The recent tariff measures introduced by the United States (US) are poised to have a major impact on Ethiopia’s economy. They threaten to disrupt crucial trade relationships, reduce the competitiveness of exports, and put long-term development goals at risk. With a 10 percent baseline tariff now in place, Ethiopia’s economic stability is in jeopardy, especially since the country heavily depends on agricultural exports. This move not only shakes up the established global economic order but also goes against World Trade Organization (WTO) regulations, which could weaken the multilateral trading system.

Experts are sounding the alarm, warning that this could lead to a trade war, causing widespread economic turmoil. Ethiopia, which is eager for economic growth and foreign investment, finds itself vulnerable to these protective measures that are disrupting global markets and limiting access to essential trade opportunities. These unilateral actions pose a serious threat to the country’s economic growth, export performance, and its ability to draw in foreign investment.

As global trade tensions rise, Ethiopia is facing more uncertainty in its efforts to integrate into the international market. The situation is made even worse by Ethiopia’s suspension from the African Growth and Opportunity Act (AGOA), which had previously allowed many Ethiopian exports to enter the US market duty-free.

The most immediate effect of the tariff is that it makes Ethiopian exports less competitive. By driving up the costs of exports, key industries like textiles and coffee are put at risk in the global market. When prices rise, these products become less attractive to international buyers, particularly in markets that have historically been big consumers of Ethiopian goods. As a result, demand for these items drops, which can lead to lower export revenues, job losses, and even factory closures. This decline makes it even harder for Ethiopia to earn income from exports and maintain its industrial growth.

Ethiopia also faces the risk of getting caught up in the global trade tensions. Although it may not be a primary target, the current wave of retaliatory trade policies among major economies could have unintended consequences. As countries impose tariffs or change their trade policies in response, Ethiopia’s economic standing could take another hit. These changes in global trade dynamics might create uncertainty in trade relationships and restrict access to important markets, which could destabilize the overall economy. Moreover, disruptions in global supply chains could steer trade and investment away from the region.

The uncertainty around trade policies, especially with the recent tariff measures, is a real concern for foreign direct investment in Ethiopia. Investors tend to be wary in situations where trade rules change unpredictably. As Ethiopia works to draw in investment across crucial sectors like agriculture, manufacturing, mining, tourism, and ICT, this unpredictability makes it less attractive compared to more stable markets. Without a steady flow of Foreign Direct Investment (FDI), Ethiopia’s chances for economic transformation are further limited.

Many investors are drawn to Ethiopia’s industrial zones because they see the country as a low-cost export hub for international markets. However, the new tariffs undermine this strategy. If foreign companies determine that exporting from Ethiopia is no longer profitable due to protectionist measures, they might choose to invest elsewhere, hindering Ethiopia’s industrial growth. A decline in investor confidence from FDI countries could weaken Ethiopia’s standing as an emerging center for light manufacturing in Africa.

Additionally, the growing collaboration among BRICS+ nations might lead to more punitive actions from the US, including trade restrictions, technology sanctions, and less favorable treatment in trade agreements. These changes will impact BRICS+ countries by complicating their efforts to maintain a stable and positive international order.

Ethiopia’s exports are often seen as extensions of other countries’ economic power, which means they might face extra scrutiny or restrictions from the US. This situation complicates Ethiopia’s efforts to integrate into global supply networks. Ethiopia plays a key role in the “Going Global” strategy embraced by both emerging and developed economies. The increased costs associated with tariffs can hinder domestic industries by raising the price of imported goods and raw materials, ultimately escalating production costs. This combination can lead to slower economic growth and limited opportunities for poverty alleviation.

In the long run, these tariffs have seriously hurt the continent of Africa, undermining its economic goals and trade strategies. They weaken the WTO’s rules-based system, which African countries depend on for fair and predictable global trade. These unilateral actions, often justified by national security and trade deficit claims, go against WTO principles like non-discrimination and reciprocity. This leaves African nations exposed to arbitrary trade decisions and worsens global trade imbalances.

What is more, the tariffs are a setback for the African Continental Free Trade Area (AfCFTA), which aims to lessen Africa’s dependence on outside markets and promote trade and industrialization within the continent. By discouraging African exports to the US, the tariffs weaken Africa’s integration into global value chains, especially in sectors like textile manufacturing, agri-processing, and raw material value addition. This contradicts AfCFTA’s vision of a connected, export-ready Africa.

Furthermore, the tariffs disrupt Africa’s Regional Economic Communities (RECs), such as ECOWAS, EAC, and COMESA, by pushing for bilateral negotiations instead of multilateral cooperation. This weakens regional unity, creates inconsistencies in tariffs and customs policies, and encourages competition rather than collaboration among African countries seeking preferential access to the US market.

The tariffs also pose a serious threat to the export-driven growth strategies of many African nations. The uncertainty surrounding access to the international market also discourages investment, making African export industries less attractive to foreign investors. Besides, these tariffs contribute to a rise in global economic nationalism, which weakens Africa’s negotiating power in international trade discussions. Without a strong multilateral trading system, African countries struggle to secure fair trade terms, development opportunities, or any special considerations.

Ethiopia, in particular, is vulnerable due to its dependence on sectors sensitive to tariffs, which makes it more susceptible to economic instability and limits its ability to cope with disruptions in global trade. The repercussions of these challenges are profoundly felt in its development objectives. The rising costs of exports and a decline in foreign investment jeopardize Ethiopia’s economic stability and its capacity to manage trade deficits and foreign exchange requirements.  Moreover, Ethiopia’s export-led growth strategy is facing significant hurdles, as increasing production costs and dwindling demand are negatively impacting crucial export sectors. This situation disrupts the country’s development agenda, particularly its emphasis on export-driven industrialization.

To tackle these challenges, Ethiopia has a few strategic options to consider. First off, it is important to diversify its export markets. By looking into different trade destinations, Ethiopia can lessen its reliance on just one market, which helps cushion the blow from tariffs and broadens its global trade presence. Next, focusing on value-added production can boost Ethiopia’s export competitiveness. This shift means moving away from just raw commodities, making exports more robust against price swings and tariff issues.

In addition, strengthening regional trade through agreements like the AfCFTA is vital for Ethiopia. It can encourage trade within Africa, spur industrial growth, and promote diversification, which acts as a safety net against global trade hiccups and cuts down on external dependencies. Besides, Ethiopia should aim for political stability, foster inclusive dialogue, and implement economic reforms that create a welcoming environment for investors. Key areas for reform should include tax policies, trade logistics, infrastructure, and power supply. Lastly, setting up a trade shock resilience fund will be crucial for helping Ethiopia navigate any future trade disruptions effectively.

In the long run, Ethiopia needs to focus on engaging with multiple partners, pushing for trade policies that stand against unilateral tariffs, and highlighting the importance of fairness in global trade talks. The nation should also dive into diplomatic efforts to secure better trade agreements, push back against one-sided protectionist actions, and champion multilateral trade policies that ensure equity and fairness. Strengthening its role in global platforms like the WTO will help Ethiopia safeguard its economic interests. In addition, the country can take advantage of its growing relationships with BRICS+ nations to tap into new trade and investment opportunities, helping to lessen the tariffs and broaden its trade connections. Collaborating with countries that are dedicated to creating a more predictable, rules-based economic environment is essential.

In conclusion, Ethiopia’s economic path is at a pivotal moment due to the effects of recent tariffs. The challenges it faces are complex, stemming from both internal structural issues and external global economic shifts. By tackling these underlying problems through comprehensive reforms, Ethiopia can aim to build a more resilient and competitive economy. Diversifying its export markets, investing in value-added production, strengthening regional trade, and enhancing political and economic stability will enable Ethiopia to effectively navigate global trade disruptions. These strategies will help the country establish a more robust, varied, and sustainable economic framework for the future.

(Balew Demissie (PhD) is a seasoned communication and publications consultant with extensive experience working with various international and governmental organizations, including the Policy Studies Institute and Addis Ababa University. He played a key role as lead researcher and editor-in-chief for the Ethiopian 15-Year Education Roadmap.  With a comprehensive academic background, including a BA, MA, and PhD in literature, he possesses a diverse skill set spanning policy research and analysis, and international relations. Balew has also authored several academic books and Scopus-indexed articles. He can be reached at balewdem@gmail.com.)

Contributed by Balew Demissie (PhD)