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Thursday, June 20, 2024

Global trade war: Challenges of a new reality for Africa

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The market for electric cars, and other innovative technologies such as those related to renewable energy, can reshape the global value chain, offering opportunities and generating challenges for the continent. Regional integration organizations can play a key role in defending African interests in this new international context.

The US has announced recently a tariff increase on Chinese electric cars of up to 100%. That is four times more than the current tariffs. And the increase in barriers to Chinese-made products will not end there. Joe Biden also recently warned of an increase in duties on other Chinese products such as chips, medical supplies, critical minerals, photovoltaic panels and many others that will have to be paid at US customs. The trade war between China and the US that began under Trump is escalating. The US is thus responding to China, which it accuses of subsidizing some industries with public money to subsequently flood the world market with products that are cheaper than those produced locally and to control some key markets.

Europe next?

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Regardless of the evolution of the political-economic confrontation between the two world-powers, the consequences, and reactions in the rest of the markets will not take long to be felt. Starting by the European Union, the world’s second largest consumer market. If the US market becomes more difficult for Chinese companies, those chips, electric cars, or solar panels that can no longer be sold in north América may well head for European ports in search of buyers.

But unlike the “made in China” products of past decades, great part of these goods compete with economically and socially important and powerful industries in Europe. The old continent is trying to take back chip manufacturing, after having delegated it to Asian factories for years after realizing its strategic nature. And fearing that the same could happen as with local solar panel manufacturing, which disappeared in the face of “Made in China” competition, it has already announced that it is looking into possible illegal aid to Chinese car manufacturers, as a first step towards blocking or limiting their sales in Europe. The recent move by the US to raise tariffs on certain Chinese products has only increased the pressure in this direction on those in power in Brussels.

The consequences for Africa

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With a huge production capacity more than its domestic market, Chinese companies will have to look for new markets. Not just for the cheap, medium-tech products they exported a decade ago, but also for medium- and high-tech goods such as solar panels, chips, and electric cars, among others. Given the reigning global trade conflict, emerging markets such as Latin America and Africa are therefore becoming more attractive destinations than ever for Chinese companies. And Africans could experience different consequences of these new trade flows, and this new technological and economic competition in diverse ways, depending on the approach as a consumer or as a worker.

On the one hand, the region could benefit from better products at lower prices. International competition in general, and from some Chinese products that are difficult to market in the US and Europe, could lead to better products at lower prices in the region. African customers, if the countries stay out of trade disputes and with lax customs policies, will be able to take advantage of the opportunity to leapfrog to the latest technology products at a better price by skipping a technological stage. Perhaps many Africans who have never owned a petrol car will be able to leapfrog to a low-cost electric car.

On the other hand, this would represent a new obstacle to Africa’s industrialization process and even unbearable competition for the region’s scant manufacturing base. In any case, the reality is that with the exception of South Africa and recently Morocco, which has developed a powerful automobile export industry, the region is not a producer of these medium- and high-tech goods, such as the aforementioned solar panels or electric cars, with which China wants to conquer world markets.

Decisions to be taken, better if made by regional associations

Several dilemmas arise for African governments: Accept the foreseeable coming flood of cheap Chinese goods to improve the living standards of the African population and productivity? Impose tariffs to safeguard local industry? Seek free trade agreements to take advantage of international geopolitical competition and insert themselves into the global value chain through friend and nearshoring?

Africa, with demographics and a domestic market that will grow strongly in the coming years, is in a position with advantages not seen for decades.

The global competition between the economic power of the European Union and the two world superpowers of China and the United States, not to mention the emerging India, is an opportunity for the continent to negotiate with the different global powers on several fronts to obtain good trade, economic and investment agreements. And if regional integration arrangements such as UOMEA were to move forward in their coordination and act as a ‘European Union’, Africa’s power and position in the global trade and value chain could undergo a major shift in the coming years.

Chinese car manufacturers, for example, have already announced investments of millions of dollars in factories within the European Union or, for example, in Brazil to facilitate the entry of their products into these markets in exchange for shifting part of their production to these markets. Could Africa ask for the same?

The strengthening of the different African regional integration organizations such as WAEMU, SACU and CEMAC and their validation as interlocutors of their member nations vis-à-vis the world’s global powers (Europe, USA, China, India, etc.) would be a very important step for the region to make the best possible use of the new era of technological, economic and commercial competition that the world is entering.

In a more complex world, with different global superpowers competing to expand markets and influence, Africa can improve its position, but coordination and action in regional blocs is needed to seize opportunities and avoid the potential biases that the new global landscape can also generate.

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