicate that these tariffs have already begun to disrupt established production networks and may result in higher costs for manufacturers and consumers alike triggering retaliatory measures from the affected countries.
Canada, too, responded by imposing 25% tariffs on $30 billion worth of U.S. imports, with plans to expand to $155 billion following further consultations. Mexico also announced retaliatory tariffs, with the president adopting a wait-and-see stance. China responded with retaliatory measures, imposing tariffs of 15% on certain US agricultural imports such as chicken, corn, cotton, and wheat. Additionally, there is a 10% tariff on US aquatic products, beef, dairy, fruits and vegetables, pork, soybeans, and sorghum imports.
Global Supply Chain Implications
1. Increased Input Costs for Multinational Companies
Multinational corporations that depend on global supply chains are experiencing the effects of tariffs. A 10% duty on imports from China and a 25% tariff on goods from Canada and Mexico significantly raise the costs of raw materials and intermediate products. These elevated input costs disrupt production processes, forcing companies to absorb the additional expenses or pass the increased costs on to consumers through higher prices.
2. Trade Diversion and Sourcing Alternatives
In response to President Trump’s tariffs, many Chinese exporters are offshoring production to avoid the additional costs. According to a recent Financial Times article, instead of absorbing an extra 10% duty on their products, Chinese firms are relocating portions of their manufacturing to countries such as Vietnam, where investment surged by 80% in 2023. This strategy—shifting production from a heavily taxed market (China) to alternative regions like Vietnam is a textbook example of trade diversion.
3. Increased Global Market Uncertainty and Volatility
The rapid imposition of tariffs has added a layer of unpredictability to the global market. Companies and investors are now grappling with heightened uncertainty as the full extent of these policy shifts and potential retaliatory measures by affected nations remains unclear.
Uncertainty can lead to volatility in commodity prices, exchange rate fluctuations, and production schedule disruptions. Businesses can find it increasingly challenging to forecast costs and plan long-term investments amid the dynamic, often unpredictable, trade environment. Such volatility impacts large multinational corporations and cascades down to smaller enterprises that rely on stable supply chain costs to maintain competitiveness.
Impact on African MSMEs
Micro, Small, & Medium-sized Enterprises often depend on imported raw materials, intermediate goods, and specialized components from global suppliers, many of whom are based in China or are part of integrated supply chains that connect North America and Asia. The tariffs on Chinese imports and goods from Canada and Mexico could cause the cost of goods to increase. For small enterprises that operate on thin margins, even a slight increase in costs can significantly impact the supply chain and, eventually profitability.
As a result of these rising expenses, MSMEs may be forced to either absorb the higher costs, pass them on to consumers by increasing prices, or eventually close their business. The impact of higher tariffs could ultimately reduce these firms’ competitiveness locally and internationally.
Impact on Agriculture and Agro-Processing: The agriculture and agro-processing sectors rely heavily on imported machinery and processing inputs such as fertilizers, packaging materials, and food additives. Tariffs that drive up the cost of these inputs can squeeze profit margins for farmers and processors alike. Fluctuating input costs and potential supply chain disruptions can result in inconsistent product quality and unpredictable output levels.
Impact on Retail and E-Commerce: Retailers and e-commerce platforms are among the first to feel the impact of increased import costs. With tariffs making imported goods more expensive, consumers are likely to face higher prices on items ranging from electronics to apparel. Additionally, the closure of the de minimis loophole, which previously allowed low-value shipments to enter duty-free, means that even small orders now incur extra costs. This shift not only affects consumer pricing but also forces small and medium retail businesses to rethink their sourcing strategies and competitive pricing models, potentially reducing their market share against larger competitors.
Impact on Service (including logistics and packaging): Service sectors such as logistics, warehousing, and packaging are integral to the smooth operation of global supply chains. Tariff-induced disruptions can lead to increased transportation costs, longer delivery times, and higher expenses for packaging materials as raw material costs rise. For MSMEs that already struggle with efficient logistics and cost-effective packaging solutions, these challenges can result in operational inefficiencies and reduced competitiveness. Moreover, increased volatility in the global market may further complicate inventory management and distribution, making it harder for service providers to maintain reliable operations.
Impact on Manufacturing: Manufacturing operations depend highly on a steady stream of raw materials and intermediate components. With tariffs disrupting the supply chain, manufacturers face heightened production costs. These cost pressures can lead to production bottlenecks, force companies to seek less optimal local substitutes, and ultimately erode profit margins. African manufacturing firms that are part of global supply chains may be indirectly impacted by increased input costs and disrupted procurement channels.
Strategic Response
Despite the challenges, the changing landscape may also create new opportunities. As multinational companies seek alternative sourcing options to avoid newly imposed tariffs, there is a potential for MSMEs in Africa to be integrated into a restructured global supply chain. If these enterprises can meet the required quality standards and scale their production efficiently, they could attract business from companies looking for tariff-free or lower-cost suppliers. This shift in trade could enable small businesses to expand their export markets and establish themselves as viable alternatives to traditional suppliers in regions affected by higher tariffs.
Governments and regional trade bodies should take proactive measures to protect MSMEs from the negative impacts of global tariff fluctuations and position these enterprises to seize the new opportunities that tariff increases could present. The following strategic responses could be effective for supporting MSMEs during this period.
Enhance Financial Support: Develop targeted subsidy programs, low-interest credit facilities, and tax incentives to assist MSMEs in managing increased input costs.
Promote Trade Facilitation: Improve customs efficiency and logistics infrastructure to reduce delays and lower transaction costs, ensuring smoother cross-border trade.
Strengthen Intra-African Trade: Actively participate in regional and international trade negotiations to secure preferential market access and protect African supply chains. Strengthen intra-African trade by implementing African Continental Free Trade Area (AfCFTA) and forging stronger partnerships among neighboring countries, which can lead to integrated regional value chains and enhanced competitiveness.
Build Capacity: Provide training programs to help MSME owners enhance their operational efficiency, improve quality standards, and boost competitiveness in the global market.
Conclusion
U.S. tariffs of 25% on Canadian and Mexican goods (with some exceptions) and 10% on Chinese imports could reshape global trade by increasing input costs, prompting shifts in trade patterns, and greater market uncertainty. By investing in the development of local supply chains, African governments can mitigate the impact of a tariff war on MSMEs. Developing local supply chains could also help lessen the risk of exposure to tariff increases imposed by the U.S. or any other developed nation.
The newly imposed tariffs present challenges and opportunities for African micro, small, and medium enterprises. While rising costs and supply chain disruptions create risks, they also offer chances to integrate into new markets and regional value chains. The tariff war allows African governments and small businesses to explore African markets and take advantage of regional trade agreements that provide tariff-free or reduced-tariff access.
Navigating this evolving landscape will require strategic responses from governments and trade blocs, including enhanced financial support, improved trade facilitation, strengthened intra-African trade, and increased capacity for business owners.
Written by:
Staff Writer
