Trump: What are the consequences for African economies?


America’s policies under the Donald Trump White House are likely to hurt Africa. Nations on the continent should aim to diversify their products away from exporting raw materials, foster home-grown small and medium enterprises and intensify intra-Africa trade. They should also diversify their global trading partners.

Donald Trump’s election as US President is likely to make the world’s biggest economy more inward-looking, more protectionist and acting more unilaterally in global affairs.

The world may potentially become more dangerous if Trump implements some of his policy statements issued during his presidential election campaign.

Early this year, the Economist Intelligence Unit (EIU) rated a forthcoming Trump presidency as one of the top 10 highest global risks, warning he could disrupt the global economy, and increase political and security tensions.

The EIU rated a Trump presidency at the same level of a risk as “the rising threat of jihadi terrorism destabilising the global economy”.

Trump’s predecessor Barack Obama has pursued a global strategy of positioning the US at the head of a rule-based world order, pushing US-style liberal democracy, globalised free trade and a United Nations-based multilateralism, which developing countries have criticised for favouring the US and industrial countries to the disadvantage of developing countries.

It is very likely that Trump may disrupt the Obama legacy.

Trump has threatened to curtail trade with especially China, with which the US runs a trade deficit. If the Trump-led US does indeed restrict trade, it will undermine the global economy, slowing growth. US economist Paul Krugman has already warned that the Trump presidency may trigger a global recession.

A slowing global economy will undermine growth in African economies. African economies are heavily dependent on a growing global economy, which in turn increases the chances of industrial and developing countries buying African resources.

Trump has vowed to introduce a “defensive” 45 per cent tariff on Chinese imports, lodge trade complaints against the Chinese dragon at the World Trade Organisation (WTO) and declare China a currency manipulator.

If Trump retaliates against China, it will not only undermine growth in the Chinese economy, but growth in other countries too, especially Africa and emerging markets.

The past year has already seen African economies, especially those that are commodity exporters, slowing down because of a slowdown in the Chinese economy, which has been the largest buyer of African commodities.

A further slowdown in the Chinese economy, this time triggered by Trump policies, will depress China’s buying of commodities – which may in turn cause further shocks to African economies.

Trump, if he implements what he promised during the presidential campaign, could trigger a trade and currency war between the US and other countries. In 2010, then Brazilian Finance Minister Guido Mantega warned that some countries, particularly the US, the EU and Japan, manipulate the value of their currencies to improve their export competitiveness.

The former Reserve Bank of India Governor Raghuram Rajan has in the past rightly warned that the US Federal Reserve’s monetary policy was causing spillovers in emerging markets, with seesawing capital flows, volatility and the destabilizing of financial markets.

For example, the US quantitative easing policy has kept the value of the dollar strong compared to emerging currencies such as the South African Rand, the Brazilian Real and the Turkish Lira.

A currency war between China and the US is likely to plunge the globe into recession, which, again, is detrimental to Africa.

China’s ruling Communist Party-controlled Global Times newspaper last week warned that Trump would be “naïve” to launch a trade war against China. “If Trump wrecks Sino-US trade, a number of US industries will be impaired”, the newspaper said in an editorial.

The Global Times warned that any new stiff tariffs under a Trump presidency would ellicit “counter-measures” from Beijing.

China is the largest holder of US treasury notes and therefore the largest holder of US debt. Although it is unlikely that China will dramatically off-load its holdings of US debt, beyond its regular, controlled selling of US debt over the past years to support its currency, the Yuan, this could be one of the “counter-measures” envisaged by Beijing.

Trump has suggested he would adopt an “America first” trade policy and renegotiate all foreign trade deals. Trump has threatened to withdraw from the Trans-Pacific Partnership (TPP), pushed by his predecessor, which involves a new trade treaty between the US and 11 countries in Asia, South America and the south Pacific, excluding China.

The TPP was forged by the US to counter the rising economic power of China. Trump during his election campaign said it took jobs from the US. The TPP still needs to be ratified by the US Congress.

Trump also insisted on leaving the North American Free Trade Agreement (Nafta) that came into effect in 1994 and involves the US with Canada and Mexico. Trump argues that Nafta outsources US jobs to Mexico.

This will mean that the current African Growth and Opportunity Act (AGOA), which includes 38 African countries in trade with the US, allowing some African products to enter the US duty-free, may also be open for review.

Trump has been very critical of development assistance to developing countries. George W. Bush introduced the AIDS program, the Emergency Plan for Aids Relief (PEPFAR), which has channelled considerable amounts of money into African healthcare.

The US has promised to contribute $13.2 billion or 32.5 per cent of the $40 billion donor funds pledged to fund the 2016 programs of the Global Fund to Fight AIDS, Tuberculosis and Malaria. Such programs and donor pledges may be reviewed by a Trump presidency.

Trump may also be less keen to support African civil society – which may weaken civil society attempts to strengthen African democracy. If Trump continues to vilify Muslims, it will strengthen the hands of Muslim fundamentalists in Africa, increasing terrorist activities.

The EIU has warned that Trump’s “militaristic tendencies towards the Middle East (and ban on all Muslim travel to the US) would be a potent recruitment tool for jihadi groups, increasing their threat” in the Middle East, as well as Africa.

Trump has promised to introduce stricter immigration rules. This will make it harder for Africans to enter the US, whether to study or to seek refuge from autocratic African governments.

Africa contributes 3.8 per cent of the globe’s greenhouse gas emissions – yet it stands to lose the most because of climate change caused by consumption in industrial countries. UN Chief Ban Ki-moon says 36 of the 50 countries most affected by global warming are African.

Oxfam says that in Africa this year, an additional 40 million people are facing hunger because of climate change and the El Niño phenomenon. The US is one of the world’s biggest greenhouse gas emitters.

Trump has denied that climate is a threatening issue. There is a fear that Trump would withdraw the US from the global climate deal, undermining its goals.

In 2015, nations cobbled together the Paris Agreement which set an objective of limiting average global warming to two degrees Celsius (3.6 degrees Fahrenheit), by reducing planet-heating greenhouse gases from burning oil, coal and gas.

The UN Environment Programme estimates that funding for developing countries alone to adapt their economies to cope with climate change will cost between $280 and $500 billion per year by 2050. Adaptation to climate change includes anything from farmers in dry areas moving to places where water is available, replacing current crops with drought-resistant ones and building walls to protect low-laying cities against flooding from rising tides.

President Obama introduced a series of projects to ease the impact of industrial country-induced climate change on Africa. Off these, the largest one is the $7 billion Power Africa project, which will provide power from renewable energy to six African countries. Support for sustainability of these climate change initiatives now hangs in the balance.

Last year, a report by Cambridge University’s Centre for Science and Policy, authored by David King, Daniel Schrag, Zhou Dadi, Qi Ye and Arunabha Ghosh, pointed to the devastating consequences of climate change, warning it will lead to the collapse of many states and with it the rise of terrorism, a global shortage of food and mass migration.

What should African countries do? It may be that in power, Trump will ease up and become more pragmatic in his dealings with the world.

Nevertheless, African countries will have to diversify their products away from exporting raw materials, but spin-off manufactured goods from these, and at the same time foster home-grown small and medium enterprises that can produce the small manufacturers Africans need.

Africans will have to trade more with each other. African countries will also have to diversify their global trading partners. They will have to govern their politics, economies and societies better – in order for their economies to be taken seriously by both industrial and emerging powers.

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