Between 2001 and 2017, several new records and milestones, signs of the weakening post-Soviet New World Economic Order dominated by the US under the unipolar global framework of engagement were established:
- The developing South became a major driver of global growth and trade, accounting for over 45% of global trade in 2017 from 23.8% in 2001;
- China supplanted the US as Africa’s single largest trading partner in 2009;
- China supplanted the US as the leading trading nation in 2012;
- China became the largest economy in Purchasing Power Parity terms, overtaking the USA in 2013;
- Trade between China and Africa increased by more than US$160 billion, from $6.4 billion in 2000 to over $170 billion in 2017;
- During the same period, trade between Africa and the US increased by just about US$10 billion, from $32.7billion to $42.8 billion;
- Chinese investments in Africa increased significantly during the same period, rising from less than $100 million to over $3 billion. China is, thereby, playing a key role in the transformation of African economies, especially through the development of infrastructure;
- The US which used to be the main destination for Nigeria crude oil lost that significant position now claimed by India. Today, trade between the US and Nigeria is marginal, accounting for less than 11% of Nigeria total trade;
- At the same time, and this has been the major point of contention and supposed reason of the trade war, the US trade deficit with China has increased steadily and reached the critical threshold of $365.7 billion in 2015, on the eve of President Trump’s election;
- The US has also accumulated large trade deficit with Mexico which according to the latest estimates exceeded $71 billion;
- Together, China and Mexico account for over 48% of total US trade deficit.
What started as global economic imbalances in the IMF’s assessment, with the US and other leading economies in the West accumulating large trade deficits with emerging developing market economies has become a global power disequilibrium. The epicentre of the world is shifting Eastward, towards Asia, and Beijing is emerging as the new epicentre under that transition.
In September 2018, more than 40 African Heads of State and Government converged on Beijing within the context of the FOCAC Summit. The Forum for China Africa Cooperation which is held every three years is indeed a sign of deepening economic cooperation between Africa and China—the leading drivers of the rising South.
Another important transition is well underway- perhaps, the shift from a unipolar world dominated by the US to a multi-polar world with China as the new leading economic superpower and a resurgent Russia on the military front and other emerging powers such as India, Brazil, Turkey, and of course, I would like to add, South Africa, Egypt and with a bit of luck, Nigeria, to that list—but the same people who did not see China coming will accuse me of being either too optimistic or strategically unrealistic, which is a problem for a military General!
It is under this global power disequilibrium which has seen the emergence of new powers in the developing world that the US has put its finger on the trade war gun trigger. This must be in realisation of the direct link between economic might and national security. That link was further illustrated last month in a seminal article which highlighted the risk associated with rising debt incurred by the US to finance its ballooning deficits. According to the US Congressional Budget Office, “Interest payment on US federal/debt is set to surpass the US Defence Budget in 2023”. At that point, the US may have no option but to cut its expenditure outlays, including military which has been the centrepiece of its power projection.
The US response to this threat has been to impose primitive tariffs on countries accumulating large trade surplus against it—most notably on Canada, Mexico and of course China—the biggest culprit. Jeffrey Sachs referred to this as Washington nervousness.
- In January 2018, the US imposed a tariff on solar panel imports, most of which are manufactured in China;
- In July 2018, the US specifically, targeted China by imposing 25% tariffs on $34 billion of imported Chinese goods;
- A tariff on an additional $16 billion of Chinese imports was added in August 2018;
- A further tariff on $200 billion of Chinese goods went into effect on September 24, 2018.
These unilateral measures taken by the US government to rebalance the ongoing shift in global trading structure were followed by retaliations from China, and other trading partners leading to a trade war. That war has been raging with risk of collateral damage for Africa. China has become Africa’s leading trading partner and sharp growth deceleration triggered by a trade war in China could adversely affect growth prospects in Africa through trade and investment channels. The US which can be credited with being in the fore-front of building the global architecture on which the world trade and economic development grew after the Second World War, has deliberately chosen to become its destroyer. Pity! Because if we remove the props, they will not be there when we will need them and surely nobody can predict the future. The financial and economic situation of 2008 could not have been resolved as quickly as it was if there was trade war raging.
However, even directly, Africa was already the target of a US trade war, though the region has accumulated trade deficits against the US. Recently, the US took measures to protect its trade interest in Africa by suspending duty-free access to all AGOA-eligible apparel products from Rwanda. This was a response to the decision by Rwanda to follow through on East African Community decision to outlaw the dumping of used clothes and shoes across the East African region to boost industrialisation and stimulate manufacturing production in member states. But it must also be said that for me as an African leader, there is a little bit of human dignity which must be preserved for Africans by curtailing the amount of used clothing dumped into Africa.
- But the US waged a trade war against Africa even before the election of President Trump when the country unilaterally decided to dramatically cut down on its import of crude oil from Nigeria. Between 2011 (when the production of shale oil expanded in the US) and 2017, Nigeria exports to the US decreased from $28.7billion to $5.9 billion, about 80% fall within five years.
- For a country which depends on crude oil exports for more than 95% of total exports revenue and 75% of government revenues, this was a major shock, perhaps more significant than a 10% or 25% tariff hike on any imports;
- Nigeria was able to survive that unexpected trade shock because the global South stepped up its cooperation, with China and India increasing their import of Nigeria crude oil during that period of the US transition to energy independence. In the process, China and Nigeria became Africa’s first and fourth single largest trading partners.
In other words, adverse implications of the US-waged trade war have already been significant for Africa and could become even more important if risks to global trade materialise and result in sharp contraction in China which has become Africa’s largest single trading partner. The key question is what should African countries do to mitigate these risks triggered by the latest trade war which in my view is here to stay at least for some period of time?
To be concluded
This is an excerpt of a keynote address delivered by President Obasanjo at the Afreximbank Babacar Ndiaye Annual Lecture Series Second Edition in Bali, Indonesia
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