As if increasing debt and falling demand for diamonds and revenue drawn from the sale of the stones were not enough for Botswana’s second republic, a trade war started by the USA is spreading to many countries and undermining economic recovery
DOUGLAS RASBASH
Special Correspondent
This item aims to show that only bad comes from increasing trade tariffs. In order to illustrate the impact of trade tariffs on the economy, The Botswana Gazette has produced an analysis of changes in overall average global tariffs and global trade as a proportion of global Gross Domestic Product over the last 100 years. The inverse relationship could not be more obvious. For each 20-year period when tariffs increased, the trade/GDP ratio reduced. It is remarkable just how clearly this occurs.
The Self-Harming Cycle of Tariff Wars: Lessons from History
The relationship between trade tariffs and global trade openness is a tale of economic cause and effect – one that policymakers often ignore at their peril. As history shows, when tariffs rise, global trade shrinks, damaging economic growth. The United States, once a champion of free trade, now flirts with the same self-destructive policies that deepened past economic crises. A glance at the historical trends is illuminating. In the early 20th century, global tariffs were high, peaking during the Great Depression when protectionist measures like the US Smoot-Hawley Tariff Act of 1930 triggered retaliatory duties worldwide.
The result? A collapse in global trade, with exports as a percentage of GDP plummeting. After World War II, wiser heads prevailed. The establishment of the General Agreement on Tariffs and Trade (GATT) in 1947 initiated a steady decline in global tariffs, paving the way for a golden age of trade. By the 1980s and 1990s, the formation of the World Trade Organisation (WTO) and sweeping trade agreements such as the North American Free Trade Area (NAFTA) of the US, Mexico and Canada in 1994 and the European Union in 1956 helped global trade to soar to unprecedented levels. As tariffs fell to historic lows, trade as a share of global GDP reached nearly 30% by 2010. But recent years have seen a troubling reversal.
The US and the Return of Trade Wars
Under the new Trump administration, the United States reignited a wave of protectionism, slapping tariffs on Chinese goods and sparking retaliatory measures. The US-China trade war (2018-2020) saw tariffs jump to levels unseen in decades, directly harming American industries. The impacts are already being felt. US farmers are losing billions in exports as China imposed retaliatory tariffs on soybeans, pork and other agricultural products. Manufacturing is suffering from higher input costs, making American goods less competitive.
Consumers paid more as tariffs raised prices on imported goods, effectively functioning as a hidden tax. The Biden administration had largely kept these tariffs in place, despite clear evidence of economic self-harm. The ongoing rhetoric around “economic security” risks further isolating the US from global trade networks.
Why Tariff Wars Are Always a Losing Game
Tariffs are often politically popular, marketed as tools to “protect domestic industries” and “punish unfair trade practices”. But as history – and our graph – shows, they tend to backfire. Firstly, this is because retaliation is inevitable as affected countries always respond in kind, hurting domestic exporters. Higher costs for consumers arise because tariffs drive prices of everyday goods up.
Moreover, supply chains get disrupted in a globalised economy, especially affecting businesses reliant on imported materials. Job losses are also unavoidable because industries that depend on trade often shed more jobs than those “saved” by tariffs. The fundamental reality remains that when tariffs rise, global trade shrinks and economies suffer.
Bad News for Botswana Too
From our graph, it has been deduced that if tariffs increased from 5% to 10% global GDP would contract by $15 trillion. A global economic contraction would have significant repercussions for Botswana’s economy, despite its small size and limited global trade footprint. Demand for natural diamonds, already under pressure from lab grown diamonds, would reduce further. Tourism would also be seriously affected.
If a trade war disrupts global supply chains, import costs could rise, leading to inflation. Higher prices for fuel and food would particularly hurt low-income households, reducing their purchasing power. Foreign investment is crucial for Botswana’s diversification efforts in sectors like renewable energy, manufacturing and finance. A trade war could discourage multinational corporations from investing in emerging markets, slowing Botswana’s industrialisation. Global financial uncertainty may also reduce access to credit and foreign loans.
Botswana is part of the Southern African Customs Union (SACU) where shared tariff revenues significantly contribute to its budget. A global slowdown could reduce trade within the region, cutting SACU revenue inflows and forcing Botswana to either increase borrowing or reduce public spending. A trade war induced global economic contraction would make economic recovery more difficult because Botswana does not have a resilient economy.
A silver lining
To navigate such a crisis, Botswana should expand intra-African trade, invest in self-sufficiency (e.g. renewable energy and agriculture), and enhance digital services to participate in non-tariff-dependent global markets. A global trade war would negatively impact Botswana through lower exports, higher import costs, reduced investments and weaker SACU revenues, making economic resilience and diversification critical. A global trade war could serve as a catalyst for boosting intra-African trade by compelling African nations to reduce dependence on external markets and strengthen regional economic ties.
However, this would require proactive policy adjustments and infrastructure improvements. A trade war involving major economies like the US, China, and the EU would disrupt Africa’s traditional export markets for commodities such as minerals, oil and agricultural products. This could push African countries to seek alternative buyers and suppliers within the continent, accelerating regional trade under agreements like the African Continental Free Trade Area (AfCFTA). With higher tariffs and supply chain disruptions affecting imports from global markets, African nations might prioritise local production and sourcing from neighbouring countries. This could strengthen regional industries, particularly in agriculture, manufacturing and pharmaceuticals, fostering supply chain resilience.
Reduced reliance on global trade could incentivise African nations to explore regional currency settlements and alternative financial systems to reduce dependence on the US Dollar and the Euro. However, governments must proactively address trade barriers to ensure sustained economic benefits. This trade war poses distinct threats to Botswana, but creates new opportunities by compelling faster development of the African Continental Free Trade Area.