Tariffs are nothing new in world trade. Taxes imposed by a government on goods and services imported from other countries have been going on for hundreds of years in international trade. They are a form of trade policy used to regulate foreign trade, protect domestic industries, and generate government revenue.
When a foreign product enters a country, the government charges a tariff, increasing the total cost of that product. For instance, If Ethiopia imports cars from abroad and imposes a 25% tariff; the importer must pay 25% of the car’s value as tax. There are three types of tariffs. Ad Valorem Tariffs – A percentage of the value of the imported good (e.g., 10% on a $1000 item = $100). Specific Tariffs – A fixed fee per unit of the imported good (e.g., $5 per kilogram of rice). Compound Tariffs are a combination of both ad valorem and specific tariffs collected at ports of entry. Customs authorities assess the value of the imported goods and apply the relevant tariff before the goods are released. Tariffs make imported goods more expensive, which can encourage consumers to buy domestically produced alternatives.
Governments levy tariffs to protect Domestic Industries by making imported goods more expensive, local businesses are given a competitive edge. Tariffs are used to raise revenue – especially important for developing countries with limited tax bases. This may include luxury cars, perfumes and alcoholic drinks like whiskeys in the case of Ethiopia.
Sometimes tariffs are used for political purposes in trade wars or negotiations to pressure other countries. Countries used them as tool for narrowing down trade balance and reduce trade deficits. Tariffs may be used to Supports local jobs and industries. It could help to increase government revenue. In addition, can encourage growth of strategic sectors.
However, tariffs raise raises prices for consumers and can lead to trade retaliation from other countries. It may reduce efficiency and innovation due to lack of competition.
The tariff changes come at a time when Ethiopia is seeking to boost exports and attract investment. It remains to be seen how local businesses and policymakers will respond to these trade adjustments.
“Countries such as Kenya, Ghana and Ethiopia with the lowest tariffs of 10% are potential African winners. They have a unique opportunity to expand their exports to the U.S. at low tariffs, which could make their products more price competitive. This would mean that Ethiopia needs to take important measures in increasing production and productivity across various export commodities.
The new tariffs have prompted reactions from various global stakeholders. The European Union, Japan, and South Korea have raised concerns over the potential impact on global trade and economic stability. Some analysts warn that these measures could lead to inflation in the U.S. and disruptions in supply chains.
However, Ethiopia, which has invested hundreds of millions in labor intensive industries for exports such as garments, and competes globally with garment industry heavyweights such as Vietnam and Bangladesh, could price outcompete these two countries which are facing increased U.S. tariffs of 46% and 37% respectively.
The tariff varies across countries. China faces a 34% tariff, while the European Union is subject to 20%. Vietnam is hit with 46%, Taiwan with 32%, and Japan with 24%. India, South Korea, and Thailand face tariffs of 26%, 25%, and 36%, respectively. Switzerland and Indonesia both receive a 32% tariff, while Malaysia is at 24%. Cambodia faces the highest rate at 49%, while the United Kingdom, Brazil, Singapore, Chile, Australia, Turkey, and several other nations, including Ethiopia, are subject to a 10% tariff. Bangladesh is taxed at 37%, while Sri Lanka and Myanmar (Burma) face 44%. Madagascar sees a 47% tariff, Laos 48%, and Lesotho the highest at 50%. Other notable rates include Nigeria at 14%, Côte d’Ivoire at 21%, and Namibia at 21%. Several Middle Eastern and African nations, including Saudi Arabia, Egypt, and Kenya, face a 10% tariff. These tariff adjustments reflect the broader changes in U.S. trade policy under President Trump’s administration.
The point here is what should Ethiopia do to benefit from the tariff situation created by the US and what comparative advantages can Ethiopia get from its exports to the US and other countries
Ethiopia can gain specific benefits from tariffs if they are well-designed and strategically implemented. The local industries in the country will be protected from being challenged by foreign products. Tariffs can shield emerging local industries from foreign competition giving them time to grow and become competitive. Protecting local business in Ethiopia helps to sustain and create more jobs.
Tariffs can be a significant source of income for the government, especially in developing economies where income taxes may be harder to collect. This revenue can fund public services like health, education, and infrastructure. By making imports more expensive, tariffs can reduce import levels and help improve the trade balance. This could also strengthen the Ethiopian birr by reducing the demand for foreign currency. Higher tariffs on imported goods can incentivize consumers and businesses to buy locally made products. This boosts local production, innovation, and entrepreneurship.
Ethiopia can impose tariffs selectively on sectors identified in its Homegrown Economic Reform Agenda, such as agro-processing or light manufacturing, to foster sectorial growth. Tariffs on selected agricultural imports can encourage local food production, supporting food security. Protecting energy and renewable equipment manufacturing can strengthen domestic energy systems. Carefully designed tariffs on finished goods may encourage foreign firms to set up production locally, bringing in technology and skills.
Designing a tariff policy that fits Ethiopia’s economic priorities involves strategic alignment with its development goals, such as industrialization, job creation, food security, and foreign exchange stability. Here is a systematic approach Ethiopia could take:
To design a tariff policy tailored to Ethiopia’s economic priorities, the government needs to ensure that the policy directly supports national development goals like industrialization, job creation, food security, export growth, and foreign currency stability.
Tariff policy should reflect Ethiopia’s strategic plans like: Homegrown Economic Reform Agenda, Ten-Year Development Plan, Green Legacy and Industrialization strategies
These plans aim to boost local production, attract investment, reduce import dependency, and create jobs.
Applying moderate to high tariffs on finished imported goods that can be produced locally (e.g., textiles, leather, agro-processing) and offering. Duty-free or low tariffs for essential inputs like machinery, raw materials, and intermediate goods.
Further enhancing and developing agricultural transformation in the economy and reducing tariffs on agricultural tools, fertilizers, and irrigation equipment and protect local farmers from cheap imports that could undercut domestic prices is anothe5r measure that could be taken.
Using tariff exemptions or rebates for exporters on imported raw materials and harmonize tariffs within regional trade blocs (e.g., AfCFTA, COMESA) to boost regional trade a major step to be taken in regional economic integration.
Managing revenue sources by using tariffs as a source of revenue, but avoid excessive rates that drive up the cost of living upon consumers and balancing protective tariffs with consumer needs, especially for essential goods like food, medicine, and fuel is very important to offset irregularities in tariff management.
Once Ethiopia becomes full member of the WTO, Ethiopia needs to ensure that tariffs align with WTO rules and regional trade agreements. Using tariff escalation strategies (low tariffs on raw materials, high on finished goods) while avoiding trade disputes is equally important to regulate functional tariffs.
Strengthen the capacity of customs and trade institutions as well as using economic modeling and tirade data to revise tariffs periodically based on impacts assessment and involving private sector, civil society, and regional governments in tariff policy formulation in a participatory approach is an important step to be taken in tariff regulation to ensure transparency and public confidence. The author wishes to stress on some more points relating to the implementation of Ethiopia’s tariff policy.
In the context of implementing tariff policy, Ethiopia and her investors need to ensure quality production of goods and services so that the nation can generate more revenue even at lower prices. As Ethiopia has relatively better tariffs levies compared to several African countries, the nation can get better amount of revenue by improving logistics and packing technologies that fit to export standards
As stated earlier, diversification of export commodities including export of processed and semi-processed fish to African and Middle East countries and more products like processed chicken meat and milk products will help Ethiopia to generate more income. Ethiopia needs to produce more export standard electronic and technological commodities particularly for African markets.
Ethiopia needs to find new and favorable market for her agricultural and industrial products. The nation needs to exploit opportunities in AfCEFTA when it became operational. Besides as a member of BRICS, the nation needs to solicit favorable markets among member countries.
Digitalization of foreign trade and management of tariff policies will help to improve Ethiopia’s foreign trade and modernization of the entire trade process.
Meaningful operation relations with the institutes of higher learning and research institutes in the areas of economic development focusing on Ethiopia’s comparative through the context of university industry relations is very important not only on issues related to tariffs but also on the process of accelerating the macroeconomic reforms that country is currently pursuing.
Moreover, stronger measures should be taken on those who attempt to disrupt the economic growth and development of the country for political purposes. As the government has already allowed foreign retail and wholesale traders to operate in the country, 40 foreign trade businesspersons have already received certificates of operations. This pushes the issue of tariff and tariff policy at the forefront in the foreign trade business in Ethiopia.
It is therefore important to check on the implementation of tariff policy and regulations pertaining to Ethiopia’s foreign trade.
BY SOLOMON DIBABA
THE ETHIOPIAN HERALD TUESDAY 13 MAY 2025
