Kenya could become a secondary casualty of the ongoing trade wars between the United States and China, whose economic conflict is turning into a battle of egos.
On Wednesday, March 5, the Chinese Embassy in the US made a huge statement, saying China is "ready to fight a war if that is what the United States wants", a reaction that comes amid President Donald Trump's tariffs.
Trump's new administration moved to impose an additional 10 per cent tariff on Chinese goods on top of the 10 per cent already in place, with the new tariffs taking effect on Tuesday. Mexico and Canada were also slapped with hefty tariffs, highlighting the US's intent to penalise economies it perceives as adversaries.
In a retaliatory move, China resorted to countermeasures against Donald Trump's tariffs, including slapping tariffs on a range of crucial agricultural products that Washington exports to Beijing. On Tuesday, China's finance ministry insisted it would impose additional tariffs of between 10 per cent and 15 per cent on agricultural products ranging from dairy and beef to non-animal products like soybeans and corn.
Notably, China has not only slapped tariffs on US products such as soybeans, sorghum, pork, beef, aquatic products, fruits, and vegetables, but it has also placed restrictions on 25 US firms.
Impact on Kenya
Amid the tariff wars, other nations, including Kenya, are watching with anxiety, as they anticipate possible ripple effects.
For Kenya, the fact that President William Ruto's government is a huge investor in China and the US as far as imports and exports are concerned should pose a great point of concern. Kenya heavily relies on both superpowers, who are some of the highest consumers of Kenyan exports, including tea, coffee and flowers.
These exports could take a hit, as prolonged tensions between China and the US could lead to a slowdown in global trade.
In addition, the tariff wars could lead to higher import costs of Chinese products to Kenya. If US-China tensions lead to higher costs for Chinese manufacturers, these costs could be passed down to Kenyan retailers and subsequently consumers.
With the US being a major source of foreign investment in Kenya, particularly in sectors such as technology, infrastructure, and finance, the recent fall in stock markets could potentially repel investors from developing markets like Kenya.
When US stocks decline, as was the case on Tuesday, investors often move their money to "safe" assets such as the US dollar. This increases demand for the dollar, making it far stronger than the Kenyan shilling.
A weaker shilling makes imports more expensive, effectively raising the cost of goods in Kenya.
On the other hand, the trade wars could also potentially provide an opportunity for Kenya, which could step in as a stronger trade partner, particularly with the US. With signs pointing towards the US reducing reliance on Chinese imports, the superpower could turn to Kenya for more exports.
Since the US already offers Kenya duty-free access to the American market for certain goods under the African Growth and Opportunity Act (AGOA), Kenya could capitalise on the trade wars with China to exploit the supply chain disruption.
Agriculture continues to be the backbone of Kenya's economy, contributing at least a third of the country's GDP. Farmers, therefore, could be presented with the opportunity to upscale their agricultural exports to replace Chinese suppliers.
