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Global trade battles create opportunities for Africa

Global trade battles create opportunities for Africa

By Igor Galo *

The battles that the world’s superpowers are waging for the electric car market, and other emerging technologies such as those related to renewable energies, may reshape the global value chain and trade flows, presenting both challenges and opportunities for African economies.

The US announced earlier this year a tariff increase on Chinese electric cars of up to 100%. Predictably, this decision generated a cascading reaction from other countries and economic communities.

The European Union confirmed in early June that it is considering imposing tariffs of between 17% and 38% on Chinese electric cars. And other major markets have joined the battle. As in the case of Turkey announcing tariffs of up to 40% for all types of Chinese cars, and Brazil which this year re-imposed tariffs on electric car imports and will even increase them in the coming months. Mexico applies duties as well.

And the increase in trade barriers is not likely to be limited to automobiles alone. The White House has already announced that other products such as chips, medical equipment, critical minerals, photovoltaic panels, and port cranes, among others, from the Asian giant will be taxed more heavily at customs. Washington is thus responding to China, which is accused of subsidizing certain industries with public money in order to flood the world market and control key markets and key technologies.

The consequences for Africa:

With a huge production capacity that exceeds its domestic demand, Chinese firms will have to seek new markets around the world for their products. And in this context, emerging markets such as Latin America or Africa are likely to become the preferred alternative destination for these goods. The consequences for African citizens, and regional economies, could have different angles.

On the one hand, the region could benefit from better products at lower prices. International competition in general, and some Chinese products that are difficult to market in the U.S. and Europe, could lead to better products at lower prices in the region, such as electric vehicles, solar panels, or computer chips.

If African countries stay out of trade disputes, African consumers will be able to take advantage of what is often referred to as “leapfrogging” to the latest technological level at a better price by skipping a technological stage. Perhaps millions of African citizens who have never owned a car will be able to get a low-cost hybrid car for the first time, or have electricity at affordable prices thanks to the drop in the price of solar energy panels.

On the other hand, opening African markets to cheap imports would represent a new obstacle to the process of regional industrialization and even unbearable competition for local manufacturers whether in the automotive sector, renewable energies (solar panels, windmills, etc.) or others.

While the electric car is the main concern of northern governments, solar panels could revolutionize comfort and productivity in Africa, the world region with the greatest potential for this technology according to several reports, and at the same time the continent where electrification still has a long way to go. Despite this potential for solar energy, and the fact the continent is rich in the raw material needed for the fabrication of these products, manufacturing of EV Solar panels is still extremely limited in the continent. Most of them are imported from Asia.

Opportunities for growth:

There are several dilemmas for African governments: Accept the anticipated flood of Chinese products at competitive prices to improve the living standards of the African population and productivity? Impose tariffs to safeguard and promote 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?

With demographics and a domestic market that will grow strongly in the coming years, Africa is in an unprecedented advantageous position.

The global competition between the two world superpowers, China and the United States, not to mention the European Union and emerging India, is an opportunity for the continent to negotiate on several fronts to obtain good trade, economic and investment agreements with the world’s major economies.

Beijing, Washington, Brussels, or Delhi will increasingly court African countries to bring them closer to their economic orbits. For example, the entry of the African Union (AU) as a member of the G20 or the invitation to Egypt and Ethiopia to join the BRICS club is a clear symptom of this new geopolitical reality in which Africa is called upon to play a more significant role.

Joining African forces to follow the Chinese example of the late 20th century:

If the regional integration agreements were to advance in their coordination and act vis-à-vis the major superpowers as if they were a “European Union”, Africa’s power and position in trade and the global value chain could undergo a notable change in the coming years.

Chinese automakers, for example, have already announced investments of millions of dollars in factories in the European Union, in Brazil or in Mexico 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 to boost its automotive sector or encourage the manufacture of solar panels in each link of its production?

At the end of the last century, the Beijing government negotiated with the largest and most technologically advanced companies of the time to open its huge domestic market in exchange for investment in the country and the transfer of technological knowledge, a policy that boosted its technological and industrial development to become the economic giant that China is today.

One of the keys to success when negotiating was its gigantic domestic market of more than 1.2 billion inhabitants by the year 2020. Africa currently equals the “Empire at the Center” in population with its 1.4 billion inhabitants, including 1.2 billion south of the Sahara, with a much younger population but also very fragmented markets.

To replicate the Chinese success of the late 20th century, the strengthening and consolidation of the various African regional integration organizations such as UEMOA or CEMAC in West and Central Africa, or SACU, EAC or COMESA in East Africa and their validation as interlocutors of their member nations vis-à-vis the world superpowers 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 the same way, a greater role for the African Union and a boost to the African Continental Free Trade Area could be key to successfully negotiate better conditions in the reorganization of world trade.

An African proverb says “When the elephants fight, the grass gets trampled”, but the truth is that when two elephants fight it can also happen that the fruit of the trees fall to the ground and can be harvested.


* Igor Galo is a Spanish journalist collaborating with media in Spain, the USA, Latin America and Africa. He also works at IE University and the IE Business School.


 

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