The US and China, two of the world’s biggest superpowers, are currently in the midst of a trade war. The battle centres around the uneven trade deficit between the two countries. While Africa may not be a direct participant of the war, there is a risk of the continent getting caught in the crossfire.
The Titans At War
In 1995, the US-China trade deficit stood at around $45 billion in favour of China. By 2018, the trade deficit had reached approximately $420 billion.
The ballooning deficit triggered a response from the American administration which accused China of unfair trade practices and intellectual property theft. Both parties threw words, tariffs and tweets in each other’s direction. Truce talks have provided periodic calm periods in between the storm. Both economies have suffered in the process recording significant declines in exports, income and local business activity. The rest of the world has also been caught in the crosshairs.
Caught In The Crossfire
US tariffs triggered a drop in commodity prices that African countries rely on for export collections. This further rippled into currency drops and stock exchange dips. Forecasts by The African Development Bank have revealed that GDP could fall by 2.5% in commodity-driven African Countries and 1.9% in the oil-rich nations by 2021
With China being a significant trading partner for several African countries a decline in the Chinese economy could potentially disrupt economic growth. Many countries are undiversified and a sizable chunk of their exports are targeted towards China.
This makes them extremely sensitive to Chinese demand. If the trade war continues to wreak havoc on the economy of China then some African countries will be brought to their knees. South Sudan, for example, is extremely sensitive in this regard with more than 90% of its exports heading to China.
The trade war will not spare the US economy and thus could cause slowing growth in the US economy as well. This has the effect of reducing appetite for imports consequently affecting trade with Africa.
In the capital markets, Africa is considered an emerging and therefore riskier market. A continued trade war-induced economic slowdown could result in major sell-offs as investors become anxious with the state of affairs.
In order to avoid US tariffs, Chinese companies have relocated their manufacturing operations to locations outside of China. Asia and Latin Americas have been the biggest beneficiaries of these moves. Africa has been largely left behind. Analysts have attributed this apparent lack of interest in Africa to poor infrastructure, lack of supply chain coordination and underdeveloped manufacturing sectors.
A few of the big economies in Africa such as South Africa and Nigeria are reported to have received enquiries along the lines of Chinese business setting up shop. The rest of Africa, by and large, has been left out.
This is another case of Africa’s perennial challenges bedeviling the continent. This points to a need for integrated efforts to find solutions for increased synthesis on the continent.
Will Africa Find A Silver lining?
The trade war will have a negative impact on African economies but there are opportunities to cushion the blow of the trade war. Both China and the US have picked Africa as a pawn in their game. The US under the Prosper– Africa initiative seeks to present itself as Africa’s favoured trading partner painting China as an unfavourable one.
China under the Forum on China Africa Cooperation ( FOCAC) is also striving to establish its trading influence and position its self ahead of the US. The old adage goes when the elephants fight, the grass suffers but in this casebut, in this case,, as both elephants fight to outdo each other in watering the grass, it can only stand to benefit immensely.
Increased China-Africa Cooperation.
There are expectations of a strengthening of the FOCAC. This initiative was born out of the desire to seek trade unity and cooperation between China and Africa. With the trade war in play, there are strong possibilities of Chinese businesses looking to strengthen the existing agreement which is focused on improving trade, uplifting Africa’s industry and bolstering security.
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In addition, China will look to Africa to compensate for declining American imports. For instance, crude oil exports from Angola have increased to replace the natural gas which was being imported from the US. As the tariff hurling between the world’s superpowers continues, both might have to look elsewhere for imports. This has the potential of making African imports look more competitive and open up the Chinese market for exports such as soya bean.
China is already investing on the continent in terms of FDI and has become a key player in infrastructural development on the continent. As the Chinese increase their footprint, more of this investment is expected to come to Africa.
While the US places restrictions on Chinese technology companies on accusations of theft of intellectual property, Africa stands to gain. Chinese companies are active in Africa looking for expansion opportunities. Technology companies such as ZTE, Huawei and Tecno are making a mark of the continent providing access to smartphones and other technology at affordable prices. As the trade war wages on, more of this will likely be seen on the continent.
Increased US Interest In Africa.
The Prosper Africa initiative was launched in 2018 as a way to improve economic coordination between the US and Africa. The program promotes opportunities for American business to invest in Africa and the strengthening of commercial ties between the two. The continent stands to benefit from this initiative as the US increases investment in Africa as a way to show dominance over China.
As the US removes part of its focus from China where most of its imports have been coming from, there is a possibility of a shift to Africa for some goods. In the context of the AGOA, this could be an opportunity for AFRICA to increase its exports to the US.
Africa’s manufacturing industry will likely be left in a better position either way.
Can Africa Escape Unscathed?
Most economists tend to agree on the fact that trade wars have no winners. Beijing and Washington may well continue to wage war until an amicable agreement is reached. Africa has a lot to lose because of the trade war, nonetheless if positioned well, there are some potential wins in the midst of the chaos. What remains for the continent is to actively seek out opportunities, improve capacity and infrastructural space so as to reap meaningful rewards.