As the squabbles between the United States and China on reciprocal trade come near a crescendo, and certain decisions signal the proximity to a possible tipping point, the wider implications of these crises should not be regarded as distant. The ripple effects could be far-reaching. Countries far and near – not least the countries of Africa – could suffer untold repercussions if truce is not brokered and the US and China remain adamant, each sticking to its gun. The appropriate thing is to urgently resolve these hostilities now.
Palpable among the immediate consequences of the disputes between these two powerful nations is that they are expanding in scope and sending the global markets into a tailspin.
The chronic consequences of this reckless contagion would go beyond trade and would have wider ramifications, stretching far and wide and spilling over to sensitive areas of technology sector, diplomacy, power relations, scientific research, intellectualism and economies.
What started as disagreements over tariffs between US and China laid much emphasis on agricultural product exports, among others. China is the world’s largest soybean buyer. The trade war between Washington and Beijing escalated, prompting China to put the purchases of American supplies on hold. The trade deals that came near amicable resolution broke down after US President Donald Trump escalated his trade war with China earlier in May, ramping up tariffs on about US$200 billion of Chinese goods. Beijing decided to retaliate with further duties of its own.
Some immediate casualties became obvious, particularly the strategic crops. Soybean futures in Chicago slumped to a 10-year low shortly after the pronouncements. There are signs that China is replacing US soybeans with Brazilian supplies. As China scuffles with the US on trade, the structural flaws that sustain its dependence on farm subsidies are an obstacle to a trade war deal with the US. These, however, have a bearing on the security of the country’s food supply and social stability in the countryside. China, like many industrialising countries, has gone from relying on taxing agricultural production for most of its revenue to increasingly subsidising farmers.
But, in the multilateral trading system (MTS), China has been found wanting in terms of adherence to certain rules of the game. Within the framework of the World Trade Organisation (WTO), the actions of China could be interpreted as extreme; could some consider it as recalcitrant or overbearing? In February, a dispute settlement panel ruled that China’s support for long-grain rice (indica), short- and medium-grain (japonica) rice, and wheat were above the levels allowed by its WTO commitments. In April, the same panel found China’s tariff-rate quotas on rice, wheat and corn were also not in line with WTO rules. Chinese authorities are in dilemma on either to please WTO at the expense of the farmers, or to please the farmers at the expense of the WTO. Striking a delicate balance seems to be the present nightmare.
The existing global order is crucially at stake in this trade war. The global value chains (GVC) and global supply chains have created webs of causation and consequences, bringing diverse products together as raw materials for the production of a final products. Lately, Chinese manufacturing has been recognised for delivering cheap, quality products for the world. But calls still linger that China should be prepared to live up to WTO standards. In addition to pressure in bilateral negotiations, authorities in the US have tried to mount pressure on Chinese government to hand over farm supports at the World Trade Organisation.
Now that China is talking tough, the US should not under-estimate it’s penchant for the unconventional. Internally, Chinese government may appear to be economically open to the world, but it remains politically closed. And, since the polity triumphs over the economy, the world can only enjoy Chinese business relationship better under an open government. Faced with difficult population situation, the Communist Party in power could to the unthinkable. It decided on a one-child policy as a way of controlling population within China. Although it had to discontinue the one-child policy and replace it with a two-child policy subsequently as the former spurred selective abortion of female foetuses, leading to an unintended consequence of preponderance of boys over girls, threatening the country’s demographic balance.
Micromanaging or muddling through may also not be far-fetched from the Chinese government if pushed to the wall. The central planning approach of Chinese government comes with a cost. When tested in the June 4, 1989, Tiananmen Square in Beijing, the government brutally mowed down thousands of protesting students who were calling for a democratic system of government. This would probably not have happened in a democracy. The same China that aspires to global leadership has been accused of manipulating its currency at will. It does it to gain advantages at the expense of others in trade relationships. Hopefully, this may discontinue as Chinese government has agreed to the principle that it should not use currency depreciation to gain trade advantages.
African leaders don’t need a crystal ball to guide in their regional economic alliances. With China in particular, the forebodings are clear and evident. Although China is a rising world power, it may not have what it takes for Africa to rest entirely on it. The opacity of Chinese administration should prompt African leaders to be circumspect. It would be safer to regard a total of $60 billion infrastructure loans that the Chinese government gave to African countries in 2018 as a Greek gift. This is more so, considering the experiences of Sri Lanka and Djibouti under similar circumstances. China, as part of its global expansionary agenda, goes after strategic national assets of a debtor nation under strict debt-equity swap. When the payback time matures, African leaders will realise that China’s relationship with them is purely or primarily transactional.
As reciprocal policy coordination between China and Africa would be a herculean task. As part of China’s efforts to hedge its bets on major agricultural commodities exports, observe how seamlessly it switched from US soybeans to Brazilian soybeans. Efforts to underscore Africa’s description as China’s strategic partner are yet to prove convincing as the continent still struggles to fix its agricultural value chains amidst the near-ubiquitous presence of China in all countries within the continent. For all the African countries, presenting a common front on most issues will be hard, difficult and time-consuming. Such a move is desirable. Africa needs to move forward. But the pace must not be determined by a trading partner. Nor should it bring the continent into any extant crisis between two other countries trying to protect their own national interests.