What Trumps’ trade tariffs may portend for African countries

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OPINION

By Cleopas K. Ndorere

As everybody now knows, United States President Donald Trump has unilaterally increased trade tariffs for all imports to the USA to a base rate of 10%.

Some Countries are set to suffer even higher increases, way above the 10% rate, such as; the European Union (20%), China (34%), Japan (24%), India, (26%), and Vietnam (46%), to name but a few. African Countries have not been spared, with the most affected being Lesotho (50%), Mauritius (40%), Botswana (37%), Angola (32%), Libya (31%), Algeria (30%) and South Africa (30%).

By increasing these rates unilaterally, the US is in breach of its legal commitments at the World Trade Organisation (WTO), and some countries have already threatened legal action at the WTO Dispute Settlement Body.

To understand this, we need to note that the US's average MFN bound tariff rate, as negotiated at the WTO, is about 3.4%. The bound tariff refers to the maximum tariff a country has agreed, through negotiations, to apply on its imports.

This is a legally binding commitment under international trade agreements, and while countries can choose to apply a tariff rate lower than the bound rate, unilaterally charging a rate above the bound rate is a breach of contract.  

This comes on the heels of other private standards such as the EU's Deforestation Regulation (EUDR), which will make market access to the EU dependent on environmental sustainability and stringent tracing, tracking and certification procedures.

The unintended consequence of Trump’s actions may be to drive African Countries to trade more with each other since the “lucrative markets” are shrinking and getting unpredictable. Intra-African trade is estimated at 16.2%.

We trade more with the outside World than we do with ourselves. The AfCFTA presents a unique opportunity to further leverage the potential of regional markets to drive sustainable development and economic prosperity, rather than depending on unreliable markets that shift like quicksand.

President Donald Trump reasoned that the tariffs are intended to incentivize (force) companies to produce inside America. The relocation of the factories to America cannot happen overnight, as it requires structural adjustments that require time.

In the short run, affected companies have limited options. They can attempt to pass on the price increase to the American consumer, which is unlikely, since the US also produces similar products and, in any case, that was the very rationale behind the increased tariffs: to make imports more expensive in favour of American products.

Companies which have been producing high-quality specialized products for the American market are likely to shift to mass production of sub-standard products targeting less discerning markets such as Africa. We need to strengthen our standards bodies to increase surveillance and enforcement to protect our citizens from the potential of substandard goods.

We are likely to see a disruption of the supply chains of minerals such as cobalt, lithium, copper, and rare earths, which are sourced from Africa and used to produce high-tech components, used in electric vehicles (EVs), smartphones, and other electronics, which are exported to the US. We may see a fall in the world prices for these minerals because of the dampened demand for the finished products. This calls more than ever before for African Countries to come together and develop global value chains to process and add value to our raw materials to protect ourselves from the exploitation of more developed Countries.

In the days to come, African countries are also likely to see a surge in requests for Economic Partnership Agreements and FTAs from countries affected by the US tariffs, seeking to diversify and find other preferential market outlets.

As it were, the AfCFTA is already complicated enough with many overlapping FTA membership, what is commonly known as the “spaghetti bowl”. If African countries do not stand together and agree on a mechanism of negotiating Third-Party Trade Agreements, the situation is going to get more complex, and we may have to kiss the AfCFTA goodbye.

In conclusion, US tariffs may affect African economies in multiple ways, depending on the sectors and how well they can adapt to the changing global trade environment. The impact may vary by country and the specific trade agreements or policies that are in place.

The writer works at the Ministry of Trade, Industry and Cooperatives, Uganda, Kampala