US-China tariff fallout sets stage for shift in Africa’s international trade

Workers at the Export Processing Zone in Athi River. FILE PHOTO | NMG

What you need to know:

  • US President Donald Trump’s move to impose taxes on Beijing goods sparks fears on free trade.

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 but also other countries.

In terms of the background of the trade war, on June 15 President Donald Trump declared the US would impose a 25 per cent tariff on $50 billion of Chinese exports — $34 billion would start July 6, with a further $16 billion to begin at a later date.

The US tariffs on $34 billion of China goods came into effect on July 6. China imposed retaliatory tariffs for the same amount.

A few days later, the US stated it would impose additional 10 per cent tariffs on another $200 billion worth of Chinese imports if Beijing retaliated against the US tariffs.

China retaliated almost immediately with its own tariffs on $50 billion of the 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 US-China trade war of which Africa should be cognisant.

First, the imposition of tariffs between two of the most 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 an impetus for both China and the US to push deeper into African markets.

Second, 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 in the continent.

Thus, the third implication of the US-China trade spat is that it may provide added impetus for increasing manufacturing investment and activity in Africa, particularly by the Chinese private sector that is already on this trajectory.

A 2017 McKinsey report indicated that about 10,000 Chinese-owned firms operate in Africa, of which about 90 per cent are privately owned.

Some 31 per cent of these firms are in manufacturing and already handle about 12 per cent of industrial production in Africa with annual revenues of about $60 billion.

Further, expect the Chinese private sector to leverage the African Growth and Opportunity Act and tariff hop into the US markets through Africa. In doing so, they will secure access to the US, which would be much more difficult if were they domiciled in China.

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