After a lengthy review of the Trump administration’s trade policy toward China, the Biden administration unveiled its approach on October 4th. It is the conclusion of the Biden administration that structural inequities in trade relations remain, and that China is not compliant with Phase I of the agreement it reached with the Trump administration. The American position, as outlined by US Trade Representative Katherine Tai, carries implications for African economies.
While the pandemic has replaced the trade war as the dominant threat to global trade, it is worth remembering that the tit-for-tat trade tariffs between the US and its trade partners, both China and the European Union (EU), were the main threat to global trade prior to the pandemic. The Economist Intelligence Unit forecast in September 2019 that the trade war was dragging global growth down (although for obvious reasons, the effects of the trade war have been swamped by COVID-19 and the attendant supply chain issues). For countries in the global south—especially in Africa—their presence in the value chain of Chinese manufacturers meant they were exposed to the disruptive impact of these tariffs. Any such restrictions on Chinese merchandise, technology, investment, and finance that come out of the Biden administration’s new policy revive those risks. Since a significant number of African economies have revenue models based on the export of a single commodity, these economies are less resilient or adaptive to shocks—internal or external.
These are economies still responding to the economic fallout of the pandemic, both in reduced demand for their exports and logistics logjams. US-China trade relations are thus very important, as Ambassador Tai acknowledged: “the U.S.-China trade and economic relationship is one of profound consequence. As the two largest economies in the world, how we relate to each other does not just affect our two countries. It impacts the entire world and billions of workers.”
What’s new in the new US strategy?
Not much, apparently. The United States’ primary disagreement with China centers around China’s compliance with the rules of international trade and that has not changed between administrations. Ambassador Tai began her remarks with China’s narrative arc of from one of the world’s poorest economies to now it’s second largest. Her argument is that China has repeatedly undermined the rules, leading to the loss of market share and livelihood for American workers and workers elsewhere. China’s industrial policy and the extent of its subsidies remain the bête noir. The argument was and remains that absent the massive state transfers to Chinese firms, they would not outperform their American and global counterparts. Ambassador Tai uses the steel industry to drive home the point: In 2020, the US had over 100 steel companies and produced about 100 million metric tons annually. China’s massive subsidies have “flooded the global market” with artificially lower priced steel, leading to a loss of market share and jobs in the US and around the world. Ambassador Tai argues that China repeated this with solar panels and now intends to do the same to semiconductor chips.
China’s recent tilt into a more central role for the state in its economy means that they are unlikely to back down soon. These two superpowers are thus on a collision path, reviving outsized risks for African economies a la trade war.
What does this mean for African economies?
The risks from the 2019 “trade war” are back. While the Trump administration antagonized both friend and foe, the Biden administration will seek to build a coalition around its future actions against China. Ambassador Tai noted that the US will strengthen its “alliances through bilateral, regional, and multilateral engagement.” However, the US chooses to alter its behavior toward China and whatever response that elicits from China, African economies will be exposed to the tit-for-tat. This risk drives home the need for diversification of African economies, which Zainab Usman and David Landry have persuasively argued for. Export diversification in sectors and partners, especially if that diversification is an expansion in intra-Africa trade, will reduce exposure to shocks from the inevitable trade tensions between China and the United States. These tensions provide a compelling motivation for African leaders to drive regional integration through the African Continental Free Trade Area (AfCFTA).
The case for a multilateral vs. bilateral trade agreement with the US. The Trump administration’s tariffs against both European allies and China stemmed from US belief that their subsidies to strategic sectors were trade-distorting. The second point of contention with China is illegal intellectual property (IP transfers. The Biden administration has repeated those charges. Ambassador Tai asserts that China’s “policies have reinforced a zero-sum dynamic in the world economy where China’s growth and prosperity come at the expense of workers and economic opportunity here in the U.S. and other market-based, democratic economies.” In bilateral trade agreements, the US can be expected to look askance at industrial policies that include state subsidies, and the US is also more likely to push for stringent intellectual property protections. Obviously, each agreement will be context-specific, but this American posture is not likely to experience any material change, and individual African nations negotiating bilateral agreements with the United States will do so from a position of weakness. They will struggle to extract meaningful concessions on subsidies and stringent IP protections. It is thus important that the continent discourages the inclination of powerful trade partners (including the United States) toward bilateral agreements. To achieve this, the continent’s leaders must work to increase the pace of multilateral negotiations. Intractable, unending multilateral negotiations will force individual African nations to seek bilateral agreements.
An inadvertent case against Africa’s trade relationship with the rest of the world. In Ambassador Tai’s presentation, one finds the strands of a strong case that Africa’s trade position is unbalanced and unfair. At the center of Ambassador’s Tai’s case against China is that China’s prosperity has increasingly come at the expense of the American worker and economy. Africans can make a similar case about their trade relations with the rest of the world. The region’s imports are extraordinarily high in finished goods—African imports literally power jobs elsewhere. Africa’s share of global manufacturing output has hovered around 2 percent since the 1990s. In 2020, almost 70 percent of the goods exported from the EU to Africa were manufactured goods and over 61 percent of goods imported to the EU from Africa were primary goods. That 14 percent of the world’s population is only responsible for 3 percent of its economic activity remains a travesty. Prosperity and jobs elsewhere are arguably supported through Africa’s continued poverty. How should African trade and investment ministers respond? Ambassador Tai’s counterparts in Africa could learn from her proposed response:
Invest in people and infrastructure: Investing in transport, power, water, ICT, education, and health infrastructure is the first line of defense to the continent’s precarious situation. Africa’s infrastructure endowment lags every other region of the world. If the world’s largest economy has made investing in people and infrastructure the cornerstone of a competitive economy, the same should hold true for the world’s poorest region.
Strength in numbers: Ambassador Tai is clear that the Biden administration’s response to China would be centered on American alliances, bilateral and multilateral. Africa already has a ready-made arrangement in the AfCFTA. We can extract more equitable outcomes and will negotiate from a position of strength as a single unit rather than disaggregated individual countries.
Defend Africa’s economic interests to a hilt: Those are the USTR’s words, not mine—just with the word “Africa” replacing “the United States.” The proliferation of “Africa Summits”, where external partners outline their vision for a relationship with Africa will never deliver the equitable outcomes since these are not African initiatives. There is already a continental vision in Agenda 2063, and to move beyond mere aspiration, it must be reduced to actionable policy and applied in the continent’s diplomatic relations, lest the continent is left executing external partners’ visions.