Mendez-Parra: Global value chains set to realign

The global trade war has taken a significant turn as the Chinese government imposed 125 per cent tariffs on United States goods. This retaliatory move is sending shockwaves across the global economy, impacting global trade, economic growth, and the operations of the global value chains that have been the backbone of the international trade system for the last four decades. To understand the implications of these developments, CNBC Africa's Aby Agina sat down with Max Mendez-Parra, a Research Fellow at the Overseas Development Institute (ODI). Mendez-Parra highlighted the immediate impacts on trade and economic growth, with forecasts already hinting at the repercussions. The financial sector has not been spared, with the perception of risk affecting key benchmark instruments like US treasury bonds. Even though tariffs have been rolled back to some extent, the uncertainty lingers, casting a shadow over the global economy. When asked about the motives behind the US's tariff measures, Mendez-Parra shed light on three objectives. Firstly, to boost tariff revenue, albeit the feasibility of generating the figures touted by President Trump remains in doubt. Secondly, to revive economic activity in sectors outsourced over the years, hinting at a form of import substitution industrialization. And thirdly, to address the persistent trade deficits through tariffs. However, he cautioned that achieving all three objectives simultaneously with tariffs is a challenging task. The discussion then delved into the potential realignment of global trade and its implications for developing economies. Mendez-Parra underscored the threat to the economic development model that countries in Africa and other developing regions have relied upon for decades. The disruption caused by the tariff measures could lead to structural challenges, especially for countries integrated into global value chains. Furthermore, the unequal treatment of developing countries in the tariff implementation exacerbates the situation. Some nations have been disproportionately affected, further widening the gap within regions like Africa. While certain countries might benefit marginally, the overall impact on the global economy demands urgent attention and cohesive policy responses. As the conversation turned to safeguarding emerging economies from the trade turbulence, Mendez-Parra emphasized the need to avoid retaliatory measures due to the limited impact smaller nations can have on the US. Encouraging collaboration with the European Union, China, and other major economies, he advocated for a united front to address the challenges in the global trading system. Looking ahead, Mendez-Parra highlighted upcoming opportunities like the G20 summit and the next WTO ministerial conference as platforms to negotiate solutions. The effective implementation of the African Continental Free Trade Agreement (AFCFTA) also emerged as a crucial factor in stabilizing the global economy. In conclusion, the escalating trade tensions between the US and China have far-reaching implications that go beyond economic boundaries. The need for multilateral cooperation and strategic dialogue becomes more urgent as the global economy navigates through this turbulent period.