China- USA Trade War- Effects To Africa
10 January 2021
By Aletha Mudyahoto- Trade wars have been in existence since time immemorial. The trade war between China and the United States of America (USA) which are the largest trading economies in the world took a more radical approach since 2014.
Apart from the involved countries, the trade war has affected the global economy and African economies have not been spared. Africa is still asymmetrically involved in global trade.
The bilateral trade war brings both positive and negative effects on the continent. Famous to the African proverb – when elephants fight, it is the grass that suffers. China and USA are two of the largest investors in Africa with China being the biggest trading partner and the trade war affects the growth of African economies proving it as more of a dependent setup..
There has been economic distress from the China – USA trade war which has depressed global commodity prices potentially aggravating African economies vulnerabilities since most African countries rely on the exports for revenues and primarily engage with non- African trading partners like China.
The trade wars have caused uncertainties which undermine investor confidence triggering reduction in commodity prices and local currencies. The African Development Bank experts warn that the trade tensions could cause a 2.5 percent reduction in GDP in resource intensive African countries and a 1.9 percent reduction for oil exports by 2021 with the International Monetary Fund asserting a cumulative drop of 1.5 percent in African economies GDP.
Also the diversification of African economies have been impeded by a combination of protectionist policies particularly those imposed by the USA government under the Trump administration. The US has emphasized protectionism over American industries and imposed tariffs which are inconsistent with the World Trade Organization (WTO) rule which encourages fairness between trading partners.
The tariffs imposed on aluminum and steel affected South Africa which is Africa’s biggest exporter of steel to the US. Hence, by losing the American market this led to massive losses of jobs, earnings and opportunities amongst South Africans. Most investors in the steel industry were forced to divert to Asian markets particularly China in avoidance of these tariffs.
All this would be a violation of the African Growth and Opportunity Act agreement which advocates for the elimination of tariffs and other price related and regulatory barriers to trade between the US and it’s signatory African states.
Continuation of the trade wars means Africa eventually ends up taking collateral damage of the ongoing war. The fast growth in the two superpowers economies will create unwelcome challenges for Africa in terms of currencies, slow trade and dampened investor sentiments.
However, the trade wars have brought with it some positives in the sense that, it opens up opportunities to African stakeholders to put more effort in creating investor friendly environments and economic reforms to become part of the global supply chain.
This indeed has made Africa trying to adopt policies which best suit their current economies and ensure trade liberalization is in support of the World Trade Organization (WTO) through the African Continental Free Trade Area (ACFTA) which is a free trade zone which ensures inter- continental free trade, balance of trade and growth of all African economies.
Also despite Chinese ongoing trade wars with USA, China has remained a big investor in Africa, biggest trading partner and gained relevance through projects such as the Belt and Road Intiatives (BRI), policy of non- interference and at the Forum on China-Africa Co-operation in 2018, China emphasized it’s commitment to economic co-operation, trade and common development.
In Zimbabwe, China is a major investor and trading partner, it is the major buyer of tobacco, has extended a financial grant in the expansion of the Robert Mugabe airport and construction of the new parliament building.
In view of the above, trade wars are generally bad, given the China -US trade war, there has been global economic recession which has affected Africa through slow trade and reduction in commodity prices however Africa has been resilient towards the effects of the trade war as it’s relationship with China has remained strengthened and it is looking for African solution to African problems.
About the author- Aletha Mudyahoto, is a Masters student in International Trade and Diplomacy at the University of Zimbabwe.