A trade war is looming between the United States of America on the one part and China, on the other. It is a trade war that is threatening to damage the relationship between the U.S and many other countries in the world. President Donald Trump of the U.S had complained that many countries were taking advantage of the U.S in terms of low tariff rates and he was prepared to reverse the tariff rates in line with his campaign promises. He said the low tariff was taking jobs out of the U.S to other countries resulting in high trade deficit for the U.S particularly with China.
On January 22, this year, Trump fired the first salvo when he approved a global safeguard tariffs on about $8.5bn in imports of solar panels and $1.8bn of washing machine imports. On March 1, he announced tariffs of 25% on all imported steel and 10% on imported aluminium, on national security grounds.
On April 2, China responded with its own retaliatory measures by imposing tariffs on about $2.4bn of US imports of aluminium waste and scrap, wine, pork, fruits, nuts and other products. With that retaliation, China showed that it was ready for a trade war. Consequently, a trade relationship that ought have been left to the World Trade Organisation to mediate became a tit for tat affair between the U.S and China.
It was therefore not a surprise that on April 3, the U.S threatened to slap 25% import tariff on another 1,333 Chinese products, worth $46.2bn, mainly machinery, mechanical appliances and electrical equipment. China again responded on April 17, by slapping anti-dumping duties of 178.6% on sorghum and Soya bean from
the US.
Analysts have been hard at work trying to unravel how the trade war between the two world powers will impact on African countries. In the last two decades, China has become a major trading partner of African countries, particularly Nigeria, Ethiopia and South Africa. Nigeria imports machineries, electronic items and spare parts from China, while China
imports crude oil, solid minerals and a few other agricultural products from
Nigeria.
The analysts point out that about 85 percent of the 1,333 Chinese products that the US slammed tariffs on April 3, were intermediate inputs and capital goods. In other words, the tariffs would damage American companies’ supply chains and competitiveness in making goods and services to sell in the US and around the world.
Analysts also point out that nobody wins in a full trade war and that as the markets have been signalling, trade wars are bad for growth of businesses and for countries. They also posit that sustained trade war will undermine the WTO and the foundations of the multilateral trade order.
The trade war is a wind that blows nobody good. This is because when two elephants fight, the grass suffers. Viewed from this angle, the trade war between the U.S and China will have negative impact on both countries and spill over to other countries around the world. China is the world’s production factory for many varied items particularly machineries, electronic items and car components.
Many entrepreneurs in the U.S shifted their manufacturing factories to China to enjoy low labour cost in China and the large market in that country. Many of the items you import from Europe have their components made in China. So, the higher tariff slammed on these items and on electronic parts and household items by the U.S will eventually result in higher prices and be paid for by buyers of the items around the world.
At the same time, since China also slammed high tariff on Soya beans and Sorghum imported from the U.S which is also making American farmers angry with President Trump is also opening vistas of trade opportunities for other countries to enter China with the two agricultural products.
Nigeria is a major producer of Sorghum and Soya bean and this is an opportunity for exporters of agricultural items to quickly look for markets in China for Nigerian Soya bean and Sorghum. The implication of high price for Soghum in China is
that local breweries that are in need of malted Sorghum to manufacture malt drinks will have to move up the prices they are willing to pay since there is a ready market for the two agricultural products in
China.
Unfortunately, South Africa would be badly affected by Trump’s new import tariffs on steel and aluminium. Last year South Africa exported $950 million worth of steel and about $375 million worth of aluminium to the U.S. Information available indicates that the new tariffs would override the duty and quota-free access that South Africa has to the US market under the Africa Growth and Opportunity Act (AGOA). The likely loss of steel and aluminium sales as a result of the steep new import tariffs would seriously damage a few companies in South Africa and could cost that country thousands of jobs.
However, US-China trade war should be good news for South African wine, fruit and nut producers, because of the 15% retaliatory tariff China imposed on these US products. But opportunities for local agricultural exporters would be small, in part because of the low farm yields in South Africa.
Analysts also point out that the downside effects of Trump’s tariff hike would be greater than the upside, largely because of the impact on manufacturing. Indeed, bearing in mind that in a world economy where products are increasingly made in global supply chains, President Trump is clearly shooting himself in the foot. But, whichever way the pendulum swings, time will tell which country blinks first in the trade war.
