US-China Tariff War Threatens Nigeria’s Trade Balance, Say Analysts
The escalating trade war between the United States and China is poised to have significant ripple effects on the Nigerian economy, with analysts warning of a worsening trade deficit and increased pressure on the naira.
A new macroeconomic report by Meristem Securities, titled The US Tariff Hikes and Its Expected Impacts, highlights concerns that redirected Chinese exports could further deepen Nigeria’s trade imbalance.
The trade dispute, reignited by the US imposing an additional 25% tariff on imports from Canada and Mexico and a 10% levy on Chinese goods, has seen Beijing retaliate with restrictions on key metal exports and new import duties on US coal, liquefied natural gas, and automobiles.
With China accounting for 24.36% of Nigeria’s total imports as of Q3 2024, the country remains Nigeria’s largest trading partner on the import side. The National Bureau of Statistics (NBS) reported that Nigeria’s trade deficit with China stood at N7.54tn in Q3 2023.
A Worsening Trade Imbalance
Analysts at Meristem Securities caution that China’s need to find alternative markets for its exports could lead to a surge in Chinese imports into Nigeria, widening the trade deficit and straining the country’s foreign reserves.
“With the potential redirection of more exports toward Nigeria, imports from key trading partners, particularly China, could rise further, exacerbating Nigeria’s existing trade imbalance. A sustained increase in import inflows without a corresponding rise in exports may place additional pressure on Nigeria’s external reserves, heightening currency depreciation risks and worsening trade imbalances over the medium term,” the report stated.
Capital Flight and Exchange Rate Volatility
The analysts also warned that rising inflation in the US, combined with a stronger dollar, could force the Federal Reserve to maintain higher interest rates for an extended period or even hike rates further if inflation nears 4%. This could trigger capital flight from emerging markets like Nigeria, as investors seek safer assets with higher returns in the US.
“An escalation in these trade tensions could increase investors’ risk aversion. Reduced capital flows to emerging and frontier markets may follow, as investors are drawn to safer havens offering attractive returns and the appeal of a stronger currency,” the report noted.
A strengthening US dollar would also make imports more expensive for Nigeria, adding pressure on the naira and increasing the likelihood of renewed foreign exchange volatility. Such instability would complicate the Central Bank of Nigeria’s efforts to stabilise the currency and manage inflationary pressures.
Implications for Fixed-Income Markets
Nigeria’s fixed-income market, which has witnessed increased participation from foreign investors, could also be impacted by sustained high interest rates in advanced economies.
“Attractive rates in these economies might encourage capital outflows from Nigeria’s fixed-income market, particularly from foreign investors holding Nigerian bonds. This could lead to rising bond yields as prices decline,” Meristem analysts warned.
With inflationary pressures potentially driving up domestic prices, Nigeria’s monetary authorities may be forced to tighten policy further, raising yields to sustain investor confidence and support exchange rate stability.
China’s Growing Influence in Nigeria
Despite the concerns over trade imbalances, Nigeria’s economic ties with China continue to deepen. The Chinese Ambassador to Nigeria, Yu Dunhai, recently disclosed that trade volume between the two nations exceeded $20bn in 2024.
Speaking at the 2025 Chinese Lunar New Year celebration in Abuja, Dunhai highlighted China’s growing role in Nigeria’s economy, stating:
“Nigeria is the country where China has the largest engineering contract, the second-largest export market, and the third-largest trade partner in Africa.”
The ambassador also underscored the elevation of bilateral relations to a comprehensive strategic partnership following President Bola Tinubu’s visit to China in 2024, expressing optimism that 2025 would see even greater cooperation.
As global trade tensions intensify, Nigeria faces the dual challenge of managing its trade deficit while navigating the complexities of an evolving international economic landscape.
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