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What Will the US-China Trade War Mean for Africa?

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Pacific Money

What Will the US-China Trade War Mean for Africa?

The collateral damage and potential opportunities, as seen from Uganda, Nigeria, and Ethiopia.

What Will the US-China Trade War Mean for Africa?

Chinese President Xi Jinping, front center, South African President Cyril Ramaphosa, front left, and other African leaders walk together after a group photo session during the Forum on China-Africa Cooperation (FOCAC) 2018 Summit in Beijing (Sept. 3, 2018).

Credit: How Hwee Young/Pool Photo via AP

The arguments on all sides of the ongoing trade confrontation between the United States and China are by now well known. American, European, and Asian pundits and prognosticators have all weighed in, and predictions abound of the ultimate outcome of the Trump administration’s gambit to restructure the U.S.-China trade relationship.

But what of those countries that might be considered “innocent bystanders,” who may be either beneficiaries or victims in a trade war over which they have little control, and no direct involvement?

Many of those “bystander” countries are in Africa, a continent that is seeing an explosion of interest and investment from China, while at the same time, according to the Brookings Institution, the United States remains Africa’s largest investor. What are the concerns, and views from African experts?

A snapshot of three African voices, and a banker in Hong Kong, help gauge the diverse sentiments being felt across the continent as Africa, once again, feels the repercussions from a great power contest.

For some in landlocked Uganda, there is fear of exploitation of the domestic economy by Chinese exporters.

Quoted in the The Daily Monitor, Uganda’s most widely read English-language online daily, economist and Makerere University lecturer Fred Muhumuza says that China will be aggressive in looking for replacement markets outside of the United States. This will result in China “dumping its products very cheaply into the Ugandan market to try and consolidate what it has lost in [the] USA market,” he predicts.

“This will have a negative impact on our local products and manufacturing sector since we may not have the capacity for trade protectionism here as the USA does,” continues Muhumuza.

Samuel Alemu sees yet another negative consequence of the trade war. The Harvard-educated lawyer, writing in Ethiopia’s The Reporter, suggests that “When China-manufactured goods face tariffs, they are likely to end up in the domestic market, curbing the pace of domestic economic growth and reducing export opportunities for countries sending their goods to China.” Given the challenges in involved, “Ethiopia will have to be particularly creative using the trade war between the US and China as a trade benefit,” Alemu writers.

Ethiopia’s economy is in a period of transition; much has been privatized, but major sectors remain under government control, such as financial services and telecommunications.  Alemu sees the trade war as an incentive to continue economic reforms: “[I]t is the moment of truth for Ethiopia to rethink its trade practices and become a full participant of international and global trade to benefit from [the] U.S.-China trade war.”

On the other hand, a leading authority in Nigeria, Africa’s largest country by population, finds opportunity for his country as a result of the trade war.

If one casts the trade war as simply a confrontation between the world’s two largest economies, then the trade war “would impact the global economy negatively,” Director General of the Lagos Chamber of Commerce and Industry Muda Yusuf told This Day Live.

But, he continues, out of this comes a positive opportunity for Nigeria.

Increased tariffs on Chinese goods going into the United States “will create supply gaps in the U.S. market.” In other words, exports from other countries become “more competitive” thanks to the tariffs on China. Yusuf sees this as an advantage favoring Nigeria.

“Within the context of the African Growth and Opportunities Act [AGOA], this situation presents new opportunities for Nigerian export in the United States market,” Yusuf says.  It remains for Nigeria to position itself to take advantage of the opening.

According to the International Centre for Trade and Sustainable Development (ICTSD), AGOA is a “unilateral scheme of preferences dating back to 2000, and has served as the bedrock of trade relations between the U.S. and sub-Saharan Africa. It grants eligible African countries duty-free access to the US markets for thousands of products.” The law is currently extended to 2025.

By utilizing AGOA mechanisms to fill the partial vacuum that may be created as a result of slowing exports from China to the United States, Nigeria (in Yusuf’s case) and dozens of other sub-Saharan countries could take advantage of the U.S.-China trade war in areas where they have the ability to produce competing goods.

In addition, Chinese investors themselves may look for “alternative destinations” for their own investments, in order to circumvent tariffs on goods originating from China.  That, of course, depends on the quality of the investment environment that Nigeria can provide.

An executive from the Hong Kong-based Standard Chartered Bank also sees opportunities for African countries opening up in the Chinese market. As Reuters put it, summarizing Carmen Ling, Managing Director and Global Head of RMB Solutions, “China is likely to boost imports from African countries as it seeks new sources of commodities in the wake of a trade war with the United States.”

“We believe that countries like Kenya and Nigeria will benefit because China will look to import more from Africa; some agricultural products from Kenya, some oil products from Nigeria,” Ling predicted.

Suggesting a longer-term effect of the trade war, Ling added, “Trade flow patterns will change because China will need to look for new trade partners.”

Even in this small sample, it’s clear that African analysts see a mixture of harm and opportunity coming their way as the result of the trade war between the United States and China. Harm comes from the potential of China dumping cheap products into domestic African markets, and concerns over the possibility of reduced export opportunities to China due to soft demand. But there is also optimism about opportunities to fill the exports gap to the United States, and even to fill some commodities export gaps left by the United States in China itself.

But perhaps the most lasting positive consequence of this trade war could be to energize African policymakers and stakeholders to redouble efforts at economic reform, as Ethiopia’s Alemu suggested. The trade war may provide African countries with even greater incentives to reduce dependence on major country investments and aid, and to create investment environments that allow countries like Uganda, Nigeria, and Ethiopia to become part of the global supply chain on their own terms, rather than on the terms of others with differing and even conflicting long-term interests.