Post 2006 Ethio-China Trade Relations: Challenges and Prospects

Abstract

This article address post 2006 Ethio-China trade relations: Challenges and its prospects. The trade relation between the two countries has shown some improvement after 2006 due to the change of trade policies in Ethiopia, China’s growing trade interests in Ethiopia, the strengthened ties between the two governments based on common outlook of the developmental state and the Chinese none intervention policy. After critical analysis of trade data of the two countries, this paper empirically proved that Ethiopia incurs huge deficit in its trade with China. The data reveal that Ethiopia’s export to China is much short of its imports from China. Thus, Ethiopia’s balance of trade deficit can be largely explained by the unequal terms of trade between agricultural commodities (the country’s major export) and capital goods (Ethiopia’s major imports from China). In Ethiopia, dependence on the export of few primary agricultural products and raw materials leads to the country’s weak export performance and trade deficit. Among others, one of the major challenges of Ethiopia and China trade relations is the balance of trade which is highly slanted in favor of China. The scales are thus already tipped in China’s favor making it difficult for Ethiopia to bargain a genuine partnership. The China’s stance on Ethiopia is likely to harden in the long run, with more manipulation and exploitation and less benefit for Ethiopia.  Also, dumping of low priced export goods forced domestic Ethiopian producers out of business because they cannot compete on price with China. Finally, trade deficit between the two countries can result in lower aggregate demand and therefore slower growth, in the long run it can undermine the standard of living and lead to loss of jobs in home based industries.