Is This the Next Trade Deal on the Chopping Block?
WHY YOU SHOULD CARE
Because not all trade agreements are the same.
So far, President Trump’s “America First” policy has meant withdrawal from the Trans-Pacific Partnership and an uncertain future for NAFTA. So what’s the fate of a trade policy that was never intended to put America first at all?
That little-known trade agreement is the Africa Growth and Opportunity Act (AGOA). Trump hasn’t yet mentioned it, but experts are already wondering if this 17-year-old act may be the next partnership on the White House’s chopping block. And even though AGOA wasn’t designed to boost the American economy,
AGOA supports 120,000 American jobs.
The figure comes from the U.S. Trade Representative, which uses a formula that equates every $1 billion of exports to about 5,000 U.S.-based jobs. The biggest exporters under AGOA? Machinery makers like John Deere and Caterpillar and manufacturers of inputs for oil production.
The act itself is a nonreciprocal agreement: It allows African countries to export “Made in Africa” goods into the U.S. tax-free, but it doesn’t give the U.S. any tax breaks for exporting goods to the continent. “It was never intended to be advantageous to the United States because it was an approach to economic development,” says Witney Schneidman, senior international adviser for Africa at Covington and Burling law offices. Instead, it was intended to move the regions beyond an exclusively donor-recipient relationship and toward trade. Since then, it’s been the “cornerstone” of the U.S.-Africa commercial relationship, says Schneidman. And it has overwhelming bipartisan support: Congress renewed the Act in 2015 through 2025 with even more support than when the act was crafted.
But once President Trump and Secretary Tillerson get their Africa team in place, AGOA will inevitably come up for review. “There’s a fair chance that it will be seen as a trade deal that’s disadvantageous to the United States,” says Schneidman; tariffs are generally less favorable to U.S. exporters than to European ones. Over the 17 years since AGOA began, the E.U. has set up aggressive, modern trade agreements with certain countries on a most-favored-nation basis, while China has surpassed the U.S. as the continent’s biggest trading partner. A few experts who follow U.S.-Africa trade say the agreement should be altered both to reflect the changing views of the American relationship to the continent and to be more competitive in the global market.
Around 40 countries are part of the AGOA partnership. When you look closely, though, AGOA benefits only a handful of them, especially when one removes oil from the equation. Though AGOA is a good start, it doesn’t go far enough to be effective in its original goal of bolstering African economies, argues Todd Moss, senior fellow at the Center for Global Development, whose research focuses on U.S.-Africa relations. “Tariffs were a problem, but the reason African economies are not competitive is they lack the infrastructure, etc., to compete,” says Moss. Trade agreements are “just one small part” of a picture that includes everything from the cost of electricity to the depth of ports.
Either way, it seems unlikely that the agreement would be scrapped altogether, considering Tillerson’s business experience on the continent and the strong business experience among Trump’s advisers; more than half of the CEOs on Trump’s Strategy and Policy Forum head up companies that are active in Africa. If anything, they’ll advocate for lower taxes on U.S. exports to Africa to create an environment in which businesses look favorably on Africa, says Schneidman. Taxing African goods to the U.S., says Moss, would be hamstringing our own efforts to grow those economies.