Africa Didn’t Get the Trade War Memo

(Bloomberg) --

Someone forgot to tell Africa trade wars are en vogue. 

While the biggest economies try to outdo each other with barriers and tariffs, the continent with perhaps the most upside in cross-border commerce has been piecing together the world’s largest free-trade zone, at least on paper.

The leaders of Nigeria and Benin signed the accord for the African Continental Free Trade Area at a special African Union meeting in Niger’s capital, Niamey, last weekend. Eritrea is now the only AU-recognized nation that hasn’t agreed to it.

Talks to establish the zone started in 2015, but the process has gained some momentum over the past six months. It’s almost as if protectionism elsewhere has been a catalyst. The deal officially came into force in May after a required minimum of 22 nations ratified it and the signatory states can now start working out the mechanics of removing trade barriers including tariffs on 90% of goods.

While it’s still a long way off from being fully in operation — perhaps by 2030 — the free-trade area is important for a couple other reasons:

• Once all 55 countries are on board, the area would cover a market with a population similar to that of India, and a combined gross domestic product of $2.5 trillion.
• There is a lot for room for improvement. Trade between African countries is about 15% of the total and this could more than double within the first decade after implementing the deal, according to the African Export-Import Bank.

Charting the Trade War

Today’s Must Reads

• Reconnecting the U.S. and China | The U.S.’s top trade representatives spoke on the phone with their Chinese counterparts, marking the first high-level contact since their presidents agreed to a tentative truce last month.
• China factory threat | The world’s largest supplier of consumer goods says China’s factories are getting “urgent and desperate” as worried U.S. retailers accelerate a move out of the country amid heightened trade tensions. 
• South Korea-Japan tensions | President Moon Jae-in warned South Korean business leaders of an extended battle with Japan over its export controls on vital manufacturing materials.
• 2020 Trump clues | Some in Beijing see Trump’s 2020 election strategy as being the paramount factor on whether a trade deal is possible in the short term.
• Dollar obsession | The U.S. president has grown concerned that the strengthening dollar is a threat to his economic agenda and has asked aides to cast about for ways to weaken the greenback, according to people familiar with the matter.

Economic Analysis

• Tariff fears mount | The decline in the NFIB optimism index points to elevated uncertainty among U.S. small businesses, driven by the trade war
• Relax on Japan-Korea | Bloomberg Economics’ Yuki Masujima and Justin Jimenez say concerns about the fallout from the trade tensions may be overblown

Coming Up

• July 12: China trade data, South Korea export prices
• July 16: WTO Deputy Director-General Alan Wolff, European Union Trade Commissioner Cecilia Malmstrom among speakers at the Banque de France’s “Bretton Woods: 75 years later” conference in Paris

--With assistance from Samuel Dodge and Jeremy Diamond.

To contact the editor responsible for this story: Brendan Murray at brmurray@bloomberg.net, Zoe Schneeweiss

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