Business and Economy

If Trump’s “America First” policy hits China, Africa will feel the pinch

GetBiz CEO Andile Ntingi believes that China can circumvent “America First” policy by relocating some of its manufacturing to Africa to take advantage of Agoa and access the US market through Africa.

“Every decision on trade, on taxes, on immigration, on foreign affairs, will be made to benefit American workers and American families. We must protect our borders from the ravages of other countries making our products, stealing our companies, and destroying our jobs. Protection will lead to great prosperity and strength.”

With these unsettling words in his inauguration speech last month, U.S. President Donald Trump announced the arrival of the “America First” policy, an attempt by the world’s richest economy to reincarnate its manufacturing prowess by turning itself into an inward-looking fortress that protects its companies and workers from foreign economic competition.

The “America First” policy has an echo of the “Buy American” policy that Trump’s predecessor, Barack Obama, made a centrepiece of his $787 billion stimulus package in 2009, when he took the bold step to rescue US banks and car manufacturers from the economic recession. The “Buy American” policy was frowned upon by the Europeans and the Japanese, who threatened to retaliate against the US’s protectionist posture.

The policy caused panic in Africa, even though the sectors propped up by Obama were not in direct competition with its counterparts in Africa. The “Buy American” policy contained a clause that stipulated that only American iron, steel and other manufactured goods be used for public works and projects funded by the stimulus package.

Trump’s protectionist attitude will be music to the ears of trade unions and blue-collar workers, who have watched big American companies relocate their factories to low-cost manufacturing destinations around the world, leaving behind ghost towns in parts of Midwest America. China has been one of the main recipients of the industrial capital from the US, Europe and Japan, and has since positioned itself as the world’s factory.

The main target of the “America First” policy is China, the world’s second-biggest economy and top industrial exporter. 

The main target of the “America First” policy is China, the world’s second-biggest economy and top industrial exporter. However, Trump wants to first renegotiate the North American Free Trade Agreement (NAFTA) with Canada and Mexico, in favour of the U.S. The relationship between the US and Mexico has started on a sour note, with the two countries haggling over threats by the US to impose a 20% tax on Mexican imports to fund a $15 billion wall to stop the flow of illegal immigrants from Mexico.

This has raised the spectre of a potential trade war between the two countries. Trump seems to be more enthusiastic about a free trade deal with Britain after it voted to exit the European Union (EU) and pursue its own future outside the EU.

The US is taking on soft targets before dealing with the hardened China. A showdown between the US and China is inevitable and the Chinese know that the “America First” policy will have an impact on their economy. For quite some time, the Americans have constantly accused the Chinese of “cheating” by artificially weakening their currency, renminbi, to enable their manufacturers to flood international markets with cheap goods. The Americans argue that the deliberate under-valuing of the renminbi amounts to unfair competition.

If China is targeted by the US, the Asian giant will retaliate and restrict U.S. imports and direct investment into its market, a scenario that will hurt the global economy and probably plunge it into a recession. Other countries will also retaliate if their trade is restricted.

In Africa, a heightened sense of anxiety has emerged in the wake of Trump’s “America First” inauguration speech. There is fear that the policy could result in the U.S. repealing or unfavourably modifying the African Growth and Opportunity Act (Agoa) to keep the continent out of the US market.

I don’t buy the argument that the policy will lead to the scrapping of Agoa, because Africa engages in very little trade with the U.S. and therefore is no threat to U.S. domestic producers and jobs.

China can still circumvent Trump’s efforts by relocating some of its manufacturing to Africa to take advantage of Agoa and access the US market through Africa.

I believe Agoa will not be tampered with, but Africa is likely to feel the pinch of the “America First” policy should it be targeted at China, the continent’s largest trading partner.  

Not long ago Africa — which mainly supplies raw materials to China — suffered a big knock from a slowdown in China’s economy. In 2015, the value of African exports to China slumped by 42% to $67 billion, from $116 billion in 2014, due to weak global demand for China’s industrial products.

Because China is Africa’s biggest export market, the “America First” policy will hurt Africa because the export-oriented China creates its wealth by exporting manufactured goods to the US and other large Western markets. China can still circumvent Trump’s efforts by relocating some of its manufacturing to Africa to take advantage of Agoa and access the US market through Africa.

It is no secret that African countries have failed to take advantage of Agoa, which gives tariff-free market access to more than 8 000 African products. The aim of Agoa is to help Africa speed up its industrialisation and diversify its economies away from raw material extraction, which is vulnerable to wild swings in commodity prices.

But African countries still export largely raw materials to the US, even though they are given preferential access for their manufactured products. To illustrate the failure by Africans to exploit Agoa, non-oil and gas trade into the US under Agoa was roughly $4.5 billion in 2015, representing just 0.2% of the US’s total global trade.

The “America First” policy presents Africans with an opportunity to lobby China to use the continent as a manufacturing export base to the US and other key markets. This could be the classic win-win deal, beneficial to both China and Africa. Africa gets to boost its industrial capacity, while China gets access to the US market via Africa.

 

  • Andile Ntingi is CEO and co-founder of GetBiz, an e-procurement and tender notification service

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