THE United States-China trade war is much more than a battle between two super powers. It has global economic implications and can potentially reverse the gains made in economic growth and poverty reduction, therefore requires an urgent global attention to slow down the Donald Trump’s wave of protectionism. But it also requires Africa to rethink its future economic growth path to mitigate the impact of unnecessary trade wars.
By Tapiwa Gomo
Before discussing the likely and current implications on Africa, let’s look at the genesis of this protectionist wave by Trump. The rise of the Chinese economy is mired in so many stories. It is a story that started in the late 1970s with the Communist China embracing capitalism, undercutting their labour, acquiring Western knowledge and creating a conducive environment for investors. These together have contributed to China becoming a global economic giant. Western economies suffered greatly as most investors stampeded to China where profits multiplied ten times due to reduced production costs.
During his campaign trail, Trump promised to reduce the US trade deficits, mainly with China which he has persistently blamed for unfair trade practices including ‘stealing’ intellectual property. That together with the rise of Chinese economy is what Trump alleges caused the US economic slowdown and has to be rectified as part of making America Great again.
Early this year, Trump imposed 25% tariffs on $50 billion worth of Chinese products. In last week’s instalment, I also highlighted that the Trump protectionist wave has directly affected several other countries such as Canada, India, Mexico, Russia, and the European Union, and these too have also already retaliated making it more like an escalating trade war. However, there is one thing that might have evaded Trump; China is now part of the global network of economies. What happens in China affects the entire global economy. Or maybe he is aware but he chose not to care.
In last week’s discussing, I attempted to poke our presidential candidates to offer a response to the seismic shift in the global economy as this should not be ignored as a mere war between certain countries. A large part of economic growth promises (some worth billions of dollars) in different political party manifestos has China and the west as trading partners or as sources of direct foreign investment. Certainly, they cannot remain silent.
Some African countries are already paying the price for a war that, on the surface, may seem to have nothing to do with continent.
In March this year, the US government suspended the duty-free status of Rwanda’s textile products under the African Growth and Opportunity Act (Agoa). This was in response to a decision by Rwanda, Tanzania and Uganda to ban the importation of second hand clothing to their markets. Yes, Trump thinks it is okay for Africans to wear US used clothes and banning them is a punishable offence. While the three countries stood by their decision, there is no doubt that jobs will be lost and that the textile industry will feel the heat eventually.
Across the Limpopo, the South African economy has been trembling under the vagaries of the US-China trade war. The tariffs imposed on steel and aluminium by the US has directly affected South Africa steel and aluminium industry. Even when the impact is so direct, the government of South Africa still thinks their country has become “collateral damage in the trade war of key global economies.” In 2017, South Africa exported to the US an estimated $375 million worth of aluminium and $950 million worth of steel. Nearly 8 000 jobs in the steel and aluminium industry are at risk unless new markets are found.
Major markets across Africa have also taken a tumble due to Trump’s protectionist wave. On the stock markets the impact was largely felt in Nigeria, Kenya and South Africa. The reason is very simple. The Chinese trade with Africa has increased 10 times since the year 2000 and it has become the continent’s leading trading partners. If Chinese-made products are placed under the US tariffs, it follows that the countries that survive on supplying materials, mainly African, will not be able to do so, thereby stifling growth on those countries.
Given these circumstances, what lessons can we draw from this experience? The economic world is now calibrated in the form of division of labour. Africa provides the raw materials, China and its Asian neighbours process the raw materials (beneficiation) and the western world, including the US distribute and consume the finished products.
The challenge here now is that the distributor and the consumer — the US, who is more powerful and influential also wants to process. The US is aware that this is the stage where wealth is generated and economies are grown than both supplying raw materials, distributing and consuming finished products.
Because Africa is at the bottom end of the supply chain. We have lost the power to influence. Without the processing and the consumer market, we are oriented to believe that our raw materials amount to nothing and yet we continued to consume products processed and distributed from elsewhere.
Perhaps, this is wake up call for African nations to start investing in processing (beneficiation) targeting its local markets. We already have what China offered to the world in the 1970s — that is affordable labour and we possess the added advantage of affordable raw materials.
Tapiwa Gomo is a development consultant based in Pretoria, South Africa