South-Western EconNews

Can Africa Survive by Producing Like Asia?

Topic

Product Markets; Government and the Economy

Key Words

textiles, tariffs, quotas, Africa, China, Lesotho, America

Full Article

If you have an InfoTrac or BCRC access code, click on the appropriate source to login and view the full text article.
Reference ID: A166581615

News Story

Africa, and especially Lesotho, has begun turning to textiles as a way of engineering economic growth around the continent. It has of late been insulated from competition with China as a result of some preferential trade agreements with the US. Can the economic growth continue without the trade sanctions?

Ever since the 1980s, African nations have looked to textiles to stimulate the economy. Significant investment in infrastructure there helped out significantly. What really helped, though, was the African Growth and Opportunity Act, which gave preferential treatment to exports from African nations. At the same time, exports from China were being restricted, allowing African exports to continue to increase. As a result, Lesotho now has the distinction of now being Africa’s biggest exporter of clothing to the US.

This may not last, however. Over the next few years, a number of tariffs and quotas on Chinese textiles will end, forcing China and Africa to compete on a much more level playing field. In preparation for that time, investors are looking to shore up infrastructure, and add more textile mills in Africa to reduce transport costs. A number of countries are looking into growing their own cotton, especially organic cotton, which would gather a premium price.

Productivity is also an issue, though. Wages in Lesotho are significantly higher than in Bangladesh or China; there needs to be some kind of tradeoff with businesses, either with higher worker productivity or some other benefit. The government of Lesotho wants to be known as labor-friendly; it welcomes unions, does not engage sweatshops, and has set up programs to fight transmission of HIV/AIDS in the country.

In the past, Lesotho received preferential treatment which helped it avoid serious competition around the globe. The next few years will determine if that preferential treatment benefited Lesotho in the long run.

Questions

Discussion Questions:
1.	Why would the US government wish to impose tariffs on Chinese imports of textiles, but not on African imports?
2.	Indicate in a graph of supply and demand for Chinese textiles the impact of a tariff on Chinese goods. Do the same in the market for African textiles. Do you get the same result? Why or why not?
3.	What benefits result from the Lesotho government’s program to combat AIDS? Does that help Lesotho compete with China? Why or why not?
Multiple Choice/True False Questions:
1.	By imposing tariffs on Chinese imports into the US and not on African imports, the US caused Chinese goods to be ________ than African goods. More expensive Less expensive Equal in value Better quality
2.	A quota on imported goods will necessarily cause fewer items to be imported than a tariff. True False
3.	Chinese textiles and African textiles, in the eyes of the US, can be judged to be Substitutes Complements Luxuries Necessities

Source

“Looming Difficulties.” The Economist, July 19, 2007.

Instructor Discussion Notes

Discussion Notes
These notes are restricted to qualified instructors only. Register for free!