Trade Tensions: How will US tariffs impact Africa-China clean energy trade?
The economies of Africa’s 54 countries will see ripple effects from the new US tariff regime, especially as it relates to trade with China, because China is Africa’s biggest trading partner. Given Africa’s central role in providing the raw commodities that are the base materials for products manufactured in China, both countries are part of a clean energy supply chain loop that originates in Africa, passes through China, and is dispatched globally.
The economies of Africa’s 54 countries will see ripple effects from the new US tariff regime, especially as it relates to trade with China, because China is Africa’s biggest trading partner.
Africa’s exports to China consist primarily of raw materials, reflecting China's demand for resources to fuel its industrial and economic activities. At the same time, Africa relies heavily on China for technologically advanced products, such as electronics, electrical equipment, and machinery. Given Africa’s central role in providing the raw commodities that are the base materials for these advanced products, both countries are part of a clean energy supply chain loop that originates in Africa, passes through China, and is dispatched globally.
Key Takeaways
- China is Africa’s most important trading partner, with China buying three times and selling six times as much as the US in African trade. Therefore, changes to US trade policy are important not only for their direct effect on African countries, but also for their indirect effect on Africa-China trade.
- China-Africa trade plays a central role in the energy transition, with Africa supplying critical minerals like cobalt, lithium, and copper to China, and importing renewable energy technologies, including EVs and solar panels, from China.
- A new round of US tariffs could slow the growth of the Chinese economy and depress China’s demand for imports from Africa. However, over the long term, the demand for African critical minerals will continue to rise because there is a fundamental shift toward clean energy technologies globally.
- This shift creates both opportunities and risks for African countries. While the continent could capitalize on export growth and generate foreign exchange revenues, without changes in trade policy this growth may reinforce Africa’s role as the world’s raw materials provider, and undermine value added production and economic diversification in African countries.
- Even before Trump takes office, increased tariffs on imported EVs and batteries were already enacted by outgoing President Joe Biden. The prospect of another round of US tariffs creates strong incentivizes for Chinese companies to amplify their distribution in Africa. Distribution of lower-cost lithium-ion batteries, photovoltaic cells and electrical transformers to Africa could facilitate faster growth of the African renewable energy industry. However, an increase in the sale of finished EVs and other consumer goods from China to Africa could foster price competition with local assemblers.
- In 2023, African imports from China reached $128 billion, largely comprised of machinery and equipment. The top five imported product categories are telephones, batteries (including lithium-ion), electrical transformers, semiconductors, and electric generators. These products are part of a clean energy supply chain loop that originates in Africa, passes through China, and is dispatched globally.
Impact
The evolving US tariff regime may impact multiple sectors of African economies:
- Effect on China: Higher consumer costs in the US reduce demand for Chinese imports.
- Ripple Effect on Africa: This decline in demand could reduce Africa’s exports of key raw materials such as cobalt, copper, and oil—at least until alternative processing hubs are established outside of China.
- Example: Tariffs on lithium-ion batteries may reduce US demand for electric vehicles, which in turn could lower cobalt exports from African producers like the DRC.
- Effect on China: Retaliatory tariffs imposed by China disrupt global supply chains and increase the cost of goods.
- Ripple Effect on Africa: These disruptions lead to higher import costs and shipment delays across global markets, including Africa.
- Example: Machinery prices in Africa rise as a result of Chinese counter-tariffs on US exports.
- Effect on China: China seeks to reduce dependency on the US by expanding into new markets and forming alternative trade partnerships.
- Ripple Effect on Africa: African agricultural products may replace US goods in China, and Chinese manufacturers could expand their distribution presence across Africa.
- Example: During earlier trade tensions, South Africa and Zimbabwe experienced increased export volumes to China.
- Effect on China: Chinese companies move operations abroad to avoid high tariffs.
- Ripple Effect on Africa: This creates opportunities for African nations to attract new manufacturing investments.
- Example: South Africa is being positioned as a regional manufacturing hub under free trade arrangements.
Key metals and minerals exports:
- Impact of Tariffs: Africa’s major copper exporters—including the Democratic Republic of the Congo (DRC), Zambia, and South Africa—may experience a short-term decline in demand due to reduced Chinese exports to the US. However, this is expected to rebound over time as the global shift toward renewable energy drives long-term growth in copper demand.
- Impact of Tariffs: The DRC, which is the world’s largest exporter of cobalt, could see reduced demand stemming from a decline in battery sales from China to the US. This drop in demand is linked to heightened US tariffs on Chinese-made lithium-ion batteries.
- Impact of Tariffs: Nine African countries are emerging as new lithium sources—joining Zimbabwe, a current major exporter. These include the DRC, Namibia, Mali, Ghana, South Africa, Mozambique, Tanzania, Ethiopia, and Nigeria. As global supply increases and the US seeks to diversify away from China, significant price volatility is expected in the lithium market.
Clean energy imports:
Electric Vehicles (EVs)
- Critical Minerals: Lithium, Cobalt, Nickel, Copper, Graphite, Aluminum, Manganese, Rare Earth Elements
- Impact of Tariffs: The US has imposed a 100% tariff on Chinese-made EVs, which is expected to reduce Chinese EV exports. However, Africa may see a rise in the availability and adoption of second-hand Chinese EVs as a result.
Lithium-Ion Batteries
- Critical Minerals: Lithium, Cobalt, Nickel, Graphite, Manganese, Aluminum
- Impact of Tariffs: The tariff on Chinese lithium-ion batteries has increased from 7.5% to 25%. This is driving Chinese manufacturers to diversify their export destinations, particularly toward Europe and Asia.
- Semiconductors
- Critical Minerals: Silicon, Gallium, Germanium, Arsenic, Copper, Tin, Rare Earth Elements
- Impact of Tariffs: A 50% tariff on Chinese semiconductors is scheduled to take effect by 2025. This is expected to reduce US demand for Chinese chips, prompting redirection of exports to alternative markets such as Africa.
Electrical Transformers
- Critical Minerals: Copper, Iron, Steel, Aluminum, Silicon, Cobalt
- Impact of Tariffs: A 25% US tariff on electrical transformers is likely to impact both Africa’s renewable energy infrastructure projects and copper-producing nations by affecting supply chain costs and project economics.
Regional Case Studies
South Africa's automotive industry
Opportunities:
- Potential for domestic EV manufacturing, with government incentives starting in 2026.
- A Chinese push to relocate EV manufacturing could attract investment into South Africa’s automotive sector.
Risks:
- Increased tariffs could raise production costs for vehicles and parts in South Africa.
- More expensive imports may reduce demand for vehicles.
- South African vehicles may face reduced competitiveness due to cheaper Chinese cars.
Ghana's electric mobility sector
Opportunities:
- Shift in Chinese exports could lead to more favorable terms for Ghana’s importers.
- Potential for Chinese companies to establish local production in Ghana.
- Future opportunities for investment in Ghana's telecommunications and charging. infrastructure which facilitates connectivity and adoption of EVs.
Risks:
- Tariffs may lead to global supply supply chain disruptions which raise import costs.
- Chinese EV companies may increase competition in the African market, lowering prices for consumers but undermining emerging local industry.
The Lobito Corridor
- The US-sponsored Lobito Corridor connects the DRC to Angola’s Lobito port, providing a strategic alternative trade route for exporting minerals to the Atlantic Ocean.
- The corridor is pivotal for expanding the DRC’s access to broader international markets.
Opportunities
- Renewable energy adoption: Cheaper availability of Chinese goods such as lithium-ion batteries, photovoltaic cells, and electrical transformers, could accelerate the growth of the renewable energy industry in Africa.
- Local production: Chinese companies’ efforts to reconfigure their supply chains could lead them to relocate manufacturing plants to Africa. Examples include EV manufacturing plants in South Africa, the local assembly of technological telecommunications equipment in Ghana, or the set-up of lithium-ion battery production plants in the DRC.
- Foreign exchange: The export of critical minerals presents an opportunity for African governments to earn foreign exchange income, and attract Foreign Direct Investment in security, ports and roadways necessary to transport exports efficiently.
- Critical minerals refining: African countries could build capacities for local refining operations, leveraging imported technologies and managerial talent over the near term, and transitioning to natively managed operations long-term.
- Regional trade: For Africa, a trade war between the US and China could nudge African countries to prioritize the goals of the African Continental Free Trade Area (AfCFTA), in order to reduce trade dependency on individual countries.
- Industrial policy: Governments that prioritize local processing of raw materials (tax breaks, subsidies, industrial parks, etc.) could take advantage of shifting trade flows and the clean energy boom to advance industrial policy.
Risks
- Reduced earnings for African exporters: Amid higher US consumer prices and reduced spending, Chinese manufacturing activity could be reduced, causing a squeeze on demand for African commodities.
- Higher costs for African importers: In the case of a China-US trade war, retaliatory tariffs implemented by China would lead to higher costs for China’s manufacturers, which would reflect in higher prices of machinery, equipment, etc. exported to Africa.
- More competition for African domestic industries: Heavy imports of Chinese manufactured goods may stifle African industries, as they struggle to compete with cheaper imports.
- Reduced prospects for African industrialisation: reduced opportunities for industrialisation in Africa, driven by an intensification of the trade imbalance between Africa-China, may be exacerbated by a global push for critical minerals extraction.
- Economic volatility driven by cyclical demand for critical minerals: Demand for critical minerals like cobalt, lithium and graphite is cyclical, depending on fluctuating factors such as technological trends, macroeconomic conditions, and market-specific dynamics.
- Reduced FDI to Africa: Chinese investment in African infrastructure development is already on the decline, and could be further reduced by dampened Chinese economic growth.
- Unpredictable regulations: Political pressure and economic volatility may spur African governments to reactively regulate import or export activity in response to changing trade dynamics, making it difficult for businesses and outside investors to predict profitability and returns from their African investments.
- Reinforcing regional disparities: The race for critical minerals might create a ‘Wild West’ effect in economies where corruption and economic instability undermine public policy.
Conclusion
Africa's position, as both a key provider of critical minerals and a fast-growing consumer of renewable energies, places it at the center of potential shifts in trade dynamics. While tariffs could temporarily dampen the growth of African trade with China, shifts in global trade alliances will open new opportunities for Africa to diversify its economies and integrate into global supply chains.
By capitalizing on trade diversification and supply chain reconfiguration, African nations have the potential to develop domestic manufacturing capacities, such as EV assembly, battery production, and refining operations for critical minerals. These measures have the potential to transform local economies and foster sustainable growth.