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Global Economic Risks: Tariffs, Policy Shocks, and Uncertainty

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Collins Odhiambo

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By Collins Odhiambo Owino
Author | DatalytIQs Academy
Source: IMF World Economic Outlook (October 2025)

Figure 1 – Trade Barriers and Global Tensions

US Effective Tariff Rates by Country:

  • Tariff levels have risen across nearly all major trading partners between end-2024 and October 2025, with the world average exceeding 25%.

  • China faces the steepest increase — tariff rates jumping to nearly 60–65%, reversing years of liberalization.

  • Emerging markets such as India and Brazil also see moderate hikes, reflecting protectionist spillovers.

  • For Sub-Saharan Africa, average tariffs remain below 15%, but indirect effects (through higher import prices for machinery and inputs) are significant.

Interpretation:
Rising tariffs constrain global value chains, reduce investment confidence, and contribute to slower global trade volumes — directly explaining the IMF’s downward revision of global growth to 3.2% (2025) and 3.1% (2026).

Figure 2 – Policy Uncertainty and Economic Volatility

The chart tracks three indices:

  • WUI (World Uncertainty Index) – measures overall global uncertainty.

  • EPU (Economic Policy Uncertainty) – reflects media-based mentions of fiscal or monetary uncertainty.

  • TPU (Trade Policy Uncertainty) – quantifies trade-related policy risks.

By August 2025, all three indices spike sharply:

  • The WUI surpasses 100,000 points — the highest since 2020.

  • The TPU soars above 1,000 on its index scale, highlighting renewed anxiety about cross-border tariffs.

  • Such spikes typically coincide with global market slowdowns, commodity-price swings, and volatile capital flows into emerging economies.

Economic and trade uncertainty are now systemic risks, feeding through to exchange-rate volatility, capital-market stress, and slower investment — effects that inevitably reach African economies through weaker export demand and higher borrowing costs.

Implications for Kenya and Sub-Saharan Africa

Channel Global Shock Kenya’s Exposure
Trade Reduced demand for exports, higher import costs Tea, coffee, and horticultural exports affected; machinery imports costlier
Finance Tight global liquidity, higher risk premiums Rising external debt service costs
Policy Transmission US/EU rate hikes Higher domestic lending and T-bill yields
Investor Confidence Elevated uncertainty Slower FDI inflows and currency volatility

Kenya’s policy response should focus on:

  • Strengthening regional value chains under AfCFTA.

  • Deepening domestic capital markets to reduce foreign-debt exposure.

  • Expanding green and digital sectors that attract diversified investment.

Data and Acknowledgment

Figure Sources: IMF World Economic Outlook (October 2025) — Figures 1.1 & 1.2.
Data Sources: US International Trade Commission, WTO-IMF Tariff Tracker, Ahir et al. (2022), Caldara et al. (2020), Davis (2016).
Acknowledgment: International Monetary Fund (IMF) for open global data that informs comparative economic analysis.
Author: Collins Odhiambo Owino, DatalytIQs Academy

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