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.

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By William Gumede

Picture credit: Drew Angerer/Getty Images