US-China Tariff Fallout Sets Stage for Shift in Africa’s International Trade

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This article first appeared in my weekly column with the Business Daily on July 22, 2018

Trade tensions between the two largest economies in the world have made global headlines as the trade war will have implications not only for China and the United States (US), but other countries well.

In terms of the background of the trade war, on June 15, Trump declared that the US would impose a 25 percent tariff on USD 50 billion of Chinese exports; USD 34 billion would start July 6, with a further USD 16 billion to begin at a later date. China imposed retaliatory tariffs for the same amount. A few days later, the US stated it would impose additional 10 percent tariffs on another USD 200 billion worth of Chinese imports if China retaliated against the U.S. tariffs. China retaliated almost immediately with its own tariffs on USD 50 billion of US goods. Keeping track of the back and forth of tariff imposition between the US and China is a task on its own, but what is more important is unpacking how these trade tensions will affect Africa. There are three implications of the USA-China trade war of which Africa should be cognisant.

Workers at the Export Processing Zone in Athi River.

(source: https://www.businessdailyafrica.com/analysis/ideas/US-China-tariff-fallout-Africa/4259414-4675670-pdvicjz/index.html)

Firstly, the imposition of tariffs between two lucrative markets in the world may well encourage both countries to diversify their export markets away from each other. Africa is one of the fastest growing markets in the world, and the potential loss of income from both new tariffs as well as ‘new’ non-tariff barriers that will likely appear, will provide impetus for both China and the USA to push deeper into African markets.

Secondly, the trade feud will deepen the resolve of the Chinese government to diversify away from export to consumption-driven growth. While the export-driven economic development model has reaped dividends for China, it has also left it vulnerable to this precise scenario. Thus, expect added commitment from the Chinese government to shift to primarily consumption-driven growth with greater urgency. This will affect Africa in that China will likely continue to offshore its manufacturing capacity to other countries, including those on the continent.

Image result for china us trade war

(source: https://www.newsmax.com/finance/economy/china-trade-war-confidence/2018/07/18/id/872331/)

Thus, the third implication of the US-China trade spat is that it may provide added impetus for increasing manufacturing investment and activity into Africa, particularly by the Chinese private sector which is already on this trajectory. A 2017 McKinsey report indicated that about 10,000 Chinese-owned firms operate in Africa, of which about 90 percent are privately owned. 31 percent of these firms are in manufacturing and already handle about 12 percent of industrial production in Africa with annual revenues of about USD 60 billion. Further, expect Chinese private sector to leverage AGOA and tariff hop into the US markets through Africa. In doing so, they will secure access to the US, access which would be much more difficult if were they domiciled in China.

Anzetse Were is a development economist; anzetsew@gmail.com

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