Dr. Mahamudu Bawumia, the former Vice President, has warned that employing tariffs to address trade imbalances is misguided, emphasizing that these deficits stem from macroeconomic factors rather than shortcomings in trade policy.
During his address at the International Democracy Union (IDU) Forum in Brussels on Saturday, May 17, Dr. Bawumia addressed inquiries regarding the impact of trade weaponization on African economies, especially Ghana, and discussed potential strategies to bolster the continent’s economic resilience.
Policymakers are progressively overlooking both economic fundamentals and historical lessons,” he stated. “When examining global trade shares, Africa accounts for merely 2.5% of exports and 2.9% of imports, whereas Asia, Europe, and the United States significantly dominate trade flows, resulting in considerable imbalances.
Dr. Bawumia contended that imposing tariffs does not resolve the underlying issues causing trade deficits. “Tariffs cannot rectify a trade deficit; they are ineffective,” he stressed.
In further elaboration, he referred to the national income identity, indicating that a trade deficit signifies a disparity between a nation’s savings and investments. He stated, ‘When a country spends beyond its savings, it incurs a trade deficit. This is a macroeconomic issue rather than a trade policy concern.’
He provided historical instances, including the Smoot-Hawley Tariff Act of the 1930s in the United States, which exacerbated the Great Depression, and the U.S.-China tariff conflict of 2018–2019, which adversely affected global trade.
He cautioned that the recent rise in average U.S. tariff rates from 2.4% to 10% represents the most significant increase since 1943, with considerable implications.
Shifting the focus to Africa, Dr. Bawumia recognized that the continent is relatively shielded from U.S. trade disturbances, with Africa exporting 6.5% and importing 4.4% of goods to and from the U.S. Nevertheless, he pointed out that nations like Lesotho, where textile exports to the U.S. constitute 50% of their total exports under the African Growth and Opportunity Act (AGOA), are at risk.
Dr. Bawumia forecasted that Africa’s reaction to global trade disruptions will involve a renewed emphasis on self-sufficiency and enhanced intra-African trade relationships.
