You can't fix trade deficits with tarrifs – Bawumia cautions

Former Vice President Dr. Mahamudu Bawumia has warned against using tariffs to fix trade imbalances. He believes these deficits are macroeconomic issues, not failures of trade policy.

Dr. Bawumia spoke at the International Democracy Union (IDU) Forum in Brussels on May 17. He addressed how trade weaponization affects African economies, especially Ghana. He also discussed strategies to improve economic resilience on the continent.

He noted that policymakers often overlook economic fundamentals and historical lessons. Africa contributes only 2.5% of global exports and 2.9% of imports. In contrast, Asia, Europe, and the U.S. dominate global trade with significant imbalances.

Dr. Bawumia stated that tariffs do not solve the root causes of trade deficits. “You cannot fix a trade deficit with tariffs—it simply doesn’t work,” he emphasized.

He explained that a trade deficit shows a gap between savings and investment in a nation. If a country spends more than it saves, it will have a trade deficit. This is a macroeconomic issue, not just about trade policy.

He referenced historical examples like the Smoot-Hawley Tariff Act from the 1930s, which worsened the Great Depression. He also mentioned the U.S.-China tariff war from 2018-2019 that harmed global trade.

“The recent increase in average U.S. tariff rates from 2.4% to 10% is significant,” he warned.

Regarding Africa, Dr. Bawumia said the continent is somewhat insulated from U.S. trade shocks. Africa exports 6.5% and imports 4.4% of goods to and from the U.S., but some countries are vulnerable.

For example, Lesotho relies on textile exports to the U.S., which make up 50% of its total exports under AGOA.

Dr. Bawumia predicted that Africa will respond to global trade disruptions by pushing for self-reliance and stronger intra-African trade ties.