How will the us tariffs on products from KENYA affect your business?
On Wednesday 2nd April, 2025 United States (US) President Donald Trump announced new tariffs to be levied on most goods imported into the US. In a departure from the previous series of tariff hike announcements, the recently announced set of tariffs will also directly impact African countries. In this article we provide information on the new tariff structures and we consider the exceptions and possible short-term solutions for Kenyan businesses.
New Tariff Structures
Baseline tariff: A 10 per cent “baseline tariff” will be charged on products from all countries imported into the US from 5th April 2025. The baseline tariff rate applies for countries including Kenya, Tanzania, Burundi, Ethiopia, South Sudan, Rwanda, and Ghana.
Specific reciprocal tariffs: These are custom tariffs that the US plans to impose on what they have described as “the worst offenders”. The tariffs range from 0 to 99 per cent (unweighted and import-weighted averages of 20 percent and 41 percent respectively) will go into effect from 9th April 2025. African countries that will be charged a reciprocal tariff include South Africa (30%), Lesotho (50%), Madagascar (47%), Zimbabwe (18%), Nigeria (14%), and Botswana (37%).
How are the new tariffs calculated?
The basic premise of the tariff hikes is that the US has been running a balance of trade deficit (importing more products than it has been exporting) for several years. The US asserts that the reason for this persistent trade deficit is that countries have been engaging in unfair competitive practices against the US. Examples of these practices include high tariffs and non-tariff barriers such as currency manipulation and undervaluation, and regulatory and standards related-barriers to entry for American products. In response, the US has developed a formula to calculate the rate of reciprocal tariffs to be imposed.
The reciprocal tariff rate is arrived at by calculating the tariffs levied against US products and adding the currency manipulation and other trade barriers to arrive at a final amount that the US will then levy on countries. This can only be described as a proxy methodology where a tariff is assigned to non tariff barriers. Crucially, President Trump stated that in most cases, the tariffs are not “fully reciprocal”. This means that the US has imposed a lower tariff than the reciprocal rate for some of the countries. The objective of these tariffs is to reduce US imports and thereby reduce the country’s trade deficit.
How will these tariff hikes impact Kenyan businesses?
Kenya is a beneficiary of the Africa Growth and Opportunity Act (AGOA) a duty free, quota free (with the exception of apparel) preferential trade arrangement granted by the US to 32 Sub Saharan African (SSA) countries. Under AGOA, Kenya is currently able to access the US market duty free for over 6000 product lines. However, the new 10 per cent baseline tariff supersedes the preferential trade arrangement. This means that a 10% duty will now be imposed on all the products (including tea, coffee, apparel, handicraft) that Kenya exported duty free to the US under AGOA.
Tariff exemption through the US de minimis provision
In addition to announcing the new tariffs, President Trump also signed an executive order to eliminate de minimis (duty free) treatment for low value products (value below US800) originating from China and Hong Kong. This executive order will go into effect on May 2nd 2025. For Kenya, the de minimis provision is still available for low value products. This is good news for products from the apparel and handicraft sectors where shipments are mostly lower in value (i.e., below de minimis). However, there are several garment manufactures in Kenya that have set up in Export Processing Zones (EPZs) whose main export market is the US. They stand to be negatively affected by the new 10% tariff rate reducing the competitively of their products in the US market. Other sectors whose shipment values are normally above the de minimus value include tea, coffee, horticulture, and chemicals. These are sectors that enjoyed duty free access to the US market under AGOA but will now also face a 10% tariff from 5th April.
What is the SHORT TERM outlook FOR KENYAN BUSINESSES?
The prospects for Kenyan exporters whose shipments exceed the de minimis value is quite bleak. However, if the past pattern of tariff imposition by the US is anything to go by, following negotiations with affected countries, the Trump administration may postpone imposition of the tariffs. Yet, this reprieve may not be enough time for businesses to come up with measures to mitigate the impact of the new tariffs on their market share in the US or to find new markets. In the short run, (where setting up new accounts in new markets will not yield the same returns as existing markets) businesses have limited options. Broadly these options include:
Absorbing the additional cost of the new tariffs (thereby reducing profitability)
Passing the cost on to customers (thereby reducing competitiveness in US market) or
Conducting an analysis of product supply chain to find potential cost cutting measures (eg packaging, ingredients, raw materials) that will enable them to keep the price the same (thereby potentially reducing quality or quantity).
None of these options are without risks and the decision on which strategy to pursue is a business-specific decision that should be based on a firm’s specific circumstances.
For specific trade advisory services contact
Winnie Maganjo - Market Access Consultant
winnie.maganjo@idcconsulting.org
