Rising Tariffs, Shifting Value Chains: The Strategic Role of AfCFTA for Africa

According to UNCTAD, tariffs applied by major economies including the United States, have surged from an average of 2.8% to over 20% in 2025. This sharp increase carries serious implications for investment in developing countries—many of which are in Africa—where growth prospects are closely linked to participation in global value chains.

When major economies impose steep tariffs, the ripple effects are immediate. Multinationals face rising costs and respond by either reshoring production, shifting supply chains closer to large consumer markets, or seeking alternative investment locations. For some developing countries, this creates new opportunities. Mexico for instance, has seen in 2024 a substantial increase in manufacturing investments from Chinese businesses as firms sought to circumvent U.S.–China tariff barriers by relocating production closer to the American market, taking advantage of Mexico’s preferential trade access under agreements like the US-Mexico-Canada Agreement (USMCA).

Yet for many other countries, the surge in tariffs can translate in significant losses. Uncertainty over global trade rules raises the risk premium of investing in smaller markets, deterring long-term capital inflows. Commodity-dependent economies that rely heavily on the export of raw materials can also see reduced demand when tariffs depress industrial activity in advanced economies.

In Africa, for example, higher tariffs on steel, textiles, and agricultural goods have historically discouraged new investment while deepening dependence on volatile commodity markets. The African Union has repeatedly highlighted this vulnerability, cautioning that the rise of global protectionism could weaken the AfCFTA’s core objective of promoting growth through the attraction of investment.

By reducing internal tariffs and harmonizing trade regulations, the AfCFTA can cushion Africa from the pressures of a shrinking global trade environment. However, despite strengthening intra-African trade is essential for the continent’s development objectives, regional value chains (RVCs)—which in Africa are currently dominated by extractive industries—cannot fully replace integration into global value chains (GVCs). While RVCs can help diversify production, build regional markets, and create stepping stones for industrialization, Africa’s long-term growth, technology transfer, and competitiveness still depend on deeper participation in GVCs, particularly in manufacturing and high value-added sectors. As Park et al. note, participation in GVCs dominated by companies from developed economies remains the most effective accelerator for businesses from developing countries to achieve industrial maturity and systemic competitiveness. This participation delivers several critical benefits:

• Technological Learning and Knowledge Spillovers: GVC participation provides developing country firms with direct access to advanced technology, modern managerial techniques, and sophisticated processes, leading to the transfer of knowledge.
• Capital Infusion: It attracts necessary Foreign Direct Investment (FDI) especially from suppliers that are already embedded in and drive those GVCs, injecting vital capital and long-term commitment into the local economy.
• Competitive Integration and Upgrading: Integration allows local firms to meet international standards, specialize efficiently, and eventually move into higher value-added activities within the global system.
• Job Creation: This process stimulates employment, driving overall economic growth.

The sharp rise in tariffs in major economies complicates this participation in GVCs, by increasing trade costs, deterring investment, and raising the barriers for African producers to access international markets. In this context, the AfCFTA should not be seen as a substitute for engagement in GVCs, but rather as a complementary platform—one that can enhance Africa’s competitiveness and amplify its voice and bargaining power on the global stage.

Tariffs also have a geopolitical dimension. They often accelerate the fragmentation of global trade, pushing smaller economies to align with major powers, while countries outside these alignments risk being sidelined. This trend, driven by “friendshoring,” sees nations and multinational corporations prioritizing investments in countries with aligned geopolitical interests to enhance supply chain resilience and national security. For African nations, this situation underscores the urgency of making AfCFTA a credible platform for regional value chains that can attract investment even amidst external shocks.

The broader danger is systemic: as tariffs rise, global growth slows. For developing countries already facing high debt burdens and limited fiscal space, the surge in protectionism threatens to deepen structural vulnerabilities. Africa risks being further marginalized in an increasingly fractured global economy.

Protectionist waves are narrowing opportunities for integration into global markets at precisely the moment when the continent is seeking to industrialize and diversify. The AfCFTA, therefore, is not just a regional project but a strategic necessity—an instrument to cushion Africa from external shocks, strengthen regional demand, and project a more unified voice in global negotiations. But relying solely on the AfCFTA is not the right approach. Ultimately, Africa’s success will hinge on its capacity to combine inward-looking reforms with outward-facing strategies aimed at increasing participation of African firms in GVCs. Deepening regional integration, investing in infrastructure and human capital, and pursuing credible, transparent policies can make African economies attractive destinations even in an era of heightened protectionism. If the continent can seize this moment, it will not only reduce its vulnerability to global trade disruptions but also reposition itself as an emerging hub of resilient and competitive value chains on the global stage.