Morocco's Economic Survival? Impact Of Trump's Us Tariff Policies On Morocco's High Vat Exports
Africa
Business
Morocco has a VAT rate of 20%, which is the second highest in the African region after Djibouti’s VAT rate of 33%. Madagascar has an equal VAT rate to Morocco followed by Cameroon with a VAT rate of 19.25%, with Nigeria having the lowest VAT rate (7.5%) in Africa. Bhutan, located in South Asia has the highest VAT rate of 50% in the world. Morocco's Valued Added Tax (VAT) has been exposed to the proposed tariff changes by the US. Morocco exports goods to many countries around the world including the US. The high VAT rate in Morocco is attributed to government policies that aim to manage the budget deficit and their over-reliance on exporting goods. Therefore, any trade policy change will likely affect Morocco. In February 2025, President Trump proposed imposing equal tariffs on countries using the VAT systems to protect US domestic producers. The high VAT rate, which translates to equal tariff, will likely cause significant economic changes, especially in Moroccan diplomatic relations, investment, and Trade. Morocco exports motor vehicles, semiconductors, chemical fertilizers, and mixed minerals to the United States. The United States is estimated to have imported goods valued at $1.98 billion from Morocco. In reference to Statistica (2024), Morocco only exported automobiles worth $8 billion in 2023. This demonstrates the significance of Moroccan exports and its contribution to trade and economy. An Imposition of a 20% tariff on Moroccan goods will make the goods more expensive in the US market than the domestic products and other exports from countries with lower VAT rates; hence, the products will be less competitive. The anticipated policy would also affect the US importers from Morocco by reducing the export volumes of goods. To bridge the gap, importers will likely seek alternative products from countries with lower VAT systems than Morocco or countries with 0% VAT rates tariffs. Consequently, the reductions in Moroccan exports to the US will lead to a trade balance pressure, causing a deficit. A decline in exports by Morocco to the US means there will be an economic slowdown due to low tax revenue generated. However, this depends on how Morocco will capitalize on the change. Foreign direct investment will be adversely affected, leading to slow economic growth for Morocco. The American companies in Morocco operating in textiles, aerospace, and automobiles may also consider shifting investments to other profitable countries with favorable business environments. The high tariffs would thus result in potential investors moving to countries with better and favorable trade terms. A new tariff system by the US will affect trade and diplomatic relations between the US and Morocco. The US and Morocco have had a free trade agreement since 2006, which enhances trade between the two countries by eliminating tariffs between the two countries. The looming policy will violate the existing one, which may require new trade negotiations. Failure to have new trade negotiations could lead to trade conflicts between the two nations. Morocco should apply strategic restructuring to allow a smooth transition to the looming new policies. To positively counter the introduction of equal tariffs to VAT systems, Morocco should consider diversifying trade, negotiating trading terms, and strengthening domestic markets. Therefore, to fill the likely trade deficit, Morocco should start seeking new trade-economic ties, including looking for trade partners from other African countries, China, and the EU to reduce over-reliance on exporting goods to the US. In addition, Morocco should seek tariff reduction or lowering its VAT rate or exemptions, especially on key export sectors, including agriculture and automobiles. The Moroccan government should emphasize supporting local industries to promote production and manufacturing through investment, tax incentives, and subsidies. The anticipated policy change requires prior restructuring to address the proposed changes and eliminate possible economic slowdown.
11 DAYS AGO
