Collateral damage from America's myopic mercantilism
Why US economic policies may be bad for the global energy transition and especially for Africa
The ongoing trip to Africa by Vice President Harris is the latest attempt by the US to convince our African allies that we’re not just finger-wagging selfish nationalists. IMHO, she made a good case in Ghana by emphasizing private investment and mutually-beneficial security cooperation. We should expect more positive respectful themes when President Biden visits the continent later this year. 👏👏👏
Yet I couldn’t help but think of the real-world knock-on effects of the Biden Administration’s trade, industrial, and climate policies such as green subsidies in the Inflation Reduction Act, new Buy America provisions, and tighter supply chain rules. These policy shifts intend to simultaneously meet three goals:
Squeeze China
Reshore manufacturing jobs to the United States
Speed the global energy transition by investing heavily in green tech
US policy changes are already reshaping global supply chains in ways that will absolutely affect African nations – including their relations with China, their industrialization and job goals, and their own transitions to cleaner and more abundant energy. But not necessarily in a good way.
Let’s start by acknowledging the big question of whether this approach will work for America. “...the protection and promotion of US-located manufacturing against foreign competition is not only unnecessary for industrial policy’s success—it will defeat the worthy purpose of it,” writes Adam Posen, president of the venerable Peterson Institute in the latest cover story for Foreign Policy. Posen rips the administration’s international economic policies for being:
“…based on four profound analytic fallacies: that self-dealing is smart; that self-sufficiency is attainable; that more subsidies are better; and that local production is what matters. Each of these assumptions is contradicted by more than two centuries of well-researched history of foreign economic policies and their effects.”
I recommend the full article, but Posen’s bottom line: the Biden approach won’t actually help the United States meet its three big goals. But what of the likely effects on African countries? Posen only (indirectly) mentions one :
“...if the United States and Europe agree to discriminatory manufacturing subsidies, and only China can afford to compete, it tells the rest of the world that their aspirations for development do not matter.”
Ouch.
The most optimistic view I can imagine is that US subsidies will speed up the development and adoption of new energy technologies that will (eventually) trickle down to Africa. A breakthrough in battery technology or faster commercialization of smaller next generation nuclear, for example, would likely be very good for Africa… one day.
But I can think of at least five other ways that I’m worried about collateral damage to Africa from the Biden team’s economic approach.
Forcing countries to pick sides is counterproductive and dumb. I’m all for using diplomatic pressure to isolate Russia over the Ukraine invasion or pressing for greater transparency in Chinese infrastructure deals. But the crude ‘you’re with us or you’re against us’ threats (which continue with a bit more nuance under Biden than the previous administration) is both insulting and ineffective. Ghana’s Nana Akufo-Addo summed it up perfectly at his presser with Harris: “There may be an obsession in America about Chinese activities on the continent. But there’s no such obsession here.”
Green protectionism could wind up replicating colonial trade patterns – AKA the chocolate problem. If mineral processing and manufacturing for the new green economy is being shifted out of China and into the US itself (or to other allies that are able to secure exceptional treatment), we’re just consigning mineral producers to a future of raw exports. That will (correctly) be seen in African capitals as a threat to jobs and especially to their aspirations to benefit from greater value addition in global supply chains. A simple comparison is that Ghana exports a lot of cocoa to Europe, but produces very little chocolate. A repeat of this pattern with the green economy is not going to be acceptable to African leaders. (Anca Gurzu has a nice short summary of this in Cypher.)
Rising protectionism could close Africa’s modest window into the US market. I don’t think it’s too dramatic to say that the entire (US-built) open global trading system is under existential threat, in part because of short-sighted US policies. Again, this shifted dramatically under the previous administration, but largely continues today. More specifically for Africa, bilateral US trade has been governed for the past 23 years by the African Growth and Opportunity Act (AGOA), which provides duty-free access for most goods. AGOA expires in 2025 which is an opportunity to modernize the terms – or it could provide a vehicle for locking in more protectionism under a green or anti-China cover. I’m certainly worried.
Higher costs for new energy tech will absolutely slow adoption. US subsidies could accelerate new technologies but, by definition US rules dictating domestic supply chains will drive up the costs of green technology. Put another way: Does anyone on the planet think American solar panels will be cheaper than Chinese ones? Californians may be able to absorb the higher costs, but Tanzanians won’t. So US policies aimed at capturing greater market share will inevitably mean slower tech adoption – and thus worsening inequality.
Where’s the green money? The US government talks big about climate finance and new tools to spur clean energy investment. See 2021’s B3W or 2022’s PGII. But the actual record is pathetic. As I wrote about previously, under the Biden administration, the primary US agency for spurring overseas infrastructure has approved financing for just *one* utility-scale renewable project across all of Africa (a 20 MW solar farm in Malawi).
Africa’s solar potential is obvious, but actual deployment of any scale is missing. Here are a few sobering facts from IRENA’s latest Renewable Capacity Statistics for 2022:
The 56 nations of Africa account for 1.2% of world installed solar
Fully half of this is South Africa (6.3 GW) and 74% is in just 4 countries (SA, Egypt, Morocco, Algeria)
The next four are Kenya (307 MW), Angola (297), Senegal (263), and Mali (229), leaving a meager 2.2 GW for 48 countries.
Yes, yes, there are many reasons why more renewable projects are not getting built that have nothing to do with US policy shortcomings. And, yes, of course, the US has valid concerns about forced labor in China and supply chain vulnerabilities that deserve strong responses. But we’re also, in my view, at huge risk of over-reacting and abusing high-minded goals to justify really bad economic policies (the Jones Act, anyone?).
Adam Posen is convinced that US economic policies will hurt American aims for itself. I worry the same is true for America’s rediscovered goals in Africa.
If the US continues to look inward and act with short-term myopia, we will be doing the opposite of what we aim: pushing our African allies closer to China, killing jobs for the fastest-growing populations, and slowing the energy transition in exactly the places that need it the most.
Thanks Todd, for another great article! What do you think of the EU's Green Deal Industrial Plan with regards to the same problem? Similar effects, or do you see key differences? Would be curious to know!