Jan. 25, 2023

America's Trade Problem Begins In The Factory

The Biden Administration is rolling out the Red Carpet for the nations of Africa. It began in mid-December, when President Biden, Secretary of State Anthony Blinken, and Secretary of the Treasury Janet Yellen hosted the US-Africa Leadership Conference, the first such overture to Africa in nine years.

Secretary Yellen is in Africa, visiting several nations on the continent. She will return this Saturday after spending over a week and a half. Moreover, there is the promise that President Biden will visit Africa later this year.

That's a lot of diplomatic firepower. Just when there are so many hotspots around the world. These include the NATO response to the Ukraine conflict. How to deal with the problem of inflation, Yellen will return just in time for the next meeting of the Federal Reserve. And, of course, there's that little matter of newly discovered US Documents that the President may want to address.

So why devote all this time and energy to Africa? It seems like an odd choice, one that most America Presidents have chosen to ignore.

There is a straightforward reason Biden is devoting time and energy to Africa: to boost American trade. A place to sell American goods. The recognition that Africa may be the last significant market.

There are a couple of reasons that Africa is a significant emerging marketplace. One is demographics. Africa and India are the two places with a substantially growing population. Any economist worth their salt has already projected tremendous growth in demand as Africa's population continues to balloon.

Africa is also growing rich from its abundant natural resources, such as gold, uranium, and cobalt. Rare earth minerals and metals that advanced high-tech economies need. African oil from Nigeria and Diamonds from South Africa have provided bountiful income for those countries.

Throughout the tenure of Chinese General Secretary Xi Jinping, Africa has been one of his top priorities. Upon his inauguration in 2013, his very first foreign trip of State was to Africa. This is the most likely reason the US is now so interested in Africa, the looming presence of the Chinese Dragon.

While the Americans have sat on their hands, sending a small delegation to visit Africa every year or two. Xi has made it a central focus to meet and understand the African leaders and develop business relations. In the past decade, China has sent 79 diplomatic missions to Africa. Dramatically out-pacing the Americans.

And it has paid off. China has just announced that Chinese Trade with Africa exceeded $280 billion (US Dollars) last year. In contrast, the American trade with Africa was less than one-tenth that level, about $23 Billion.

A quick look at the Chinese and American product selection presents a disturbing picture of China's trade dominance.

An insightful picture emerges as we examine the trade between the United States and China. Each country sells to the other those goods for which they have a competitive advantage. I'm looking here at Trade in Goods, not services or intangibles. Much of the American economy is made up of high-tech, intangible services provided. Services such as Google/Alphabet, Facebook, and so on. We'll exclude those kinds of companies and look at goods we trade with China and vis-a-versa.

Three areas in American production currently have a surplus in its trade with China, Boeing Aircraft and parts, Automobiles, and Integrated Circuits. Take those three away, and, by and large, we sell basically agricultural and mining items to China. Such as Soybeans, our number one product, oil, and coal. These are not manufactured goods. They are not items that are in short supply in Africa. We can find all these agricultural or mining products on the African continent.

On the other hand, for a quick survey of the products supplied by China to the US, take a walk down any aisle in Wall Mart or any different American retail store of your choice. Predominantly these goods are made in China. Long ago, the Chinese took over the American Consumer Market and wanted to do the same in Africa. These are just the items that many African consumers will wish to have.

While I applaud the Biden Administration's effort to enhance our trade with Africa, it's the right thing to do.

However, there may be a more important matter at hand. The simple understanding is that China took over the American markets because Americans, by and large, did not want to make those low-profit margin retail goods that were the foundation of our manufacturing base. We found it cheaper to ship those production lines to, wait for it, China.


While it is a noble effort by the Biden crew to expand our exports, we must ask, what will we sell to the Africans? Until America returns to making things, we'll have little to sell. And I'm afraid our trade picture will continue to look bleak.