In light of the increasingly contentious nature of the US-China relationship, it is worth examining Americans’ views about economic ties between the two countries. Fortunately, recent Cato Institute polling data (full survey crosstabs (XLS)) covers this very topic. Here are the China-specific results:

• 55 percent of survey respondents agree that “The US trading with China helps increase global stability and peace” versus 45 percent who disagree. Specifically, 11 percent strongly agree and 45 percent somewhat agree; 29 percent somewhat disagree and 16 percent strongly disagree.
• Digging into the crosstabs, it is clear there is a strong partisan split on this question. Sixty-eight percent of Democrats and those who lean Democratic agree that the US-China trading relationship helps increase global stability and peace versus 45 percent of Republicans and those leaning Republican. 45 percent of independents also agreed with the statement.
• The next China-related question asked respondents whether China generally practices fair or unfair trade with the United States. Fifteen percent of those surveyed said China practices mostly fair trade with the US versus 59 percent who believe China practices mostly unfair trade. Another 25 percent said they didn’t know.
• Unlike the previous China question about global stability and peace, there isn’t much of a partisan split on this issue. Twenty percent of Democrats/​those leaning Democratic, 10 percent of independents, and 13 percent of Republicans/​those leaning Republican believe China practices largely fair trade with the United States. In comparison, 52 percent of Democrats/​those leaning Democratic, 53 percent of independents, and 71 percent of Republicans/​those leaning Republican believe China practices mostly unfair trade.
• Cato asked respondents, “based on what you know, approximately what percent of goods imported into the United States come from China?” It turns out the overwhelming majority vastly overestimated China’s share of US goods imports: 5 percent of respondents said less than 5 percent; 13 percent said 15 percent (the correct answer); 31 percent said 25 percent; 28 percent said 50 percent, 18 percent said 75 percent and 4 percent said 95 percent. There’s not much of a partisan split on this question.

The last question is straightforward enough—and the respondents’ overestimates are understandable given US policymakers’ overwhelming focus on China when discussing matters of international economic policy—but the first two are more nuanced, so let’s dig in.

First, there is a large body of scholarly work about whether economic integration tends to reduce conflict and helps facilitate peace and stability between trading partners. This idea can be traced at least as far back as Montesquieu who wrote in the 1700s that peace is the “natural effect of trade.” This belief has been a pillar of U.S. international economic policy—and foreign policy more broadly–since the leadership of Secretary of State Cordell Hull in the 1930s and especially in the aftermath of World War II.

While I’m inclined to think the American public’s instincts are correct and trade does tend to promote peace, it’s also clearly not a panacea given prominent counterexamples (including World War I and Russia’s 2022 invasion of Ukraine). That said, policymakers pushing for a hard decoupling with China risk a greater likelihood of conflict.

On the issue of abusive Chinese trading practices, public skepticism is well-founded. The issue, however, is complicated. Although it’s true Beijing engages in numerous troublesome international economic practices that hurt American firms (which my Cato colleague Scott Lincicome and I documented in a paper last year), a lot of US-China trade is fairly conducted. That said, even though policymakers have (largely) diagnosed the problems correctly, their “solutions” have done little to alter Beijing’s behavior while imposing substantial costs on American citizens. A course change is desperately needed.

The US and China trade a lot with one another, but, ultimately, two-way trade (imports and exports) with China is just 11 percent of all US trade. As Lincicome recently noted, “contrary to so much of the protectionist spin you read these days … the vast majority of US trade (goods and services; imports and exports) involves countries other than China.” Indeed, too often China is invoked as a pretext for old-fashioned protectionism against other countries. Yet the American public largely supports more trade with the rest of the world (55 percent of poll respondents had a positive opinion of international trade compared to 12 percent unfavorable), particularly allied countries.

More broadly, Cato’s poll results demonstrate that Americans generally do not worry too much about international trade and globalization. A mere 1 percent of respondents said that international trade was in the top three most important issues facing them (perhaps surprising given the rhetoric from Donald Trump’s presidential campaign, which has focused heavily on across-the-board protectionism).

Yet Cato’s polling shows that aggressive protectionism is not popular with the American public, especially if it comes with higher prices and other tangible costs (spoilers: it does). Politicians hoping to appeal to Americans on the issue of international trade should focus their efforts on boosting trade ties with friendly nations not pushing unpopular protectionism.

To read the blog as it was published on the CATO Institute webpage, click here.

The post What Americans Think about Trade with China—and Trade More Broadly appeared first on WITA.

The 20th century was America’s century. From recovering from the devastation of war to promoting prosperity and the rule of law worldwide, it was the United States’ capital and values that came to define much of the world’s military, political, social, and economic road map, even into the 21st century. Since 1945, it became clear that it was in Washington’s interest to ensure that the global economy recovered steadily, and that it should stimulate demand worldwide. Boosting global growth was not simply an altruistic goal, nor was it guided solely by the fear of communism’s rise—it was also a means to further US corporate interests. Access to global markets, operating under clear rules driven by US standards, also became part of the US national interest. Global trade enjoyed clear prioritization across US public and private sectors.

Clarity about the United States’ commitment to global trade no longer holds.

To be sure, grinding poverty persists in much of the world. Currently, 46 nations are deemed the least developed countries, representing 12 percent of the world’s population. Of these, 33 are in Africa and 9 are located in Asia, including Bangladesh, Cambodia, Laos, and Afghanistan. But from Japan and the earlier Asian Tigers of South Korea, Singapore, and Taiwan, to rapidly rising India, Malaysia, Indonesia, the Philippines, and beyond, the Indo-Pacific region is home to the world’s most dynamic, populous, and ambitious countries, which have emerged as economic rivals to the United States. In short, Washington’s 20th-century goal of lifting all boats to greater prosperity out of the ruins of war has largely been achieved—not only in Europe but also in most of Asia. As a result, market access to the Indo-Pacific has become more lucrative, and more competitive, with Washington’s voice no longer dominating the field as countries look to redefine and enhance the rules of trade that better meet the needs of the 21st century.

The fact that China has emerged as the single biggest trading partner for all countries in the Indo-Pacific, with the exception of Afghanistan, has also caused US economic influence in the region to falter. At the same time, Beijing is steadily investing in matching its military might to its economic influence, both within and well beyond Asia—not simply by building up its arms but also by making strategic use of advanced technology to enhance its military capabilities. With Washington increasingly aware of the multifaceted threat posed by Beijing’s economic and technological advancements, the Biden administration is going on the offense and developing its own economic strategy that resets US trade ambitions and prioritizes national security in defining economic relations with like-minded countries. The question, however, is whether the United States can succeed in bringing its allies and partners in line with its own reassessment of the international economic challenges that lie ahead.

Coupled with Washington’s own decision to pull out of the Indo-Pacific’s most ambitious trade deal in 2017, and with no US plans to join the subsequent Comprehensive and Progressive Trans-Pacific Partnership agreement, even the staunchest US allies have come to question Washington’s commitment to free trade in Asia. What the Biden administration has instead decided is to develop a two-pronged strategy. First, it is focusing on dealing with the economic threat posed by China’s violations of trade agreements. And second, the administration has drawn a clear line in cracking down on Beijing’s access to advanced technology by choking off China’s ability to acquire the most sophisticated semiconductor capabilities and chip manufacturing technology, which in turn would curtail Chinese development of artificial intelligence and supercomputing. Together, these new approaches to trade and technology acquisition are key to enhance US economic competitiveness and boost US security. But they can only be effective if the United States works in conjunction with other countries. After all, along with the United States’ success in lifting economic standards worldwide, its solo ability to tip the global scale in its favor and induce adherence to its standards has also diminished.

Yet the Biden administration’s vision for a new trade framework focusing on four key areas—digital trade, supply chain resilience, environmental sustainability, and good governance—has been lackluster. While 13 countries—including Vietnam, Malaysia, and Indonesia—have agreed to start negotiations on the key issues, India has already declined to join in talks regarding trade under the Indo-Pacific Economic Framework, due to domestic political considerations. India’s walkout highlights just how difficult it can be for countries on divergent paths of development to reach a consensus, even on critical issues such as supply chain resiliency, given that national leaders must reckon with their domestic constraints as much as their economic needs. The true value of the framework’s road map, however, is to clearly show that Washington needs to work with its partners to address the region’s biggest challenges. And nowhere is the need to form partnerships more apparent than in the effort to push back against China’s aggression and its abuse of its economic might.

The Biden administration’s success in pressing ahead with three key proposed laws over the past 12 months despite a deeply divided Congress speaks volumes about the emerging national consensus to push for growth and industrialization policy. The United States is hardly alone in increasing spending on securing critical infrastructure, investing in cybersecurity, and boosting commitments to innovate in advanced technologies. From Japan legislating to enhance economic security to South Korea’s budget to speed up economic recovery, key US allies in the Indo-Pacific region have boosted spending to enable them to rebound from the disruptions caused by the global COVID-19 pandemic, and to stave off risks of China weaponizing its global economic dominance. Enhancing resilience no longer means simply preparing for the unexpected, such as natural disasters; it also means being able to withstand pressures that China could place on accessing goods that could make countries vulnerable. Nevertheless, there is a growing wariness across the board that efforts to become more resilient are also leading to a path of less global interdependence and the rise of unilateralism, especially in the United States. Far from advancing globalization, as Washington sought to do in the 20th century, its de facto new industrialization policy is seen as a potential driver of economic nationalism.

Meanwhile, Washington’s trade policy has focused more on encouraging overseas investments into the United States, with no clear, immediate gain for countries that are actively committing to strengthening crucial US industries such as semiconductors and large-capacity batteries. This has been especially disconcerting for South Korea, which is concerned the US will take away its global chip lead. In the longer term, however, the Biden administration’s measures to safeguard US technological advancement and to stop the transfer of advanced technologies to China could lead to a potential schism between the United States and its key allies.

Through the United States’ October 7, 2022, export control restrictions to stop China from acquiring advanced semiconductor technology, including manufacturing equipment and the talent to support chip development, it has made clear where it draws the line when it comes to engaging in a technology competition with China. The goal is not simply to stop Chinese access to the world’s most advanced chips and prevent their use in Chinese missiles and other military uses but also to stop China from furthering its goal of becoming the world leader in advanced technologies, including the development of artificial intelligence.

The strategic objective of stifling Beijing’s technology innovation has secured widespread congressional support. But for the Biden administration to succeed in keeping the United States’ most vital technology from being abused by the Chinese—and for the US to remain a global economic leader in a new era of competition—it must have the cooperation and support of the other advanced economies in Asia and Europe. A true victory for Washington requires protecting its own semiconductor technologies through export controls. But victory will also necessitate humility on the part of Washington, and recognition that it can no longer alone meet the challenges that lie ahead. Working together with like-minded partners is no longer simply a mantra—it must be at the core of Washington’s effort to win the strategic competition with Beijing.

Shihoko Goto is the director for Geoeconomics and Indo-Pacific Enterprise, and deputy director for the Asia Program, at the Wilson Center.

To read the full article, please click here.

The post Friends, Allies, and the Trade Dilemma appeared first on WITA.

Our planet’s history tells us that friendship among nations is to be cherished and nurtured. Too often countries have not served as good friends to others, particularly in the area of international trade, when we prioritize competition over friendship. In our view, we should view trade friendships as a means of protecting the future of our children and successive generations, who will inherit our planet and the promise of humanity.

We must act to ensure not only their economic health but their freedom and liberty. If free market liberty-loving countries increasingly isolate themselves from each other via trade barriers, we are hurting our ability to compete both economically and in innovation. Free trade among friends and allies is important as it greatly benefits each nation and gives us the best chance at staying ahead of authoritarian governments.

With these perspectives in mind, we share CTA’s “Top Ten Ways for Turning Trade Friends into Trade Best Friends Forever (Trade BFFs).” We hope these ideas spark a necessary conversation among democratic and liberty-loving nations on leaving the self-serving measures of the 20th century behind and forging a stronger and like-minded free trade future for our children and successive generations. And we welcome ideas from others on what it takes to be a “Trade BFF” in our era of fierce global competition.

Your friends,
Gary Shapiro, President and CEO, Consumer Technology Association (CTA)® 

Ed Brzytwa, Vice President of International Trade, Consumer Technology Association (CTA)® 

Trade BFFs should:

1. Honor their commitments to each other. Friendships are built on trust, which means Trade BFFs should bind and enforce their commitments to each other (trade pinky promises) through comprehensive, binding, and enforceable free trade agreements (trade friendship bracelets).

2. Have each other’s backs. You look out for someone by helping them – not putting up barriers to their success. True friendships embody selflessness – not selfishness. For example, they should promise to spare their Trade BFFs from disruptive and harmful unilateral enforcement actions, including tariffs and import prohibitions.

3. Work together. Friends make each other better and push each other to live up to or surpass expectations. One way to do that is to collaborate on strengthening the World Trade Organization and on multilateral and regional trade and investment efforts.

4. Share common values – and stick to them. We value freedom, democracy, and the power of the free market. We can maintain and promote market economies by avoiding policies that intentionally displace or injure foreign competitors and making any incentives available to their domestic industries also available to industries in their Trade BFFs.

5. Compete hard – but fairly. Trade BFFs develop and implement regulations that allow companies located in their fellow Trade BFFs to compete fairly on a level playing field while encouraging a race to the top through high performance.

6. Be empathetic and open to mutual, voluntary support. Trade BFFs take measures to encourage but not coerce industries located in their fellow Trade BFFs to trade with or invest in their economies.

7. Invest in and support each other’s successes. If one friend is an expert or good at something, they use that skill or expertise to help their friends. Trade BFFs invest in and support each other’s successes, avoiding irritating and disruptive investment reviews or other restrictions on investment.

8. Share openly with each other. Trade BFFs take steps to allow data to flow freely across borders. They prioritize transparency and participation by interested persons in policymaking, including in their fellow Trade BFFs.

9. Join forces to fight for their shared futures. All countries sharing the values of democracy and liberty should work together and rip out trade barriers among like-minded friends. They can work together to confront trade bullies and provide more market access to each other in the face of bullying. They avoid policies that bully their fellow Trade BFFs.

10. Communicate with each other clearly and often. One key to any friendship is an open and honest level of communication. For example, Trade BFFs talk to each other regularly about issues like IP protection and enforcement and new trade rules that benefit our people and planet. They avoid unilateral measures, which can have unintended consequences on their friendships, companies, workers, and people.

TOP TEN WAYS TO TURN TRADING PARTNERS INTO TRADE BEST FRIENDS FOREVER (TRADE BFFS)

Technology is about changing people’s lives for the better. It’s about ideas, large and small, that keep us connected, that help us move, that spark even bigger ideas. The Consumer Technology Association (CTA)® convenes companies of every size and specialty in the technology industry to move us all forward. Our “Top 10 Ways to Turn Trading Partners Into Trade Best Friends Forever” will grow our industry and every industry using technology if governments adopt these principles.

Trade BFFs should:

1. Honor their commitments to each other. Friendships are built on trust, which means Trade BFFs should bind and enforce their commitments to each other (trade pinky promises) through comprehensive, binding, and enforceable free trade agreements (trade friendship bracelets). When Trade BFFs make deep and lasting commitments to each other, they bind them in a durable way and make them public and transparent so all stakeholders can understand and use them. These binding commitments tell the bullies “Don’t even try to harm my Trade BFF!” Comprehensive and enforceable free trade agreements are trade friendship bracelets that lock in the trade pinky promises. And Trade BFFs keep and treasure their bracelets and fellow Trade BFFs.

2. Have each other’s backs. You look out for someone by helping them – not putting up barriers to their success. True friendships embody selflessness – not selfishness. For example, they should promise to spare their Trade BFFs from disruptive and harmful unilateral enforcement actions, including tariffs and import prohibitions, which would in turn spare them from inevitable retaliation. Unilateral trade measures will NOT lead to win-win cooperation. Trade BFFs are honest about their policy goals and problems and demonstrate empathy and support. Trade BFFs are in it together and live up to their sworn oaths to cooperate for the greater good. They do not stab each other in the back!

3. Work together. Friends make each other better and push each other to live up to or surpass expectations. One way to do that is to collaborate on strengthening the World Trade Organization and on multilateral and regional trade and investment efforts. Trade BFFs know that a strong and fully operational WTO is a win-win for the rule of law, reducing and preventing barriers to trade and investment, and amicably resolving disputes without resorting to unilateral trade measures, which erode trust and cause economic and reputational harm. Trade BFFs work side by side to strengthen the WTO, through their own bilateral engagements and as teammates in multilateral and regional fora. Strengthening the WTO requires sweat equity and trust building among Trade BFFs. The world will be a better place for their WTO reform efforts. 

4. Share common values – and stick to them. We value freedom, democracy, and the power of the free market. We can maintain and promote market economies by avoiding policies that intentionally displace or injure foreign competitors and making any incentives available to their domestic industries also available to industries in their Trade BFFs. Trade BFFs have dynamic private sectors and limit government intervention in the marketplace. Subsidies, for example, tell the world that your government is selfishly interested in the short-term and uninterested in long-term win-win cooperation. Trading partners often take offense when governments limit tax credits only to companies producing domestically. Such policies send the wrong signal. Trading partners will question whether written or oral words of trade friendship are just talk and whether the trading partner providing those tax credits deserves to be a Trade BFF! Trade BFFs should instead enact policies that give companies in their fellow Trade BFFs the same opportunities as their domestic companies.

5. Compete hard – but fairly. Trade BFFs develop and implement regulations that allow companies located in their fellow Trade BFFs to compete fairly on a level playing field while encouraging a race to the top through high performance. Trade BFFs know that all governments prize the right to regulate as they see fit. They also share common values that regulation should be developed in an open, inclusive, and transparent manner and reflect input from interested persons. Trade BFFs undertake regulatory cooperation, for example on higher labor and environment standards, while preventing barriers to trade and investment. Trade BFFs agree that to meet these goals, they should allow companies to focus on performance over design and drive innovation, helping their fellow Trade BFFs throughout.

6. Be empathetic and open to mutual, voluntary support. Trade BFFs take measures to encourage but not coerce industries located in their fellow Trade BFFs to trade with or invest in their economies. Policies designed to force domestic or foreign companies to move out of their Trade BFFs are not in the Trade BFF playbook. Encouragement of investment is the self-assured and confident play and leads to more optimal use of scarce capital and resources, to the benefit of the economies, companies, and people of Trade BFFs.

7. Invest in and support each other’s successes. If one friend is an expert or good at something, they use that skill or expertise to help their friends. Trade BFFs avoid irritating and disruptive investment reviews or other restrictions on investment when companies in their fellow trade BFFs seek to invest in their markets. Trade BFFs talk to each other regularly about their goals and aspirations. When one succeeds, their fellow Trade BFFs celebrate. And when governments look at possible investments by companies in their Trade BFFs designed to aid those goals, they welcome those companies with open arms. They do not adopt unilateral investment measures that signal “Our Economy is Closed to You!” Trade BFFs think the best of investments from their fellow Trade BFFs and don’t assume that all investments are threats to national and economic security!

8. Share openly with each other. Trade BFFs take steps to allow data to flow freely across borders. They speak candidly about their data policies and leverage data for the greater good of the planet and its people. Policies that restrict data flows and force companies to keep their data local by their nature are adversarial and selfish. Trade BFFs protect personal data and the right to privacy and agree on approaches with their fellow Trade BFFs to enable companies to transfer data across borders. Trade BFFs should be generous with their data, since their people and companies can solve big global problems with it and make their products and programs work even better!

9. Join forces to fight for their shared futures. All countries sharing the values of democracy and liberty should work together and rip out trade barriers among like-minded friends. Trade BFFs know a trade bully when they see one. They can work together to confront trade bullies and do not let them divide and conquer. Instead, they provide more market access to each other in the face of bullying. They avoid policies that bully their fellow Trade BFFs. Trade BFFs are also optimistic and hopeful that with the right mix of policies and actions, the bullies can change for the better and join the Trade BFF Club, no matter how long it takes!

10. Communicate with each other clearly and often. One key to any friendship is an open and honest level of communication. For example, Trade BFFs talk to each other regularly about issues like intellectual property protection and enforcement and new trade rules that benefit our people and planet. Trade BFFs are market economies that abide by the rule of law and know that innovation can come from anywhere and anyone. Their protection and enforcement of intellectual property rights for all industries provide mutual and long-term benefits to their economies, as well as the global economy. When trade bullies steal intellectual property or forcibly transfer technologies, Trade BFFs confront the bullies together and adopt joint policies for changing bully behavior.

Trade BFFs who bind the above commitments lift each other up and have each other’s backs for life! They celebrate their successes and recognize that trade jealousy is corrosive and harmful. And Trade BFFs set the most positive examples for the rest of the world, leading to better, more empathic, and economically beneficial behavior and outcomes for their citizens and companies over time.

To read the full article, please click here.

The post Top Ten Ways to Turn Trading Partners Into Trade Best Friends for Ever (Trade BFFs) appeared first on WITA.

The summit comes at a challenging time, characterized by deteriorating security conditions on the continent—reminiscent of the Cold War era—exacerbated by rising geopolitical tensions and the urgency to ramp up the energy transition and combat climate change. There is a risk that the subordination of growth and development objectives to security priorities, which has dominated US engagement with Africa, will persist in today’s highly geopolitically driven world.

The United States’ continuous prioritization of security over development (otherwise known as the securitization of development) in its engagement with Africa could be counterproductive: It could easily undermine the net-zero transition as well as opportunities for maximizing the benefits of the African Continental Free Trade Area (AfCFTA), which policymakers hope will alleviate the concentration of global supply chains for greater resilience.

Moving up the value chain

The securitization of development has been costly for both Africa and the United States and has led to the weakening of US-Africa relations. This is especially evident in the trade arena, where the United States has been losing ground at lightning speed. For decades, it was Africa’s largest trading partner, accounting for as much as 26.5 percent of total African trade in 1980 according to data from the African Export Import Bank (Afreximbank). That figure has fallen into the single digits, to around 6 percent of total African trade, with US investment on the continent having declined sharply as well.

Perhaps the most consequential factor behind the collapse of US-Africa trade has been the stickiness of the colonial development model based on resource extraction, under which Africa is relegated to participating in global value chains (GVCs) along forward rather than backward activities, predominantly as a provider of primary commodities and raw materials. Initially this model grossly inflated US-African trade—both on the export and import side of the trade balance sheet—with the United States importing crude oil from Africa and exporting refined petroleum products back to the continent.

In the modern era of global value chains, in which intermediate goods have become the leading drivers of world trade, falling US investment in Africa has blunted the expansion of US-African trade. Moreover, the predominance of natural resources in that trade has always presented a major risk. For example, as the twenty-first-century US shale boom put the country on a path toward energy independence—with advances in fracking technology lowering production costs and raising oil output—US petroleum imports declined dramatically; between 2014 and 2020, the United States cut its oil imports from Africa by around 40 percent, according to Afreximbank.

While many African countries are oil producers, they rely on imports for refined petroleum products. Under that highly carbon-intensive “round-tripping” model, Nigeria, Africa’s largest oil-producing country, for decades exported crude oil to the United States and imported refined petroleum products back to power its economy, at a huge cost in terms of macroeconomic stability, jobs, and environmental degradation.

Besides increasing the carbon footprint of the heavily polluting shipping industry, the costs of the round-tripping model are significant and go beyond dwindling trade numbers. There is a human element: People are being sickened by intense greenhouse gas emissions and wounded—or, in the worst cases, killed—in conflicts fueled by climate change and competition for scarce resources. Africa is on the frontlines of the global climate crisis, despite being the continent contributing the lowest total greenhouse gas emissions. Round-tripping has also exported jobs off of the continent, which is already contending with Great Depression-level unemployment rates, exacerbating poverty and adding to conflict-fueled migration flows.

At the macro level, the conditions created by round-tripping have long undermined the continent’s pursuit of economic stability, with sustained foreign-exchange leakages increasing the frequency of balance-of-payment crises. Africa’s position as an importer of refined petroleum products plays an outsized role in these crises, a vulnerability that leaders across the continent are looking to address. In Nigeria, for example, a new Dangote Group refinery and petrochemical plant that will come on stream early next year could, according to estimates from the Central Bank of Nigeria, save the country up to 40 percent of its foreign exchange earnings.

Ultimately, the securitization of development in US-Africa engagement has delivered neither security nor development. And the predominance of natural resources has underscored the economic and political risk to both parties, with the sharp decline of US-African trade weakening its relevance for Africa’s development in an increasingly competitive geopolitical world.

Next steps for the US and Africa

There are key questions to consider during what could be a history-making summit in Washington: Can the trend be reversed to boost US-African trade and correct the balance between security and development? And why should such a course of action be undertaken?

On the first question, increased manufacturing in Africa can help the continent diversify its exports beyond primary commodities and natural resources and integrate effectively into the global economy. In addition to its strong theoretical foundation for economic development, manufacturing has other positive spillovers including opportunities for economies of scale and productivity growth, technology transfers, integration into GVCs, and capital accumulation. Recent estimates show that this drives 20 percent of US capital investment and 60 percent of US exports.

Across the developing world, manufacturing has offered a path for low-income countries to increase their shares of global trade. One example is Vietnam, which over the course of the past decade has become one of the United States’ ten largest trading partners, leaping ahead of powerful nations such as France and Italy, according to the Africa Export and Import Bank. Vietnam has achieved this by successfully improving its connections to GVCs, including those around technology. More than 40 percent of Samsung cellphones are manufactured in Vietnam, enabling the country to reap the benefits of the frontier technology industries that are propelling global growth.

Most African countries, which possess the raw materials necessary to manufacture these and similar technology products, could achieve the same performance—if it weren’t for the colonial development model of resource extraction. For instance, the Democratic Republic of Congo, which some call “the Saudi Arabia of cobalt,” could potentially enter electric vehicle GVCs not solely as a resource provider but as provider of lithium batteries and other crucial, manufactured components.

In addition to boosting US-African trade, such involvement across GVCs would mitigate the continent’s vulnerability to adverse commodity terms of trade and improve living standards, as has been the case in Vietnam, where poverty rates have fallen sharply. Simply put, since greater backward participation in GVCs leads to higher gross exports, domestic value added, and employment, manufacturing reduces poverty—and its poverty-reducing effects are even more pronounced in low-income countries.

Turning to the second question, the benefits of increasing manufacturing output and diversifying exports in terms of growth and welfare are textbook trade theory. But there are also two additional benefits with significant geopolitical implications: The diversification of global supply chains for greater resilience and the reduction of the global carbon footprint.

The AfCFTA, which entered into force last year and is expected to catalyze competitive value chains across the continent, provides a new framework for US-Africa engagement. Beyond diversifying Africa’s sources of growth and turning the page on the costly round-tripping model, the agreement has the potential to cut carbon emissions significantly by facilitating the net-zero transition and promoting the diversification of global supply chains. The latter is especially important for building greater resilience in today’s geopolitically tilted world, where trade is increasingly treated as another weapon in superpowers’ arsenals.

There are other reasons for the United States and the world to prioritize Africa in the decentralization of global supply chains. The continent’s young population positions it as a growing consumer market, and shrinking the distance between production and consumption would further alleviate the global carbon footprint during the net-zero transitional period. Simultaneously, economies of scale associated with the AfCFTA will further boost productivity and returns on investments, especially as corporations take advantage of regional integration to spread the risk of investing in smaller markets and, in the process, strengthen investment and trade and lift African exports.

Transcending the colonial development model of resource extraction could position a reforming Africa as the next great frontier market for global investors chasing high yields and resilient supply chains amid today’s rising geopolitical tensions. Earlier this year, US Treasury Secretary Janet Yellen promoted “friend-shoring” to shift supply chains away from countries that present geopolitical and security risks to supply chains. It is up to the United States to change its ways and make new friends during its second US-Africa Leaders Summit.

Hippolyte Fofack is the chief economist at Afreximbank.

To read the full piece, please click here.

The post US-Africa Leaders Summit Could Make History—If Leaders Recalibrate Trade Relations appeared first on WITA.