Trade in the face of growing protectionism

In the wake of United states president, Donald Trump’s global trade war, and the notion that emerging economies must be shielded from foreign competition to enable them obtain the efficiencies required to compete on costs with foreign producers, most countries seek cover in protectionism policies.

It is said  that Africa is marginalised mainly because it has not globalized and despite reduced tariff for some African countries in world trade, the continent still ends up with the short end of a very long stick. Recently, the tables have turned as African nations who individually or as a trade bloc have begun to create trade barriers with defined goals of protecting their economy.

Countries still engage in pacts that enable importation and exportation with little or no tariff barriers. However, statistics have proven that liberalisation may have a positive effect on manufacturing trade flows but its contribution to overall trade growth is often small. Most African countries have come to understand this, hence the implementation of what seem like protectionist policies.

For varying reasons, countries devise economic policies, increase tariffs on goods and quotas that restrict imports from other countries. There is a consensus among economists that protectionism has a negative effect on economic growth and economic welfare. With these, economists opt for free trade. However, free trade also has its snags, as it can often result in large and unequally distributed losses and gains, which in turn can cause significant economic dislocation of workers in import-competing sectors.

Free trade and trade balance

On the road to rapid globalisation, most countries enter into free trade pacts, which is believed to eliminate unfair barriers to global/intercontinental commerce and create economic dynamism. Arguably, its application offers consumers the most choices as well as promotes innovation among producers.

In 2011, Uganda experienced an acute sugar shortage and to cover the gulf, the country allowed Kenya to import duty-free sugar. By 2014, tables turned and Kenya began importing sugar from Uganda. A concession economists argued that it would disadvantage Kenya’s sugar industry and hurt the economy.

Uganda produces about 465,000 tonnes of sugar and consumes 320,000 tonnes, leaving it with a 145,000-tonne surplus. Kenya produces 650,000 tonnes of sugar against a demand of 860,000 tonnes, leaving a 210,000-tonne deficit to import.

Economists argue that duty-free importation harms farmers in a big way. According to economic analyst Janet Okatch, If Kenya keeps importing free sugar, its farmers would suffer and local sugar would invariably become expensive.

Similarly, Nigeria has refused to be a signatory to the African Continental Trade Agreement (ACFTA) without significant input from local businesses who might be affected by the decision. In March, the country’s labour congress (NLC) opposed Nigeria being a signatory to the ACFTA, arguing that signing the agreement was detrimental to the country’s economic interests.

The International Monetary Fund (IMF), in a paper stated that after a decade of rapid growth, industrialization has lost ground, with shrinking manufacturing sector in Sub-Saharan Africa. It discovered that trade liberalization leads to higher imports and exports, but also worsens the trade balance because many countries are not benefiting equally from free trade.

The rise of African protectionism

Protectionism is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations.

Protectionism remains an ongoing concern, with proponents asserting that protectionist policies shield the producers, businesses, and workers of the import-competing sector in the country from foreign competitors.

In a bid to promote ‘America first’, President Donald Trump in his global trade war, imposed tariffs on allies and rivals alike, provoking retaliation and disruption in many economies. In June, Trump announced fresh  $50 billion tariffs on Chinese goods, while asking Rwanda and some other East African countries to reduce tariffs on American goods imported to their country.

China and other countries have been quick to retaliate. But developing economies which have little manufacturing capabilities and depend on imports to fill the void bow to Trumps whims and caprices.

Protectionism, in one form or the other, exists in almost every country. In Nigeria, President Muhammadu Buhari, after his inauguration turned to autarky to relieve the West African country of economic crises. Nigeria’s central bank stopped providing foreign exchange to importers bringing in 41 categories of goods, including rice and toothpicks, forcing the country to look inside.

Also, in 2016, custom duties on rice increased from 10 percent to 60 percent as farmers were encouraged to plant more.The tariffs saw a rise in farming activities.

Contributing to the State of the Nation debate in 2017, South Africa’s trade and Industry Minister Rob Davies said overprotectionism could result in South Africa being denied access to other markets on which domestic jobs and productive sectors depend.

In the face of growing protectionism, shipments are slowing at ports around the world, smugglers are smiling, prices for raw materials are rising and a potential crisis is brewing. Even Foreign Direct Investment (FDI) in Africa is at a 10-year low, as revealed by the World Investment Report.