Impact for Kenya and Its Economy on the 10% Tariff on Its Exports to the U.S.

In an increasingly globalized economy, developing nations like Kenya have come to rely heavily on international trade, particularly with economic giants like the United States. The imposition of a 10% tariff on Kenyan exports to the U.S. marks a significant development, with wide-ranging implications for the country’s economy, trade relationships, industrial growth, and employment levels.

In 2024, Kenya’s exports to the United States totaled approximately $737.3 million, marking a 17.5% decrease from the previous year. This decline contrasts with the 22.81% increase observed in 2024, where exports were valued at around Ksh72.96 billion (approximately $611.5 million).

The United States remains one of Kenya’s significant trading partners, with exports including apparel, textiles, coffee, and nuts.

This article delves into the potential consequences of this tariff, exploring its multifaceted impact on Kenya’s key export sectors, investment climate, and broader economic trajectory.

Before we discuss the impact the 10% tariff on our exports has, lets discuss what tariffs are:

What is a Tariff?

A tariff is a tax imposed by a government on imported (and sometimes exported) goods and services. It makes foreign products more expensive when they enter a country, with the goal of either:

1. Protecting local industries from foreign competition by encouraging consumers to buy domestic products instead.
2. Generating revenue for the government.

How Does a Tariff Work?

Let’s break it down with a practical example:

Example:

• Kenya exports a shirt to the U.S. at $10.
• The U.S. government imposes a 10% tariff.
• That means the U.S. importer must pay an extra $1 to bring in the shirt.
• So, the final cost becomes $11 before it even reaches shelves.

This increase in price can make Kenyan products less competitive, especially if similar shirts from other countries come in without tariffs or at lower prices.

Also Read: Govt Explains How Kenya Will Gain from Trump’s Tariffs Imposed on Exports

Types of Tariffs

1. Ad Valorem Tariff – Based on a percentage of the item’s value (like 10% of $10).
2. Specific Tariff – A fixed amount per unit (e.g., $2 per shirt regardless of value).
3. Compound Tariff – A combination of both.

Who Pays for the Tariff?

Although tariffs are levied on importers, the cost is often passed down:

• To consumers through higher prices,
• To exporters through squeezed profit margins, especially if buyers demand lower prices.

Why Do Countries Use Tariffs?

• To protect domestic jobs and industries
• To retaliate in trade disputes
• To negotiate better trade terms
• To diversify or control imports

Now – with that understanding – what is the impact of the tariffs imposed by President Trump to Kenya and the economy?

1. Disruption to Key Export Sectors

Kenya’s top exports to the United States include textiles and apparel (under the African Growth and Opportunity Act – AGOA), tea, coffee, flowers, and nuts.

A 10% tariff will substantially undermine the competitiveness of these products in the U.S. market, leading to:

• Reduced Demand: U.S. importers may shift to alternative suppliers from countries not facing similar tariffs, such as Ethiopia, Bangladesh (for apparel), or Latin American coffee producers.
• Profit Margin Erosion: Kenyan exporters may either absorb the tariff costs, thereby reducing profit margins, or pass them on to consumers, which could hurt demand.
• Supply Chain Disruptions: Businesses depending on economies of scale for U.S. exports may be forced to scale down, affecting associated supply chains in transport, logistics, and packaging.

2. Threat to AGOA Benefits

The tariff could be interpreted as a weakening or partial rollback of AGOA benefits, which currently grant duty-free access to the U.S. for eligible sub-Saharan African countries. Kenya is one of the largest beneficiaries of AGOA, particularly in the apparel sector, which employs over 50,000 people, mostly women.

• Investor Confidence: Uncertainty around the continuity of preferential access could deter foreign direct investment in export processing zones (EPZs) and special economic zones (SEZs).
• Job Losses: If apparel and textile manufacturers find the U.S. market unviable, factories may close or reduce capacity, leading to significant job losses.
• Export Diversification Pressure: Kenya would need to fast-track market diversification, investing in trade relations with Europe, the Middle East, and intra-African partners under the AfCFTA.

3. Impact on GDP and Foreign Exchange Earnings

Kenya’s export sector plays a critical role in generating foreign exchange, stabilizing the Kenyan shilling, and supporting GDP growth.

• Reduced Export Earnings: A tariff-induced drop in export volumes will hurt the country’s dollar inflows, potentially weakening the shilling and increasing inflationary pressure on imported goods.
• Balance of Trade Worsening: Kenya’s trade balance may deteriorate if the U.S. market contracts without sufficient replacement from other markets.
• Fiscal Pressure: Lower earnings from key sectors could reduce tax revenue and increase pressure on public finances, affecting the government’s ability to invest in infrastructure and social services.

4. Industrialization and Value Addition Setback

Kenya has prioritized industrialization and value addition as part of its Vision 2030 agenda and Bottom-Up Economic Transformation Agenda (BETA). A key component of this drive involves expanding manufacturing for export.

• Slowed Manufacturing Growth: Tariffs may discourage investment in export-oriented industries, especially those reliant on U.S. demand.
• Shift to Low-Value Production: To cut costs, firms may reduce value addition, limiting job creation and industrial upgrading opportunities.

5. Potential Strategic Recalibration

In response to the tariff, Kenya may need to reconsider its trade strategy and external relations:

• Re-Negotiation of Bilateral Agreements: Kenya and the U.S. have been in talks for a bilateral Free Trade Agreement (FTA). The tariff issue may add urgency to these negotiations or shift their focus.
• AfCFTA Opportunity: The situation could incentivize deeper engagement with the African Continental Free Trade Area, positioning Kenya as a regional export hub.
• Trade with Emerging Markets: Kenya could seek stronger trade ties with China, India, the EU, and GCC countries to reduce overreliance on the U.S. market.

Here is a further breakdown of the options Kenya has

Option 1: Impose Tariffs on U.S. Goods (Retaliation)

Pros:

• Shows strength and sends a political message.
• May pressure the U.S. to reconsider the tariff.
• Could protect local industries from U.S. imports.

Cons:

• Kenya imports far more from the U.S. than it exports. Retaliation could backfire.
• Kenya’s market is relatively small—unlikely to influence U.S. policy.
• Could escalate into a trade war, hurting both sides.
• May breach World Trade Organization (WTO) rules unless justified properly.

Verdict: Risky and not ideal, especially for a smaller economy.

Option 2: Negotiate Bilateral Trade Terms

Pros:

• Keeps the relationship diplomatic and constructive.
• Kenya and the U.S. have been discussing a Free Trade Agreement (FTA)—this could accelerate talks.
• Offers an opportunity to get better, longer-term trade terms.
• May lead to reinstatement or strengthening of AGOA-type preferences.

Cons:

• Negotiations take time.
• Requires strong diplomatic and legal resources.
• May need Kenya to make concessions in other sectors (e.g., digital tax, IP rights).

Verdict: This is the most strategic and sustainable option.

Option 3: Do Nothing

Pros:

• Avoids immediate conflict.
• Allows Kenya to assess long-term U.S. trade direction.
• Can buy time to diversify export markets (e.g., EU, Africa, GCC).

Cons:

• Kenyan exporters continue to lose competitiveness.
• Could be seen as weak or passive.
• Domestic pressure from affected sectors may mount.

Verdict: Only viable as a short-term placeholder while preparing for negotiations or market diversification.

Recommended Response: A Combined Approach

1. Open Diplomatic Channels Immediately

• Seek clarification on the tariff.
• Push for exemption or reduction, citing AGOA commitments and mutual trade benefits.

2. Accelerate Bilateral FTA Negotiations

• Position Kenya as a stable, strategic trade partner in Africa.
• Aim to secure tariff-free or low-tariff access in key sectors.

3. Support Local Exporters

• Provide short-term relief (e.g., tax breaks, subsidies).
• Invest in competitiveness: logistics, value addition, market access.

4. Diversify Trade Partners

• Expand into Europe, Asia, and Africa under AfCFTA to reduce dependency on the U.S.

Also Read: Kenya’s Tea Exports Hit by Spike in Red Sea Attacks

Kenya cannot win the tariff war with the USA and therefore shouldn’t retaliate with tariffs—it risks hurting itself more than helping. Diplomatic negotiation and diversification offer the best path forward to protect

6. Social and Political Ramifications

• Public Discontent: Rising unemployment, especially among youth and women in export-driven sectors, could lead to social unrest.
• Political Pressure: The Kenyan government could face mounting pressure to act decisively, either through diplomatic channels or by offering local support (subsidies, incentives) to affected industries.

Before I conclude – IT IS TIME that Kenya accelerates its engagement with PAPSS as part of its strategic alignment and response to the 10% tariff. PAPSS can make part of the bigger picture response, where Kenya doesn’t just negotiate with the U.S, but also leans into continental integration, and used PAPSS as the infrastructure to make that happen smoothly.

What is PAPSS?

PAPSS is a centralized payment and settlement infrastructure developed by the African Export-Import Bank (Afreximbank) and the African Union. It allows African businesses and governments to make cross-border payments in local currencies, without relying on the U.S. dollar or other external currencies.

How Does PAPSS Connect with Kenya’s Response to the U.S. Tariff?

1. Promotes Intra-African Trade

• If Kenya is facing higher barriers trading with the U.S., PAPSS enables easier trade within Africa.
• Kenyan exporters can now sell to countries like Ghana, Nigeria, Egypt, Rwanda, etc., and receive payments in Kenyan Shillings, while buyers pay in their local currency.

2. Reduces FX Dependence and Cost

• Tariffs often raise the cost of doing business due to foreign exchange (FX) fees and USD dependency.
• PAPSS removes the need to convert to USD or EUR for African trade, cutting costs and settlement time.

3. Boosts Export Diversification

• PAPSS is a key enabler of the African Continental Free Trade Area (AfCFTA).
• Kenya can leverage it to diversify exports beyond the U.S., building stronger trade ties across the continent.

4. Strengthens Economic Resilience

• Over-reliance on U.S. and European markets makes Kenya vulnerable to external shocks (like tariffs).
• A PAPSS-powered AfCFTA allows for regional economic resilience and autonomy.

Here is an example that might help bring this home – Consider a Coffee Exporter in Kenya.

Instead of exporting coffee to the U.S. (now with 10% tariffs), a Kenyan company could export to Egypt or Nigeria:

• Receives payment in Kenyan Shillings via PAPSS.
• Faster, cheaper, no USD involved.
• Builds stronger regional customer base.

Conclusion

The imposition of a 10% tariff on Kenyan exports to the U.S. presents a significant threat to the country’s economic stability and long-term development goals. While it poses immediate risks—ranging from job losses and reduced earnings to weakening investor confidence—it also opens a window for strategic recalibration.

Kenya must urgently explore alternative markets, negotiate more favorable trade terms, and build domestic resilience to navigate this new trade reality. The challenge will test Kenya’s diplomatic agility, economic adaptability, and policy innovation in a dynamic global trade landscape.

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