Kenya thinks it can win from U.S. tariffs, but global recession risk looms

Yahoo

07-04-2025

By Duncan Miriri
NAIROBI (Reuters) - Kenya is among those exporters hoping a smaller Trump tariff blow vis-a-vis competitors might help them emerge as winners in the nascent global trade war, but translating the disparity into an advantage will be an uphill struggle.
As governments around the world reeled from U.S. President Donald Trump's new tariffs, Kenya voiced optimism about potential advantages over rival textile manufacturers in Asia.
Imports from the East African nation, which sent goods worth $737 million to the United States last year, will be charged the minimum 10% compared with 46% for Vietnam, 44% for Sri Lanka and 37% for Bangladesh.
"With other textile-exporting countries facing much higher tariffs, Kenya could position itself as an alternative sourcing hub for buyers," Trade Minister Lee Kinyanjui said last week.
Economists said up-and-coming manufacturers in East Africa like Tanzania and Ethiopia could also benefit, as could Latin American countries like Brazil, which also received the baseline 10% tariff.
Any gains for Kenya, however, could be offset by the damage from tariffs to the global economy plus deep-seated weaknesses in its domestic business environment.
J.P. Morgan raised its odds of global recession by year-end to 60% from 40% on Friday after China retaliated against the U.S. tariffs, while Goldman Sachs has raised the odds of a U.S. recession in the next 12 months to 45% from 35%.
The chairman of Kenya's biggest garments manufacturer said the tariffs would pile expenses on companies already facing costs roughly 20% higher than global competitors because of steep electricity prices and taxes, and questioned whether international brands would rush to shift operations.
"A temporary tariff disparity does not create real competitiveness," said Pankaj Bedi, whose United Aryan Ltd. supplies U.S. retailers including Target, Walmart and Levi's.
Stresses for manufacturers are compounded by the grim outlook for the African Growth and Opportunity Act (AGOA), a U.S. trade initiative passed in 2000 that allows duty-free exports for thousands of products from Africa.
Trade experts said the U.S. tariffs were likely to signal the end of AGOA, which expires in September and had been widely expected to be renewed in some form.
NEGOTIATIONS WITH WASHINGTON
The tariffs sent chills through the global economy, affecting nearly all of Kenya's trading partners.
Most African countries have relatively small export balances with the U.S. but more significant trade relations with the European Union and China, J.P. Morgan said in a note on Monday.
Kenya exported $1.35 billion in goods to the EU and $228 million to China in 2023, according to U.N. data.
"While the direct impact with the U.S. might be limited, the indirect impact from potential growth slowdown in the EU and China, depending on the veracity of the impact from U.S. tariffs, could yet weigh on these economies," J.P. Morgan said.
As well as his bullish initial assessment, Kenya's trade minister Kinyanjui did also take sober note on Monday of the havoc on global markets.
"We anticipate there will be a serious impact across all sectors and I think the fears of recession become a very clear challenge, especially for third world countries," he said.
Some manufacturers said Kenya would struggle to take advantage of any opening provided by the tariffs because their higher costs largely cancel out the edge from U.S. tariff rate differentials versus competitors.
"Kenya's exports to the USA, previously duty-free under AGOA, will now be subject to additional costs, reducing their market competitiveness," the Kenya Association of Manufacturers said in a statement.
Other manufacturers were nevertheless looking on the bright side. Jaswinder Bedi, whose company makes clothes for American wholesalers, said he planned to press ahead with a new factory that would triple his employees to more than 3,000.
"Our comparative advantage has actually increased," he said. "Look at our competing countries ... those tariffs are very high."
Much will depend on the ability of Kenya - and its competitors - to secure better terms through direct negotiations with Washington.
U.S. Treasury Secretary Scott Bessent said on Sunday that more than 50 nations had started negotiations with the U.S. since Trump announced the tariffs last Wednesday.
It was not known if Kenya was among them. At least one textile manufacturing competitor was moving aggressively to try to roll back the tariffs, with Vietnam's leader To Lam agreeing during a phone call on Friday with Trump to discuss a deal.
Kenya opened trade deal negotiations with the first Trump administration in 2020.
New talks were opened under President Joe Biden's administration on a trade and investment partnership aimed at lifting non-tariff barriers to trade but were not completed before Trump returned to office.