The global order is unravelling. 2018 looks especially ripe for an unexpected crisis because Protectionism is having a moment in the sun! The rise of anti-establishment movements in developed markets has forced policymakers to shift toward a more zero-sum approach to global economic competition. As a result, walls are going up. Protectionism 2.0 is creating barriers especially in the digital economy and innovation-intensive industries, not just manufacturing and agriculture. New barriers are less visible: Instead of import tariffs and quotas, today’s tools of choice include “behind-the-border” measures such as bailouts, subsidies and “buy local” requirements designed to bolster domestic companies and industries. These measures don’t necessarily circumvent WTO commitments but they rely on a collective inability to update and strengthen existing global trade rules.
Governments aren’t just trying to protect comparative advantages in traditional sectors such as agriculture, metals, chemicals, and machinery out of concern for lost jobs or domestic economic interests. Nowadays it matters where the trade and investment come from. The origin and regulation of FDI is increasingly politicized, as states grow anxious about foreign control of domestic corporations. Because this new protectionism will co-exist with a continuing push for regional free trade agreements, the global regulatory environment will become more complex and contradictory. Companies and investors will have to manage more complicated supply chains and navigate more restrictions to data flows and other barely discernable or invisible barriers. While economic protectionism may seem like a benign means of international competition, the political resentment it will create among major powers risks spilling over into other areas of the world. Although the impact is still speculative, it is not a matter of if but a matter of when.
A couple of months ago, a year after President Donald Trump’s inauguration, his administration slapped 30% and 20% duties respectively on imports of solar panels and washing machines, using a provision within WTO and U.S. trade laws that allow for temporary “breathing-space” or safeguard protection when import surges lead to serious losses in profits and employment. A few days ago, President Trump announced 25% and 10% tariffs respectively on steel and aluminum imports, with exceptions for Canada and Mexico. While Canada is the biggest exporter of these two metals (totaling about $12 billion) to the US, the EU (with these exports equaling $7 billion) is next. Interestingly, the EU and other countries have been ‘encouraged’ by Trump to enter into negotiations with the US to provide it better terms of trade in exchange for a metal tariff exception. Talk about extortion. The new metal duties are being imposed under a rarely-used national-security provision (under WTO and US trade laws) for ensuring sufficient domestic supply of these metals in the event of a war. If, however, the WTO takes the position that it cannot rule on countries using the national security provision, it will open the door to the use of this provision by many other countries, and this will be a worrying precedent. The lesson is not that protectionism is porous. It is. And it can be manipulated. The critical takeaway is that the distortions brought about by trade barriers impose a cost on the economy. It might not be easy to spot before the fact, especially for smaller economies like Botswana, but it tends to be more substantial than whatever fleeting gains protectionism can bring about to the protected.
2018 is certainly a year where we see a greater fragmentation of the global marketplace because governments are becoming more interventionist. By taking measures to restrict international trade, any administration risks undoing economic progress and harming workers and businesses that rely on trade to stay competitive in the global marketplace. This is the trade environment in which Vice President Mokgweetsi Masisi will walk into when he ascends to the Botswana Presidency. From a strategic policy perspective, he will need an apt and comprehensive strategy to maneuver this tricky atmosphere. When globalization and free-trade were the darlings of western allies, poorer economies were regularly rebuked for their domestic focus. Ethiopia’s closed economy and Zimbabwe’s protectionist policies led to them internationally blacklisted as undesirable business environments.
Africa, relatively isolated from the inner workings of the financial markets, might not yet feel the ill effects of Trump’s tariff proposal, but the continent stands to lose far more than most should a trade war become a reality. 2017 was the first year since 2008 that the world’s larger key economies advanced at a similar pace. A trade war would likely draw this positive economic growth to an end. The demand for African resources is driven by global growth and, as such, is essential for the continent’s economies. As the largest buyer of African commodities, the Chinese economy is of particular importance and its growth trajectory is tied to Africa’s. If China gets caught up in a trade war with the U.S, African exports will likely suffer.
There’s no denying that since the global financial crisis of 2008, the G20 nations have consistently increased protectionism, with painful consequences for the same African nations they send aid to. According to the African Development Bank, the continent’s nations bore the brunt of measures including export taxes and tariff and non-tariff barriers, as well as state aid. In a protectionist world, poor nations looking for growth will inevitably follow suit. Many African nations including Botswana are quite rightly more focused than ever on the benefits of greater regional integration. The proposed SADC-COMESA-EAC Tripartite Free Trade Area , which Botswana recently signed, linking the continent’s three regional trading alliances, is seen by many, as a significant step in the right direction. Masisi will need to build onto where Khama left off and push for increased trade amongst African countries. But most importantly for Botswana, the focus will need to be more on building export competitiveness for local manufacturers such that tangible benefits are realized in all the trade agreements Botswana is signatory to. With the Continental Free Trade Agreement said to be underway, Botswana currently doesn’t stand to gain much from it. There’s more work to be done in areas of economic diversification, business facilitation and export & investment promotion.
In addition, government will need to speed up the process of the Ministry of Investment Trade and Industry’s trade policy and transform the document into a trade policy strategy paper. Getting the best deals from international trade is vital for Botswana’s economy. The country has undoubtedly achieved significant gains over the past decades through the existing trade policy. Against all odds previous administrations have negotiated trade agreements that have secured access for our goods and services. This has helped to increase our exports of goods and services globally. However, things have changed during this period. The way we do business today and the global environment we operate in have shifted significantly.
That is why Masisi’s Presidential team will need a refreshed trade strategy, in order to remain agile, and continue to get the best deals for Botswana’s trade interactions. Botswana’s future is in being an open, outward-facing country and should continue to work internationally to get the best trading conditions possible for the country in the context of constantly changing global dynamics. Trade wins for Botswana haven’t been all too visible in the last decade. The new administration will need to hit the ground running and take advantage of the momentum from BITC’s investment promotion initiatives. In the context of President Khama and Zambia’s President Lungu’s recent invitation of Zimbabwe to join the Kazungula Bridge project, President Masisi will have to drive this one home and deliver a regional integration project that stands to cut down on processing time and positively increase the movement of goods and people between the three countries.
*Bakang Ntshingane is a Motswana graduate student based in South Korea with a focus on international trade policy and economic diplomacy. He writes on International politics, foreign policy and trade.