The current global economic climate is becoming increasingly complicated and unpredictable as US allies respond with inward looking protection measures and align with the US to create a global supply chain less reliant on China.
This has the potential to create far-reaching ramifications for Africa. The Biden administration has implemented protectionist industrial policy measures and legislation that may exacerbate the economic fragmentation of the global economy.
The possible consequences of this trend include reversed global economic integration, harmed productivity growth, halted regional integration initiatives, reduced access to investment, higher inflation rates, and increased costs of imported goods for African countries.
The US-led subsidy push and export controls are fragmenting the global economy by redirecting supply chains from China. This will ultimately reduce gains that have been made in increasing integration of international goods and investment markets, including higher global output growth, the opportunity to take advantage of new technologies and lower costs for businesses and consumers.
In addition, the continent stands to lose the most from global economic fragmentation; the cost to the median African country could be as high as 4% of GDP.
To mitigate these effects, a priority of Africa and US policy makers should be to promote investments to build strong regional supply chains.
They should also enable Africa to take advantage of technologies like digitalisation, which can boost trade through e-commerce and capitalize on any positive effects to drive growth and diversification of trade with Africa under the African Growth and Opportunity Act.