Published On: Mon, Jun 25th, 2018

US, China trade war threatens Nigeria’s revenue drive

By FELIX OLOYEDE

Ongoing trade scuffles between China and the United States of America (USA) may bring about an abrupt halt to Nigeria’s  2018 revenue expectations as experts expect the clash to grind the global economy into a slow trot which could hurt commodity prices.

Nigeria earns about 90 per cent of its foreign exchange from crude oil export, contributing 76.3 per cent of country’s total exports, but it contributed just 9.61 per cent to the GDP in the first quarter of this year, while the non-oil sector contributed 90.39 per cent.

The US said it would from July impose a 25 per cent tariff on $50 billion worth imported goods from China as part of efforts to protect its national security. The world largest economy further warned that after July 6, tariffs on an additional $16 billion worth of Chinese goods will be imposed after a public review period.  The Chinese have also vowed to retaliate in the same proportion should US President Donald Trump make good his threat.  President Trump recently cautioned if China retaliates, an additional $200 billion worth of Chinese products would be subject to a 10 percent tariff.

The trade arm-wrestling could eventually lead to a winding down of the pace of international trade growth, which would in turn lead to a dip in global commodity prices, says Dr. Muda Yusuf, Director-General, Lagos Chamber of Commerce and Industry (LCCI) in a telephone conversation with Business Hallmark newspaper. According to Muda, “oil is a commodity. If the price continues to drop, it would affect our forex inflow and eventually impact our revenue, because we are too dependent on oil. If we have that shock, it would destabilize  the economy,” he reasoned.

Oil price have declined -8 per cent in the last month, before it rallied 2.34 per cent on Friday to berth at $74.76 per barrel.

The trade tussle between the world’s two largest economies threatens to limit U.S. crude oil exports to China, which has been eating into OPEC’s share in the market lately.  Members of the oil cartel met on Friday and agreed to increase oil production by 1 million barrels a day.

The US-China trade clash may also come with some opportunities, especially if China goes ahead and slam 25 per cent import tariff on crude oil and refined oil product imports from the United States. This would make US crude, which is currently in high demand in Asia due to the $9 spread between it and Brent Crude uncompetitive. Consequently, this may propel China and other Asian countries to look the way of OPEC members for the commodity.

“The trade war will benefit countries that have the capacity to substitute products that coming from China to the US, because with the high tariff, Chinese products to the US will be more expensive,” Dr. Yusuf explained.

However, this gain may be for a short while as the trade war would adversely impact global trade and stunt economic growth and global oil demand growth.

“In the long term, this will have a negative effect on the global economy even if, in the short term, it might be positive for other non-U.S. producers,” Rainer Seele, Chief Executive at Austria’s oil company OMV told Bloomberg in Vienna where OPEC officials and ministers and top oil industry executives attended a seminar last week.

“The trade war between China and the US is a two edged sword. US is already seeking alternative markets for its agricultural products and Nigeria is a major target,” Moses Ojo, Head, Research, PanAfrican Capital Plc. said in a telephone conversation with Business Hallmark. He maintained that Nigeria has little to gain from the trade tussle as it only exports crude oil to the rest of the world.

“I don’t see anything we would benefit from the trade war. Instead, they will enter into alliance with Nigeria and be dumping their products on us,” he noted.

The closing numbers are displayed after the closing bell of the Dow Industrial Average at the New York Stock Exchange on March 19, 2018 in New York. / AFP PHOTO / Bryan R. Smith (Photo credit should read BRYAN R. SMITH/AFP/Getty Images)

Meanwhile, Kunle Ezun, analyst with Ecobank believes the tariff battle between the world’s two largest economies would have little impact on the global economy, arguing that the impact would be a mere academically. He noted that though both China and US are Nigeria’s major trade partners, but since it wouldn’t have significant effect on crude oil price, which is Nigeria’s main export, the country would not feel the heat of the trade wars.

The clash is already taking its toll on global stock market as the MSCI All-Country World index, which tracks stocks in 47 countries, showed that down 1.3 per cent on the week, its worst weekly performance since mid-March, despite rising 0.2 per cent in the European morning.

And the Nigerian equities market continued its bearish run, dipping -1.17 per cent on Friday and fell -1.99 per cent in the last one week.

The dollar which is Nigeria’s reserves currency has also been struggling against also major currencies. It declined -0.17per cent to exchange $1.33against the British Pound on Friday and was down -0.49 per cent against the Euro to close at $1.17.

If the value of the dollar continues to erode, this would have negative impact on Nigeria’s external reserves, which has dropped -0.33 per cent to $47.63 billion between May 16 and June 16, 2018.

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