Ideas & Debate

US-China trade tensions and what it means for continent

UChina

The US and China are embroiled in a commercial war that Africa must get right for future growth. AFP PHOTO

The escalating trade war between China and the United States of America (USA) has been at the forefront of global geopolitical tensions lately. While extensive analysis has been produced on the implications of the ‘trade war’ for US and Chinese entities, both public and private, far less attention has been given to the implications for Africa.

The truth is that Africa, both government and private sector, view the US and China as important partners for development and growth.

Thus, what will a trade war between two of the biggest economies in the world, who have markedly different styles of economic engagement with Africa, mean for the continent? The answer is the trade war will be both positive and negative.

In terms of the negatives, there are two key elements, the first of which is commodities. Africa continues to be commodity-driven. African countries that provide key inputs to China that then manufacture products for US markets will be hit, particularly those products that are target of US tariffs.

The same applies to African countries supplying the US with commodities that end up in products that target China.

At the moment, America’s top exports to China include aircraft ($16 billion), machinery ($13 billion), vehicles ($13 billion) and electrical machinery ($12 billion).

Thus, African countries need to understand the details of the trade war and its potential impact on commodity exports to both countries.

Secondly, the trade war will put Africa at the centre of a geopolitical tussle between the countries. Africa is an important geopolitical element of strategy for both countries and the trade war accentuates this. Thus, there is a real risk that Africa may be caught in the crosswinds of not only the economic crossfire, but in military interests as well.

But there are positives.

First and ironically, commodity-driven African countries, particularly oil producers stand to gain from the trade war. In the wake of the trade war, China will seek to reduce its reliance on oil imports from the US. Thus, China will likely seek to increase the proportion of oil sourced from Africa.

Secondly, the trade war, makes Africa even more important to each country. During FOCAC, China committed $60 billion to Africa. The US also established the International Development Finance Corporation with $60 billion to invest in the developing world, Africa included.

Thus, as they seek to secure interests in the context of a trade war, Africa has actually become a beneficiary of the economic diplomacy of both countries.

Finally, the trade war will make the demographics of Africa feature more prominently in the commercial diplomacy of both countries. As both governments begin to diversify away from each other in terms of exports, Africa is one of the fastest growing markets in the world. Not only is its population growing, GDP per capita too; so, there are more Africans and each is slowly getting richer. It is possible its position as a key trading partner for both will rise in tandem with trade tensions.

As always, it is for Africa to determine whether the trade war will be a net positive or negative.