US – China Trade War:

Effects and Policies for Africa

Nicolaus Herman Shombe
G-Cube General Assessment
March 27, 2019

National Graduate
Institute for Policy Studies
Nicolaus H. Shombe
Advisor: Prof. T. Sonobe
G-Cube PhD General Assessment
March 27, 2019

Nicolaus Shombe
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Question: Nobody can end any news show
without mentioning the escalation of US-China “trade
war” these days. Intellectuals are also discussing if the
postwar liberal international order sustained by various
international organizations and agreements ends or
not.

What should you do to address this dynamics, if you

were a leader of an African country? You should first
explain the politico-economic structure of your country.
Secondly, you should predict the major impacts that the
trade war would exert on your country in the short- and
long-term, if the government doesn’t take any action.
Please consider broader impacts including (but not
limited to) economic, diplomatic and security issues
when you predict the impacts. Thirdly, based on your
scenario, explain what kind of policy package you
would implement to mitigate such impacts both in the
short-term and long-term.
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 Outline
• Introduction
• Background
• Trade war
• Politico-economic structure of Tanzania
• Potential impacts on Tanzania
• the short-term
• long-term
• Policy package to mitigate such impacts
• Conclusion

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Introduction - Background

Reduce or eliminate tariffs,

quotas and subsidies.

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5
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 Introduction - Background
US Section 301 of Trade Act 1974 report
accusing China of:
• Unfair trade (tariff, currency
manipulation)
• Theft of intellectual property
rights, technology, and trade secret
• Forced technological transfer – FDI
and Joint venture
• National capitalism (State
ownership)
• Economic aggression (Made in
China 2025)
China White Paper
• China built a fully-fledged and
high-standard IP legal framework
• US regulatory policies are self-
serving and protectionist.
• Subjecting foreign companies to
unfair treatment in the US
• US trade bullying practices
(America First)
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Introduction – Trade War

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Effect)

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10
 Tanzania as a Case Study

Nicolaus Herman Shombe

G-Cube General Assessment
March 27, 2019

“When elephants fight, it is the grass that suffers”

African proverb, meaning that the weak get hurt in conflicts between the powerful
Politico-economic structure of Tanzania • Politically Stable
• Strategically located
• Resource rich country
• Inflation = 3%
• GDP per Capita $936
• GIN Coef 0.3%
• Exports (% of GDP)=
19.59%
• Imports of goods and
services (% of GDP)
(2016) = 22.74%
• Gross official reserves in
Dec. 2018= US$ 5,044.6
million
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Data Source: Ministry of Finance, BOT, NBS
Performance of Traditional Exports (USD Mln) Performance of Non-Traditional Exports (USD mln)

Year ending November

Year ending November
425.0

2017 2018

1,580.2
2017 2018

1,553.2
367.5

222.3

853.3

816.1
181.7

644.1
134.3
128.9

506.8
67.4

185.4
167.0

163.8
47.7

46.8

150.6
45.7
35.5

30.3
28.5
18.2

32.1
26.7
Cashewnuts Tobacco Coffee Cotton Tea Cloves Sisal Gold Manufactured Other* Re-exports Fish and fish Hortcultural
exports products products

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Performance of Goods Import (mln USD)

Year ending November

2017 2018

1,913.4
1,849.8

1,847.0

1,733.3
1,421.0
1,418.8

895.5

840.4

775.3
721.5
695.8

567.3

408.9

264.4

170.4
121.8
Oil Machinery Other Transport Building and Industrial raw Food and Fertilizers
consumer equipment construction materials foodstuff
goods material

Source: Tanzania Revenue Authority and Bank of Tanzania computations 14

Top 10 Exporting Countries Top 10 Importing Countries
Country Export USD$ Country Export USD$
India $ 982,927,454 China $1,504,301,257

South Africa $ 699,790,512 India $1,167,465,267

Vietnam $314,808,485 United Arab Emirates $596,045,597
Kenya $291,540,870 Saudi Arabia $469,105,224
Switzerland $262,393,295 South Africa $415152,153
Belgium $193,526,518 Japan $412,382076
DR Congo $153,627,461 Germany $231745,378

China $142,213,954 Switzerland $205,372,402

United Arab Emirates $87,878,973 United States $202,892,780

Comoros $87,821,895
Kenya $201,322,358
Source: Tanzania Revenue Authority and Bank of Tanzania computations 15
16
Trade War: Impacts and Policies

U.S.A CHINA

$142.2mln

Data Source: US Census and WB

 Key Issues
My Vision: To become middle income country by 2025
Strategy: Diversified economy
Goal: Develop a thriving private sector dominated by Competitive
labour intensive industries
Strength: Peace and stability, natural resources, strategic location,
large domestic and regional market, young population, fertile land.

Threat: Poor infrastructure (soft and hard), technology, managerial skill,

skilled labor, cheap imports.
Trade War: Generally, Trade war poses both macroeconomic risks and
opportunities for Tanzania depending on a number of variables. Investment,
interest rate, exchange rate, commodity prices, imports, money supply and
revenue. Shock to any of those will have impact on Tanzanian economy. 18
Potential impacts – Short term
Positive Impacts
• Market opportunity to cover
some gaps in China and US.
• Price of gold might pick-up
following increase in demand as
an alternative investment asset
Negative Impacts
• China could reduce demand and
increase export to Tanzania
• Depreciation of local currency
• Capital outflows and financial
contagion as developed
countries raise interest rates
• On the financial markets (with
effects on stock prices and the
outward flow of funds).
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Potential impacts – Long term
Positive Impacts
• Investments in the form of FDI
esp. from China relocation use
AGOA
• More negotiation power
Negative Impacts
• Uncertainty of trade
arrangement with US e.g AGOA
• slowdown in output growth
would weigh on commodity
markets.
• Chinese economy will damage
its suppliers
• Tourism is likely to be affected
• Rise in Unemployment
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Policies – Short-term
• Providing a stable and supportive macroeconomic environment
e.g. Financial stability, Redesign fiscal policy, Financing with
conditionality.
• Diversify market by reinforcing intra-regional trade.
• Promoting competitiveness and innovation for value addition
(e.g. industrial parks, human capital, finance with conditions,
management training, awareness i.e trade fair).
• Attract foreign Capital, technology, and managerial skill (i.e.
Special economic zones). Institution, policies to mitigate
uncertainties.
• Localization of imported technology
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 Policies – Long-term
1. Policies to improve Domestic Productivity
• Physical capital, quality of labor, infrastructure, institutions, scientific and managerial capital.
• Promote R&D that has direct impact such as reverse engineering and adaptive research, establish
• Policies to correct market failure to promote industrialization (e.g Venture fund, SME financing, guarantees and
subsidy to interest)

2. Market and Trade

• Domestic marker – promote domestic consumption
• Regional market – enhance intra regional trade (e.g . SADC, EC)
• Global market – Digital platforms like Amazon and Alibaba will become increasingly important trading channels
worldwide. Make sure that our companies are using these platforms as a springboard to success both at home
and overseas.
3. International Relation
• Live with China , US, and others in their potential sectors (be valuable partner to all).
• Diplomatically, Tanzania would keep its neutrality but active diplomatically.
• Speak out about trade war and need to reform International order (multilateral negotiations).
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 TANZANIA EXPORTS AND IMPORTS - 2017
(Tzs bln)
4000

3500

3000 Surplus
2500

2000

1500

1000

500

0
EU US China India SADC EAC Saudiarabia & Others Japan
UAE
Export import

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 Why should Tanzania be Concerned with US-China Trade War and
the Future of International Liberal Order?
US Actions & Policies China Actions & Policies
 China One Belt One road
 US Tariff on India and Turkey Generalized System
 China Infrastructure Bank
of Preferences (GSP)
 The U.S. suspended duty-free access to Rwandan  BRICS
textile imports from Rwanda under the GOA.  South China Sea military expansion
 US exit the Trans-Pacific Partnership (TPP)  Made in China 2025
 NAFTA re-negotiations (anti-China clause 30
 US Tariff Canada, USA, and China Problem is not only about Trade
 US Withdraw from Paris Climate
 US threatening to pull out of NATO war but:
1. unpredictability of US as a world
 Withdrawing from a nuclear arms (NIF) treaty
with Russia
leader.
2. Aggressiveness of China
3. Global Value Chain
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Conclusion

• Productivity • Capital
• FDI
improvement
• Technology
Speak out
• Infrastructure • Managerial Skill
• Infrastructure
• Business environment
funding
ROW • Human capital+ R&D • Market for TZ
• Regional relationships
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 Thank You

“Given how interconnected states are in the modern world, it

is essential to have an international order”

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Appendix: Impacts and Policy Strategies
Generally, Trade war poses both macroeconomic risks and opportunities for Tanzania depending
on a number of variables. Investment, interest rate, exchange rate, commodity prices, money
supply and revenue. Negative shock to any of those will have impact on Tanzanian economy

𝒀 = 𝑪 + 𝑰 + 𝑮 + (𝑿 − 𝑴) Export
Imports
GDP Export .......................(1)
Consumption Investment Government
expenditure

𝒀 = 𝒇(𝑵, 𝑳, 𝑲, 𝑻) ....................................(2)
Technology

Resource Labor Capital

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