For decades, globalisation anchored in free trade has driven global economic integration, enabling the flow of goods, services, and capital across borders and spurring widespread growth. Rooted in Adam Smith’s absolute advantage and expanded by David Ricardo’s comparative advantage, trade theory shows that countries benefit by specialising and exchanging goods where they hold relative efficiency. These principles shaped the post-WWII liberal trade order, reinforced by GATT and the WTO, helping reduce poverty and boost industrialisation, especially in developing economies. However, recent years have seen a retreat from globalisation.

Rising protectionist trade policies are replacing the free trade momentum of several decades, and commodity markets are becoming more volatile. Thus, a major development is the United States’ decision under President Donald Trump’s second-term administration to introduce a 14 percent tariff on imported goods, known as the “Liberation Day Tariffs.” This move signals a shift away from globalisation, with the U.S. aiming to protect the country’s domestic industries by making foreign goods more expensive. While these tariffs are largely aimed at countries with major trade surpluses with the U.S., the effects are far-reaching, impacting trade balances, inflation levels, employment and investor confidence across the globe.

For Nigeria, which depends heavily on oil exports and has existing trade arrangements with the U.S., these developments pose significant economic risks. The country’s economic structure – heavily reliant on global oil demand and U.S. trade – means that any shifts in global trade policies or oil prices ripple through Nigeria’s national revenue, budget performance, and macroeconomic indicators. However, Nigeria’s participation in agreements like the Trade and Investment Framework Agreement (TIFA) and the Africa Growth and Opportunity Act (AGOA) makes it even more vulnerable to external shocks. This brief examines the impact of the Liberation Day Tariffs, declining oil prices, and how these developments are shaping Nigeria’s trade patterns and budget outlook in 2025.

Tariffs, as defined by the WTO, are duties placed on imported and exported goods, typically imposed by governments to regulate trade and protect domestic industries. They are often used as a tool of foreign policy or to balance trade deficits. For Nigeria, the imposition of tariffs by major trading partners, especially the U.S., can have both direct and indirect effects on its economy. In 2024, the U.S.-Nigeria trade relationship was valued at approximately $9.9 billion in 2024, according to the Office of the United States Trade Representative. Thus, Nigeria exported about $5.7 billion worth of goods to the U.S., while importing $4.2 billion, a 61 percent increase from 2023. However, early 2025 data indicate a worrying sign: U.S. imports from Nigeria dropped to $286.3 million in the first two months, down from $423 million in the same period the previous year — even before the tariffs were fully implemented.

“Given that crude oil exports account for a substantial share of government income, sustained price and output shortfalls jeopardise public spending, elevate borrowing needs, and strain debt servicing costs.”

These developments show how sensitive trade flows are to policy shifts. Although Nigeria is not the primary target of the U.S. tariffs, indirect effects are already visible as trade wars tend to disrupt global supply chains, create inflationary pressures, and slow economic growth. This is especially dangerous for developing countries, which may face increased exchange rate volatility due to the pass-through effect where import costs rise due to currency depreciation. While Nigeria’s primary export to the U.S. is crude oil, a commodity less likely to be directly affected by tariffs, the overall effect of global trade disruptions could dampen oil demand, drive prices lower, and worsen Nigeria’s fiscal stability.

In early 2025, Brent crude oil prices exhibited a sustained decline, falling from $75.16 in January to $68.98 in April, representing a drop of over 8 percent within four months and more than 20 percent in a single week in April, when prices briefly plunged to a four-year low before stabilising at $66 per barrel. This drop was driven by the new U.S. tariffs and oversupply from OPEC+ nations. This is deeply concerning for Nigeria, as its 2025 budget is built on an oil price benchmark of $75 per barrel and a daily production target of 2.06 million barrels. In January 2025, however, actual oil output was just 1.737 million barrels per day, well below target. This discrepancy between fiscal projections and market realities undermines Nigeria’s ability to meet its revenue expectations. Given that crude oil exports account for a substantial share of government income, sustained price and output shortfalls jeopardise public spending, elevate borrowing needs, and strain debt servicing costs. This, in turn, amplifies pressure on the naira, exacerbating inflationary pressures in a fragile macroeconomic environment already unsettled by global trade disruptions.

The downward trend in oil prices explains the vulnerability of resource-dependent economies like Nigeria to external shocks. As global markets adjust to shifting trade dynamics, including “Liberation Day” tariffs and OPEC+ output decisions, Nigeria must urgently reconsider its reliance on crude oil revenue. Strengthening non-oil revenue streams, improving oil sector efficiency, and enhancing trade resilience through diversification should be central to its fiscal policy response. Figure 2 below shows the historical trend in Nigeria’s Crude Oil Export (Million Barrels Per Day (mbd)) from 2015 to 2024. This shows the steady decline in production and exports coupled with fluctuation in oil prices – an external shock to the Nigerian economy.

This structural inefficiency severely constrains Nigeria’s ability to convert oil wealth into stable revenues, a weakness that becomes even more pressing when considered alongside the ambitious targets set in the 2025 national budget.

The 2025 national budget of ₦54.99 trillion was presented with high expectations to accelerate development and stabilise the economy. The budget projects ₦34.82 trillion in revenue, primarily from oil revenue. However, with oil prices below the $75 benchmark and production not meeting targets, the risk of a major shortfall is real. The budget deficit, initially projected at ₦13.39 trillion (3.89% of GDP), may widen further, pushing Nigeria into deeper fiscal instability.

Moreover, the exchange rate assumption of ₦1,500 to the dollar may not hold if foreign exchange earnings from oil decline. This could lead to further naira depreciation and rising inflation, two factors that will hit both public and private sector spending. These challenges call for a sober reassessment of the assumptions that underpin the budget and a contingency plan to manage the emerging fiscal risks.

Thus, the ongoing global trade war provides a unique opportunity for Nigeria to rethink its economic strategy; despite oil remaining important in the short run, long-run sustainability depends on developing the non-oil sector.

Global economic shifts, triggered by the U.S. Liberation Day Tariffs and falling oil prices, have placed Nigeria in a vulnerable position. Nigeria should use this period to scale up investment in agriculture, manufacturing, and services – the Green Imperative Project, for instance, in collaboration with Brazil, is a good initiative and, if properly implemented, could strengthen the entire value chain – from smallholder farmers to agribusiness – and improve food security, employment, and rural development. In addition, Nigeria must take full advantage of regional initiatives like the African Continental Free Trade Area (AfCFTA) and the Pan-African Payment and Settlement System (PAPSS). These platforms reduce the country’s exposure to external trade shocks by opening new markets and enabling cross-border trade using local currencies.