After 40 years of reform and opening up, China is now the world second largest economy, next to the United States. China's GDP has experienced exponential growth over the past decades, successfully breaking the barriers of a centrally-planned and closed economy to evolve to a modern, dynamic and progressive manufacturing and exporting hub of the world.

Trading giant

China's success has earned it global fame as the "world's factory" because of its huge manufacturing and export base. China's sustained economic growth and the success of Chinese exports in global trade have made it a major player in the global economy, displacing decades-old dominance of the other major players.

Data from the International Trade Center indicated that in 2017 China was the world's leading exporter by value, accounting for $2.263 trillion worth of products across various economies in the world. From a continental perspective, about 48.5 percent of the Chinese exports by value were delivered to fellow Asian countries while 22 percent were bought by North American importers. China also shipped 18.9 percent worth of goods to Europe. At 4.2 percent, a smaller portion of Chinese exports were bought by importers in Latin America (excluding Mexico) and the Caribbean, 4.1 percent went to Africa and 2.3 percent to the other parts of the world.

The United States, on the other hand, has been the largest economy in the world since 1871, with a nominal GDP of $19.39 trillion in 2017, ahead of China with a nominal GDP of $12.25 trillion. The Chinese and the U.S. economies play a critical role in the global economy, contributing significantly to the growth of infrastructure, technology and utilization of resources in most developing countries, particularly in Africa.

Central Economic Work Conference

The election of President Donald Trump to the White House in 2016 has led to a policy shift which is slowly rearing its ugly head in the global economy.

During his election campaigns in 2016 and in an attempt to make "America Great Again," Trump made a pledge to fix China's "longtime abuse of the broken international system and unfair practices," signaling an era of trade friction between the two nations. Trump has already imposed tariffs on Chinese imports estimated to rise to $250 billion worth of imports by the end of his first term.

The Chinese Government did an impact analysis of the U.S.-launched trade friction on its economy and in December last year, China held a three-day Central Economic Work Conference (CEWC) – convened by the Central Committee of the Communist Party of China and the State Council. The attendees included Chinese President Xi Jinping, Premier Li Keqiang, Vice Premier Liu He and Chinese senior policymakers, whose key objective is to set out the government's economic policy for 2019. Key on the agenda of the CEWC was the question of how to respond to the negative effect on the domestic economy motivated by the trade friction. According to a statement released after the conference, China has deepened the supply-side structural reform, pushed forward reform and opening up with greater efforts, properly dealt with the Sino-U.S. economic and trade frictions, improved people's well-being, and maintained sustained and healthy economic development as well as overall social stability.

The focus of the deliberations was on the policy priorities that the government needs to take to minimize the impact of the trade friction despite the existing 90-day trade friction truce that began on December 1, 2018.

Global effect of trade friction

The trade friction has caught the attention of countries such as Canada, India, Mexico, Russia and Brazil, among others, with a cloud of fear and anxiety hanging over both the private and public sectors about the potential spillover effects of the trade friction between the two largest economies of the world. Global financial sector players, too, have added their voice on the potential harm that the trade friction poses to the global economy.

In September last year, Philipp Hildebrand, Vice Chairman of BlackRock, an American global investment management company, opined that "the [protectionist] policies that are embraced by the U.S. administration around trade represent the biggest risk today to the global economy." The trade friction raises the question of how the collision between these two largest economies of the world will impact the rest of the globe, and nowhere in the world could the impact be felt more than in Africa.

Despite the U.S.-launched trade friction, China will not change its policy to Africa and China-Africa cooperation continues to grow. At the Beijing Summit of the Forum on China-Africa Cooperation in 2018, China announced eight major initiatives to further strengthen Sino-African cooperation and pledged $60 billion to back the cooperation. For policymakers in Africa, the best strategy is to "prepare for the worst and hope for the best" by formulating clear and coherent policies, improve the ease of doing business and foster economic integration. The prioritization of strategically important sectors that exploit emerging opportunities will be a key pillar of the mitigation plan. The IMF estimates that the China-U.S. trade friction will shrink the global economy's GDP by 0.5 percent with serious consequences to come if the existing truce talks collapse.

In Asia, the trade friction is expected to send adverse shock waves across Asian economies. There are fears that Asian economies will be seriously impacted because of its high degree of supply-chain integration with China's manufacturing and assembly operations. The trade friction will also lead to a slump in global trade. International trade in goods has already fallen partly due to the currency effects and changes in commodity prices. Most developing countries are afraid that the trade fiction exposes them to the possibility of a slowdown in financial portfolio inflows leading to exits in search of safe haven assets. This will result in slowdown in trade, particularly in countries exporting energy, metals and minerals. Globally, there is high inflationary risk on the global economy occasioned by the impact of the U.S. tariffs resulting in an increase in prices for U.S. consumers from higher costs on input materials for the affected products. This trend will reverberate, on different scales, across various economies of the world.

By raising the cost of Chinese products in the U.S. market, the trade friction could also lead to diversion of investments toward developing countries. This diversion would likely concern mainly Chinese investments seeking to by-pass U.S. import tariff hikes.

Countries in Asia and Africa are likely to be the greatest beneficiaries of these diversionary investments and so there is need to position themselves strategically as the alternative investment destination for the Chinese investors and continue forging closer partnerships with China for sustainable growth and development.

(Comments to niyanshuo@chinafrica.cn)