The roller coaster of events that have characterised the
global political scene since last year have been quite interesting. The world
has witnessed major episodes ranging from failed efforts to denuclearise the
Korean Peninsula, to populism, the Brexit process, and of course the escalating
US-China Trade War.
Without a doubt, the United States of America and China are
two of the largest economies in the world. They are both operating at the heart
of global industrial supply chain. However, these two economies have lurked
horn in an on-going trade war which has seen both of them try to undermine the
economic prowess of each other.
What is a Trade War?
Basically, Trade Wars are subsumed in the concept of
protectionism, where tariffs are levied on imports. Tariffs, in theory, make a
locally made products cheaper than imported ones; thereby encouraging consumers
to buy home-made products.
Trumponomics: How the U.S-China trade war began in
retrospect
The on-going trade war between the U.S and China began in
March 2018, when the United State’s President, Donald Trump, announced general
tariffs of 25% on imported steel and 10% on imported aluminium.
According to Trump, the decision to impose such a general
tariff was to help reduce the US’s trade deficit from China, which has been
described as detrimental to the US steel and aluminium industries. It was also
revealed that more than 90% of the 5.5 million tonnes of aluminium used in the
United States is imported.
However, The New York Times reported that China is not among
the top 10 suppliers (of either steel or aluminium) of U.S. imports. Instead,
Canadian aluminium made up more than half of America’s imports in 2016. Also,
Canada boasts of the largest share of America’s steel import of 17%. The U.S.
Department of Defence also pointed out that most U.S. imports are produced by
U.S. allies, including South Korea, and Turkey, which would be hurt by broad
tariffs.
It is intrusive to note that one of the hallmarks of the
Trump administration since he assumed office, is his concern about China’s
trade practices.
Beyond steel, China is the US largest supplier of imported
goods
As at 2017, the U.S. exports to China amounted to
approximately $185 billion. On the other, China constituted U.S. largest
supplier of imported goods worth more than $500 billion in the same year.
Also note that China is the biggest trading partner for some
of the Africa’s most significant economies, including Nigeria, South Africa,
and Ethiopia. So, whilst Africa comprises a mere 2% of global trade, US-China
trade tension is of direct relevance to the continent.
Despite over $250 billion worth of tariff on Chinese goods,
Trump threatens more
Data from the US census bureau shows that the US has imposed
three rounds of tariffs on Chinese goods, totalling more than $250 billion.
Despite the $250 billion on Chinese goods entering the U.S,
President Trump has also threatened tariffs on another $267 billion worth of
goods – meaning all Chinese imports could be subject to tariffs. The US has
also put tariffs on worldwide imports of goods like steel and washing machines,
which further affects products from China.
China retaliated with $160 billion tariff on US goods –
China hit back with tariffs worth $160 billion of US goods, accusing the US of
starting the largest trade war in economic history. China has targeted products
including chemicals, coal, and medical equipment with levies that range from 5%
to 25%.
China has strategically targeted products made in Republican
districts and goods that can be purchased elsewhere, like soybeans.
US-China Trade War rages on, as China’s exports rose back in
January
China’s export rose dramatically in January 2019 due to a
surge in exports to the European Union and Southeast Asia. Export rose by 9.1%,
contradicting earlier forecast by Bloomberg of a 3.3% decline.
Also, in 2018, exports to the U.S. rose 11.3% year on year
in 2018, while imports from the U.S. to China rose 0.7 percent over the same
period. China’s surplus with the U.S. grew 17% from a year ago to hit $323.32
billion in 2018. It was the highest on record dating to 2006, according to
Reuters.
How the global economy will be affected?
From an economic standpoint, escalation in trade war would
see a reduction in global trade and consequently global demand. For instance, a
weaker US and Chinese economy would weaken global supply chains.
By extension, the weak global supply chain would result in
slower global growth, and in turn, affect commodity prices.
This may not be a Trade War after all, but where does Africa
stand?
There has been concern from the West that the Chinese policy
of using Chinese banks to issue grants to developing economies, is deliberately
designed to capitalise on their global financial infrastructure to rival the
IMF and the World Bank.
That is to say that the tussle between the US and China may
not just be a Trade War, but a war over who controls the world’s financial
flows in the long term.
Meanwhile, as though response to the allegation levied
against China of debt trapping developing economies like Nigeria with loans,
China tripled its offerings of interest-free loans and grants to Africa to
dispel such threat. This further deepens its romance with the African
continent. Just recently, China offered $15 billion assistance to Africa, with
about $60 billion aid package pledged to the continent.
Africa may be regarded as the new bride for the developed
economies, for instance, China-African trade increased to $170 billion in 2017.
A recent United Nations Conference on Trade and Development (UNCTAD) prediction
shows that in the aftermath of the on-going trade war, Africa would be an
enticing destination for these foreign goods.
Therefore, as president Trump continues to put tariffs on
Chinese exports, China is gradually turning to Africa to make up the
difference. In the end, both Africa and China will benefit.
The Asian Romance and the Nigerian economy
Despite the lingering U.S-China Trade War, the Nigerian
economy continues its economic romance with the Asian superpowers. Recent data
from the National Bureau of Statistics (NBS) shows that Nigeria export to Asia
was estimated at N1.42 trillion in just the last quarter of 2018. The country’s
highest import, which also came from China, is estimated at N900 billion for
the same period.
Also, in terms of export, India is the biggest market for
Nigeria export, with 15.53% of the total export in the last quarter of 2018. In
the same period, Nigeria exported both oil and non-oil products worth N780
billion to the country. On the export chart, the U.S ranks 10th while India
leads the top 10 recipients of Nigeria exports.
Last year when Nigerians became critical of the country’s $5
billion China loan, the Debt Management Office (DMO) stated the following:
“BORROWING FROM CHINA EXIM IS ONE OF SUCH MEANS OF ENSURING
THAT NIGERIA HAS ACCESS TO MORE LONG TERM CONCESSIONAL LOANS. GIVEN THE
COUNTRY’S INFRASTRUCTURE DEFICIT, WHICH NEEDS TO BE URGENTLY ADDRESSED, THE
LOANS FROM CHINA EXIM, WHICH PROVIDE FINANCING FOR CRITICAL INFRASTRUCTURE IN
ROAD AND RAIL TRANSPORT, AVIATION, WATER, AGRICULTURE AND POWER AT CONCESSIONAL
TERMS, ARE APPROPRIATE FOR NIGERIA’S FINANCING NEEDS AND ALIGN PROPERLY WITH
THE COUNTRY’S DEBT MANAGEMENT STRATEGY.”
Hence, the bilateral trade war and slowing growth in the two superpowers’ economies
will create unwelcome challenges for Africa in terms of currencies, slower
trades and dampened investor sentiment.
The most imminent impact is likely to be on emerging markets
via financial markets. Increased anxiety surrounding the US-China Trade War
could trigger large capital flights to safety and a sell-off in emerging
markets’ riskier assets.
Another risk to the African continent comes from its
particularly close economic relationship with China (Africa’s largest trading
partner and a major investor), making it vulnerable to any potential weaknesses
in the Chinese economy. Slower growth in China could, therefore, depress
investment flows from there.
Meanwhile, Nigeria may just have discovered its “new oil”
A slowdown in China-centred trade would negatively affect
demand for raw materials such as iron ore, coal, and platinum, which in the
event of price burst could seriously distress any country (like Nigeria) which
depends on trade with China.
With 923,763 km2 land arable land, the U.S-China trade
tussle portends an opportunity for Nigeria to become a major supplier of
agricultural products to China and other Asian neighbors.
Also, the rise in tariffs on Chinese goods going into the
United States will create supply gaps in the U.S. market, exports from other
countries become “more competitive” due to the tariffs on China. This situation
presents new opportunities for Nigerian export in the United States market
which is currently reducing.
As Reuters put it, summarising Carmen Ling, Managing
Director and Global Head of RMB Solutions,
“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.”
Hence, the Nigerian Government needs to be forward-looking
in policy formulation and implementation, that will aid penetration into the
impending global markets that could open up.
By Bamidele Samuel Adesoji
