Trump’s mercantilism and its cost to Nigeria

Americans have had their election and chose to return Trump as their president. However, it is an understatement to say that the world is not happy about Trump’s return. Everything is changing. At the weekend, Trump ordered a 25 per cent tariff on goods shipped from Canada and Mexico. By definition, tariffs are taxes charged […]

Americans have had their election and chose to return Trump as their president. However, it is an understatement to say that the world is not happy about Trump’s return. Everything is changing.

At the weekend, Trump ordered a 25 per cent tariff on goods shipped from Canada and Mexico. By definition, tariffs are taxes charged on goods imported from other countries. So, a product worth $4 will have an additional $1 charge applied to it. There will be a 10 per cent charge on goods imported from China; goods worth $10 now cost $11.

Tariffs against China are expected to go into effect on February 4, 2025, and those against Mexico and Canada have been delayed for a month. Both have threatened retaliatory tariffs. China promised “corresponding countermeasures” and will challenge Trump’s attempt at the World Trade Organisation.

The mere announcement of these tariffs, with the promise of more on the way, has affected global financial markets. On Monday, global stck markets and currencies tumbled on concerns that the tariffs would trigger an economically damaging trade war. Similarly, the commodity and energy markets have increased their volatility. Markets only began to calm down when Trump agreed to delay talks for one month.

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Let’s be clear: Trump did not invent this tariff war, and the method to this madness can be traced back to mercantilism. The economic theory of mercantilism is an idea and rationalisation for policies implemented by countries about 400 years ago. The idea was to increase the value of exports and reduce the value of imports to boost a country’s wealth.

Mercantilism drove colonisation and imperialism for much of the 17th and 18th centuries before being replaced by capitalism. Countries achieved this by imposing tariffs to prevent imports of finished products. They promoted domestic manufacturing and strictly controlled the gold supply. These policies were best exemplified in France under Jean-Baptiste Colbert, who reorganised the French economy to adhere to mercantile theories. They were also practiced in England during the 17th century, from which Colbert copied.

Mercantilism thought that a bad trade deal could weaken the economic position of a nation relative to its rivals and create a military disadvantage over time. This increased the belief that nations must act in their own self-interest to amass as much wealth as possible—ideally at the expense of others.

There are several differences in the policies each approach supports and how mercantilism views trade and economic interactions compared to today’s perspectives. Today, we see trade as mutually beneficial, with each country specialising in what it produces efficiently and trading for what it lacks.

On the contrary, mercantilists saw trade as a zero-sum game—every transaction had a winner and a loser. They will only export finished goods and import very little. If their country were the loser in a trade, then the trade would be avoided so that everyone would lose but hope to lose less.

Mercantilists also advocate self-sufficiency to reduce reliance on foreign goods. This contradicts modern economic thinking, which argues that countries should specialise in what they produce best and import what they cannot produce cheaply. Comparably, modern thinkers see growth as a product of increased productivity, but mercantilists believed maintaining a permanent trade surplus was the sole path to accumulating wealth for a country.

So, Trump’s rhetoric to rationalise the tariffs ticks all of the mercantilist concerns. He emphasises trade surpluses as a sign of economic progress, and trading with negative balances is viewed as bad. That is why he imposed tariffs on the industries of three of America’s biggest trading countries that account for 2.1 trillion USD annually. He also indicated that the European Union would be next.

But Trump is not applying the mercantilist philosophy correctly. Mercantilists like Colbert tried to get raw materials as cheaply as possible while placing tariffs on finished products to encourage domestic production. Given that the tariff imposed covers more than half of all US imports, the United States needs to more than double its manufacturing output to cover the gap in goods on which tariffs were imposed. This will be an impossible task for Trump in the near term. The action sounds politically favourable but meaningless from a mercantilist perspective. This is one of the reasons the idea of mercantilism was discarded in the 18th century.

Looking at Trump’s actions globally, the tariff war will increase prices and lower employment in affected countries. For Nigeria, it will be a second‐order effect rather than a direct impact. Trump’s energy tariffs are 10 per cent, and crude oil prices are rising currently. However, a retaliatory action by America’s trading partners would lead to a global trade slowdown, which would cause oil prices to crash. This is bad news for Nigeria as an oil-dependent economy, as revenue will be affected.

As an import-dependent economy, Nigeria will face higher import bills and shipping costs due to high tariffs as suppliers shift production sites. This will raise prices for goods and disrupt supply chains, and subsequently, inflation will increase when global producers pass on tariff costs to buyers.

Nigeria’s foreign reserves will come under pressure because more foreign exchange is needed to buy costlier imports. So, we will have to deal with the unintended consequences of Trump’s tariff with a potential fall in oil revenue and pressure on foreign reserves. Yet opportunities may arise if Nigeria fills gaps left by Canada, Mexico, or China, especially in the energy sector.

So, starting trade wars is not without some precedent in history. Imposing these tariffs can preserve jobs and profits in the protected industries globally as intended. There will always be winners and losers in a tariff war.

However, from an objective point of view, all countries will lose; the winner will lose less. The full impact of these tariffs on the global economy is yet to be seen, but history and economic theory suggest we should brace ourselves for more amusement.