Shock is by far the easiest sentiment to register, as have markets across the world. Commodities markets continue to fall across the world, with global stock markets shedding 20 per cent and the US bond market retreating from its reputation as the haven for cash after a risk sell-off. Yet, the imposition by the US government on 2 April, of what it described as “reciprocal tariffs” on economies around the world was supposed to usher in a halcyon era, at least for America.
The arguments of the Donald Trump administration were always a stretch. That the world’s biggest economy has been the hapless victim of policy choices of countries as diverse as Vietnam and Lesotho (a country which the US president claimed, “nobody has ever heard of”). That value added tax imposed by other countries pillage US taxpayers. That the tax-dependent US Internal Revenue Service may very easily be replaced by a tariff-dependent External Revenue Service (despite new research by Professors Simon Evenett and Marc-Andreas Muendler finding that “tariff revenues cannot plausibly fund more than a few weeks of annual U.S. government spending”).
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That the impact on US domestic prices of higher tariffs will be more than compensated for by a jobs boom. (Howard Lutnick, the US Commerce Secretary, described this in terms of “the army of millions and millions of human beings screwing in little, little screws to make iPhones — that kind of thing is going to come to America.”). Driven by ideology rather than economics, the justifications ranged from a kindergartener’s appreciation of economics, through wish fulfilment, to magical realism.
The damages, are, however, real and present. Right now, uncertainty and a heightened risk perception are the dominant drivers of market sentiment. The world over, investors are holding off new investments; fund managers are favouring cash; gold, the Japanese yen and the Swiss francs are back as bolt holes for the wise and the prudent.
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Nonetheless, all the caution in the world might not suffice to put off the point where a collapse in global demand, on the back of a global trade war, triggers a global recession. While consistent with the elevated sense of macabre possibilities that is the new normal, China’s kneejerk response to the new US tariffs (it imposed countervailing tariffs on US goods at the same rate that the US’ reciprocal tariffs applied to it) is as wrong as it would eventually prove unhelpful.
If nothing else, these times call for more sedate counsel. While America may have cut its nose in order to spite the rest of the world, the rest of the world’s challenge is to hold up a mirror to the US’ new scars. For most countries, the challenge from today’s new global abnormal is to strengthen economic resilience by improving the choices available to their consumers.
Higher tariffs do not obviously lead this way. Japan is required to free its labour markets, continuing the governance reforms it has implemented in the management of its industries. Europe will have to strengthen its internal markets, removing barriers to the free flow of labour and capital. China will need to restore domestic demand, especially by fixing its property market, the indebtedness of a lot of its sub-national governments, and accelerating the recapitalisation of its banks.
But by far the biggest challenge presented by the US’ new understanding of economics would be the strengthening of the very trade links that the incumbent US government would prefer to sever. Here, China’s role is cut out clearly. As the world’s second biggest economy, it will have to export capital and know-how, rather than its industrial surpluses, as is currently the case.
Otherwise, global markets will seize up. And the world economy will be balkanised, both literally and figuratively. It is in this spirit that PREMIUM TIMES welcomes the response to the current global crisis of the Federal Ministry of Industry, Trade and Investment.
Even as we acknowledge the United States of America’s spirited commitment to the systemic dismantling of the liberal order and the economic model that grew out of it, we are aware that Nigeria cannot improve its citizens’ political, social, and economic choices, without “turning global and regional trade policy challenges into opportunities to grow our non-oil export footprint and build a more resilient economy.”
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Yet, the domestic numbers do add up as well as our straitened external economic environment demands. With crude petroleum and gas making up 90 per cent of our goods exports to the US of around $6 billion, we have a merchandise trade surplus of just about $2 billion. A global tariff war will therefore hurt. Global oil prices have plummeted to depths that make nonsense of the 2025 budget assumptions. OPEC+’s decision to ramp up production, next month, will only worsen matters.
Policy-wise, the Nigerian government can optimise either of two constraints. Far easier is to have the Central Bank of Nigeria (CBN) devalue the naira, so that the economy has a corresponding currency offset to the tariffs. Or, which calls for far more detail, we find other markets for our crude petroleum and gas.
PREMIUM TIMES is sold on the latter option, given the negative impact of naira devaluation on ordinary Nigerians. Yet, we also recognise that the whimsical nature of policymaking in the US today leave few countries enough elbow room to plan. Which is why we believe that the best time to have responded to the challenges posed by the new policymaking thrust in the US was at the beginning of this year. The next best time to strengthen the domestic economy’s resilience to external shocks is today.
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