3. US – CHINA TRADE WAR
A trade war happens when one country retaliates against another by raising
import tariffs or placing other restrictions on the other country's imports. Trade
wars can start if one country perceives that a competitor country has unfair
trading practices.
The US-China trade war, an economic conflict between the world’s two largest
national economies, started when President Donald Trump, in 2018, began
setting trade barriers to China with the goal of forcing it to make changes to what
the US said were unfavorable trade practices. (Ihuoma Chiedozie, 2019)
About 21 per cent of Nigeria foreign trade is from China and only about 9 per cent
of the trade is from the US. Although the share of trade from the two countries are
insignificant compared to the total value, the impact on the economy may be
severe.
Proponents of trade wars claim that trade wars protect national interests and
benefits locally produced goods and services while critics of trade wars claim they
ultimately hurt local industries, consumers, and the economy at large.
4. THE IMPACT OF TRADE WAR ON
NIGERIA ECONOMY
By 2018 year-end, US had imposed
tariffs totalling $250bn on Chinese
imports while China retaliated to the
sum of $110bn of US imports (Michael
Ogunremi, 2019).
The US and China are the two biggest
economies in the world; once they are
at loggerheads, their intentions and
actions lead to a slowdown in global
growth and it will affect most countries.
No country can exist in isolation and
since Nigeria is an import-dependent
and export mainly oil, it will also affect
Nigeria(Taiwo Ojoye, 2019)
5. INFLATIONARY PRESURE
Inflation remains stable though
relatively high at 11.22% as at
June 2019, Inflation in Nigeria is
mostly impacted by the level of
agricultural produced, exchange
rate volatility, money supply and
aggregate demand.
Trade war increase import and
reduce export which reduce
foreign exchange earning that
result in sustain increase in the
general price level. There will be
an increase in inflationary
pressure on Nigeria economy if
the trade war persists.
6. ECONOMIC GROWTH
The Nigeria economy grew from 0.72% in 2017Q3 to 2.38% in 2018Q4
and 2.01% in 2019Q1. The IMF predicted in April 2019 that the
Nigerian economy will grow by 2.1% in 2019 compared to the earlier
2.3% predicted in October 2018. The downward revision of economic
growth expectation is on the back of macroeconomic volatility.
There is a possible economic slowdown if the trade war continues. A
prolonged US-China trade war could result in the diversion of 'tariffed'
products to Nigeria, increasing imports and worsening the balance of
payments position and real GDP.
7. BALANCE OF PAYMENT
A country’s balance of payments is a summary of its financial
transactions with the rest of the world. It is a systematic record of all
payments to and receipts from foreign countries during a specific
time period, usually a year. The trade war has weakened the
Chinese currency against the US dollar which makes import of
goods and services from China cheaper.
The resultant effect is balance of payments deficit which is recorded
when total payments and transfers to foreign countries exceed total
receipts from foreign countries. The country will be losing its
reserves of foreign exchange and country’s international
indebtedness will be more severe.
8. FOREIGN DIRECT INVESTMENT (FDI) & AND FOREIGN PORTFOLIO INVESTMENT (FPI)
FDI is the movements of capital that involves ownership and
control while FPI is the movements of capital that involves
ownership of financial assets such as share of foreign firms
without having control over actual firms.
Trade war will create opportunities for companies that want
to move out of China to other locations. Many businesses in
China are there to export to the US and other countries and
if being in China will create a problem for access to the US
market, some of these companies will be forced to relocate.
It is an opportunity for the country to attract investors.
9. INTEREST RATE
The Monetary Policy Rate (MPR) is determined by the Central Bank of
Nigeria (CBN) in response to local and global happenings. In March
2019, the CBN reduced the MPR from 14% to 13.5% in reaction to
escalating global economic uncertainties and the US-China trade war.
Interest rate could increase if the US-China trade war persists.
Whenever the level of inflation rises, CBN raises the MPR, and vice-
versa. This is likely to occur because the impact of the trade war on
inflation is positive. We believe that the level of imports to Nigeria is
expected to rise, if China, and America channel some of their exports
to reverse the slowdown in their respective economies and improve
manufacturing output. This could cause import-induced inflation in
Nigeria.
10. GLOBAL ECONOMIC RECESSION
The US and China are the two largest economies in the world; once they
are at loggerheads, their intentions and actions lead to a slowdown in
global growth and it will affect most countries. Since we are import-
dependent and we export mainly oil, it will also affect Nigeria.
The first implication of the trade war will be for the global economy. The
United states and China are the two biggest economies in the world; so, if
there are conflict with trade, it will affect the global economy; it will slow
down growth in the developing economies like Nigeria, slowdown
economic growth and will invariably affect commodity prices. There
maybe a drop in crude oil price and this will affect Nigeria because the
country is heavily dependent on the revenue from the sales of oil. (Taiwo
Ojoye, May 2019)
11. GLOBAL ECONOMIC RECESSION (CONTINUED)
China will now manipulate its currency to a lower value so that their exports become
cheaper. And if they do that, they will undercut products from other countries and that
will lead to a global slowdown, which could lead to a recession. So, a trade war, if not
arrested initially – and it will be arrested – then it will lead to a currency war. And a
currency war will also affect Nigeria.
There is a risk if things go out of control; we could end up in a global recession, not a
global financial crisis, in which we are also going to suffer as commodity prices will
come down.
Once the tariffs on both countries begin to have effects, it may slow growth in the US and
that will slow global growth rate. And once the global growth rate slows down or is
sluggish, it will affect Nigeria’s growth performance.
12. DUMPING
Dumping is the practice of selling a good abroad at a price lower
than that charged for the same good in the domestic market.
China may decide to move those goods to Nigeria but of very low
quality. So Nigeria have to be very vigilant and ensure that the
goods that come from China into Nigeria are of high quality
13. CONCLUSION
The US-China trade war creates a decline for the Nigerian
economy. Nigeria’s economic is exposed to global economic
shocks due to increasing debt servicing, economy that is import
dependent and low diversification of exports. To alleviate the
effects of the global vulnerabilities on the Nigerian economy. The
following points must be adhere to:
• Debt accumulation and servicing payments should be reduced
drastically.
• Diversification of the economy to promote export based
products.
• Devaluation of the Nigerian Naira against Chinese Yen and US
dollar to reduce import and boost export.
14. REFERENCES
• Class Note
• US-China trade war: Nigeria faces more pain than gain https://punchng.com/us-
china-trade-war-nigeria-faces-more-pain-than-gain/?amp
• US-China trade war: Nigeria faces more pain than gain
https://www.google.com/amp/s/punchng.com/brexit-us-china-trade-war-threats-to-
nigerias-economy-wbank/%3famp
• Nigeria Economic Alert The Global Trinity Threats: Impact on Nigeria (PWC) written
by Michael Ogunremi
• US-China Trade War: Implications for Nigeria as its Asian romance lingers
https://nairametrics.com/2019/03/26/us-china-trade-war-implications-for-nigerian-as-
its-asian-romance-lingers/?amp=1
• AN ECONOMIC ANALYSIS OF THE US-CHINA TRADE CONFLICT by Eddy
Bekkers and Sofia Schroeter (Economic Research and Statistics Division World
Trade Organization)