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Lessons from the US-China trade war

Tuesday March 12 2019

By BITANGE NDEMO
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The trade war between the United States and China could be settled by the end of March, perhaps because each state realises that they both need each other.

Depending on which side you listen to, they each claim victory from the protracted trade war. The behind the scenes driver for reaching the deal are the markets that they each want for their goods and services. There are lessons to learn from the rivalry.

Although the Chinese economy is slowing down, research shows that the country will this year be the world’s top retail market, a position that the US has held over many years. Sales from retail will surpass Sh560 trillion, owing to the growing middle class that is giving the country another definitive measure of economic superpower status.

This immense consumerism is one that no country will ignore, especially the US, which exports consumer goods such as soya beans to China. Already the US auto industry, with a significant market in China, is hurting from the prolonged trade negotiations. The evolution of Chinese domestic retail market is a magnet that muddles the negotiating ability of the US.

Findings from the World Data Lab shows that by 2022 one billion additional people will enter the global middle class ranks, with 87 percent coming from Asia, especially China. The region will simply become an economic powerhouse.
Indeed, studies have shown that the US stock market is closely linked to US-China trade relationships. A collapse of the negotiations will mean trouble for US investors.

Even as China becomes a new economic power, it needs the US’s insatiable market. For decades now, China has become the factory of the US tech industry. Decoupling of the relationship will be costly in the short to medium term.

5G INTERNET

However, the fracas will, in the end, favour China as it seeks new markets for its tech industry. This strategy was visible in Barcelona two weeks ago at the Mobile World Congress where Chinese giant companies like Huawei painted the conference with 5G solutions like no other company.

Huawei’s rotating president, Ken Hu, must have been aware of the US tactics when delivering his speech at the congress. He deliberately touched on the politics of tech which he said was started by the US urging other countries to avoid the company’s telecommunication equipment. He added that we all have a responsibility and needed each other with respect to cybersecurity.

Many countries from Europe to Africa signed 5G deployment contracts and effectively ignored Washington’s caution. In the process the company announced that they were three to five years ahead of competition. ''We are number one,'' Hu concluded his remarks.

When I caught up with those who had signed up deals with Huawei, they argued that US was simply trying to protect its tech companies.

Indeed, many countries, including those from the West, have similar perceptions and would rather give Huawei a chance rather than an outright ban. In its February 26, 2019 editorial, Huawei needs vigilance in 5G rather than a ban, the Financial Times said the following:

Trust now is under severe strain, thanks to a US campaign to stop Huawei having a role in next generation 5G networks – even if President Donald Trump took a more dovish tone last week. Australia has ruled out using Huawei in 5G and US allies including New Zealand have doubts about the security risks of using Chinese software in sensitive infrastructure.

If the motive of the US is to enable its companies to catch up with competition, then that is not the best trade negotiation strategy. Such a strategy undermines America’s free trade philosophy. The best way of gaining competitive edge is to focus on innovation and giving the customer what they want.

According to the World Data Lab, the four largest markets - the US, China, India and the European Union, will be of similar size by the year 2030. The common denominator especially in India and China is the population.

AFRICA

Notably missing in that line up is Africa whose population is projected to hit 1.68 trillion by 2030. The question our leaders must ask is ''how do we stop other countries from dictating trade terms to us?''

The answer is that we must look to what the markets need and respond appropriately. China needs land for agriculture and mineral resources in Africa. Angola allotted two provinces to Chinese investors. Mozambique was about to surrender an area the size of Uganda to Brazilian investors to grow Soya for export to China. The civil societies and Africa sympathisers protested. Zambia gave up its copper mines to foreign countries. In Kenya too, a plan to give land to the Gulf nations was considered exploitative and stopped.

There is no doubt that other countries want what Africa has in abundance - primary resources. But the continent is not leveraging these resources to join the global trade with confidence and some muscle to play a key role.

CHANGING TIMES

The Fourth Industrial Revolution gives us the technologies to massively produce for the world. The missing link are the people, the skills and the will to abandon our useless subsistence farming methods that don’t even feed the people of Africa adequately.

News about the failed Galana Kulalu Irrigation Scheme in the Tana delta is saddening and shameful. Until someone takes responsibility for its failure, there are no lessons we can take from the US and China trade war.

With or without Africa, the anticipated changes will have significant implications that will further complicate the ability of the US to negotiate favourable trade relationships.

There will be gives and takes in the new dispensation. The US will lose its natural advantage in attracting talent that can fuel creativity and innovation. Africa will continue carrying its begging bowls, walking on empty land and over minerals with bended buoyance to negotiate any form of trade.

Research has shown that there are no winners in trade wars. They are an unnecessary pain that disrupts enterprise and hurt many families. Global dynamics are changing and bringing new forms of competition.
The best strategy to winning in the days to come is to focus on what the customer needs and provide it whether you are in China, the US or Africa.

The writer is an associate professor at University of Nairobi’s School of Business.@bantigito