How global trade war is likely to affect Kenya

The USA and China have been involved in a major global trade war for sometime now. This war has led to a deadlock between these two super powers. 

During his presidential campaigns, as Antony Mutunga notes in the July edition of this magazine, US President, Donald Trump, propagated this during his election campaigns. One of his agendas was to reduce the trade deficit, which kept growing alarmingly, especially with China. 

According to the US Census Bureau, in 2016, the trade deficit with China had grown to almost $350 billion (Sh35.7 trillion) from $315 billion (Sh32.2 trillion) in 2012. After winning the elections, President Trump was ready to launch his ‘America first’ economic policy and after a few years in office, he finally embarked on his agenda to reduce the trade deficit.

Mr Mutunga chronicles that in the starting months of 2018, Trump placed a tariff on foreign solar panels except those from Canada. The tariff, which was placed at 30%, was to be reduced to 15% after four years. This resulted in China crying foul as they are the world leaders in the manufacture of solar panels. The US did not stop there as they placed another 20% tariff on the first 1.2 million units of imported washing machines. This affected China as in 2016, the East dragon of Asia had exported $425 million (Sh43.4 billion) worth of washing machines to the US.

The trade war has nonetheless intensified as China and the US continue to engage in tariff wars. The two countries have continued to increase tariffs on each other’s products. The U.S seems to be on a path to protect itself and its people by imposing tariffs on most imports. Even though a change may occur within its borders, it continues to alienate herself from other countries, which has the capacity to lead to a global trade war. 

Trump’s claim that his protectionist measures are hurting China more than the US has received support from the International Monetary Fund in new forecasts showing how a fresh slowdown in the global economy has been concentrated in emerging economies. But despite upgrading its US growth forecast, the IMF fired a warning to the White House about the risks of a full-blown trade war.

Judging from the increased external trade between Kenya and China, China is squarely Kenya’s biggest trading partner, accounting for about quarter of Kenya’s total trade. However, with increased exports as opposed to imports, it has been criticized as a skewed trade arrangement.

The resulting trade deficit between Kenya and China has been an area of concern for many people with calls to rationalize the trade deals and push for local manufacturer-friendly deals that are mutually beneficial trade partnership. 

A number of measures have been proposed to effect this, including the reduction or removal of tariff barriers that hinder access to the Chinese market, active promotion of Kenya’s products in China through the Made In Kenya initiative, and the establishment of joint ventures with the Kenyan and Chinese private sector so as to promote the exchange of skills, expertise and technology between the two nations.

However, the escalating trade war between the US & China looks likely to affect the bilateral trade negatively with the trade tariffs likely to push prices of commodities up. The Kenyan governments, however, must understand how to stand her ground and improve its economy so as to relieve itself of donor reliance. And prevent the exploitation of the unsustainable burden of debt.