With the attention of US policymakers focused on the protracted battle against Islamist terrorists in Iraq and the Israeli-Hizbollah conflict in Lebanon, a trade deadline with China that could have dire consequences is quickly approaching with little notice.
Henry Paulson, the new US Treasury secretary, has indicated that one of his priorities is to reduce the swelling trade deficit with China, which costs the US more than $1bn a day in debt service. However, America’s preoccupation with the Middle East and China may present even greater “opportunity costs” in terms of lost chances to expend its attention, influence and resources in other parts of the world. A strong US focus on reducing poverty in Africa may be the best opportunity to turn the tide in the war on terror and close the trade deficit with China.
Among America’s many global obligations is its commitment to the United Nations Millennium Development Goals to halve global poverty by 2015. Presently, the US provides only 0.17 per cent of gross domestic product in foreign aid to the developing world – far behind its promise of 0.7 per cent and next-to-last place among developed countries. The US will not meet this obligation amid fiscal deficits projected to exceed $5,000bn over ten years.
Foreign entities own half of America’s publicly traded debt; more than $900bn in foreign currency reserves are held by China alone. One knee-jerk response from Congress has been to threaten a 27.5 per cent tariff on all Chinese imports to the US to penalise Beijing for undervaluing its currency. Both Republicans and Democrats predict that, if voted on today, the stiff tariff would pass, but Congress has given Beijing until September 30 to revalue its currency.
While the central bank of China has allowed the renminbi to trade within a wider band and announced that exchange-rate appreciation could “play a role in addressing international payments imbalances”, Beijing will not be bullied. It is unlikely that enough movement will be made by September 30 to satisfy protectionist trade hawks in Congress. These twin engines of global economic growth appear to be on a course that will only aggravate their tenuous relationship. This is where Africa can provide common cause.
Even though 34 of the world’s 48 poorest countries are in sub-Saharan Africa, foreign aid as a percentage of GDP in that region declined from 6.4 per cent in 1990 to 5.9 per cent in 2003. US foreign aid expenditures to Africa add up to barely $6 per African per year. Even though President George W. Bush has pledged to double aid to Africa by 2010 and the Group of Eight industrialised nations agreed to cancel the debt of 18 of the poorest countries in the world, these noble financial commitments are woefully insufficient.
The US has long been Africa’s largest trading partner, but China is catching up fast. Since 2002, China-Africa trade has quadrupled to about $40bn a year. In recent months, China has made huge trade and investment deals with Ghana, Kenya, Sudan and Nigeria.
The Bill & Melinda Gates Foundation’s focus on Africa is welcome. Warren Buffett’s decision to pour his fortune into the Gates Foundation is also positive, but will only increase annual outlays to about $1.5bn a year – not all of it targeted to Africa. Clearly, no adequate solution can be found that does not involve China and the US.
Both these countries are in the top ten in the world in terms of entrepreneurship talent and focus, according to a recent study by the Kauffman Foundation in the Global Entrepreneurship Monitor. A recent World Bank
study has found that micro-enterprise investment for entrepreneurial activities is much more successful in helping poor families achieve economic
prosperity than traditional foreign aid.
What we need is a new type of Peace Corps, an “Entrepreneurial Corps” of faculty, students and business leaders from both China and the US in partnership with African entrepreneurs. If China contributed $20bn in US dollar-denominated reserves per year through 2015 to fund this effort, the financial obligations the US owes China would become entrepreneurial investments in Africa. This would satisfy America’s Millennium Goal obligations and allow China to save face in the run-up to an impending trade war with the US.
Archbishop Desmond Tutu recently stated that the war on terror will not be won as long “as poverty, squalor, ignorance and disease make [men and women] desperate”. What do we have to lose by co-operating with China to invest in Africa? Given the opportunity cost, we can ill afford not to.
The writer, dean of the School of Global Commerce and Management at Whitworth College in Spokane, Washington, is a former resident and a lecturer and consultant in China