America versus Rwanda. Talk about a David versus Goliath match up. Except, imagine a Goliath packing nuclear missiles, machine guns, and full body armor. Oh, and David has his hands tied behind his back and his feet bound. Honestly, David might still have better odds against Goliath than Rwanda does in the brewing trade dispute with America. You see, the United States is unhappy with Rwanda’s import duties on used clothing.
Rwanda has raised import duties on used clothing from 25 cents per kilogram to $2.50. The Rwandan government is hoping that the increased tariffs will give the local clothing industry room to grow. This, in turn, would supply Rwandans with jobs and income, which could spur economic growth.
Much of the used clothing flowing into Rwanda is donated. Many Americans and many companies intend well when they donate used clothing to places like Rwanda, but there are some downsides to the donations. Basic economics suggests that if Rwandans can get used American clothing at a price much lower than locally produced clothing, they’ll do so. This is great for consumers but bad for local clothing producers.
Rwandan President Paul Kagame argues that his country has become a “dumping ground” for used clothing. When it comes to trade policies, “dumping” normally refers to selling products at rates below production costs. This would almost certainly be the case with used and donated clothing. Costs will be immensely low, and likely well below the original production costs. Dumping makes it near impossible for local producers to compete because even if they sold their products at cost, producing no profit, they still wouldn’t be able to compete.
Regardless, the United States has threatened Rwanda and is preparing to punish them if they don’t drop their tariffs within 60 days. This comes after the Secondary Materials and Recycled Textiles Association filed a complaint alleging that the increased tariffs will cost thousands of American jobs.
To be honest, the whole matter strikes me as hypocritical. The United States wants to punish Rwanda for costing American jobs, but how are American jobs the responsibility of the Rwandan government? They have their own people to care for. Likewise, the Trump administration has been leveling tariffs on China, Canada, and other direct competitors in an effort to protect American companies. How can the Trump administration then fault the Rwandan government for doing the same?
The United States, Japan, South Korea, Singapore, and many other countries used protectionist measures in their early stages of industrialization. In economic development studies, these efforts are referred to as infant industry protection. Basically, a local government will provide a local industry with enough protection and/or subsidies to compete with established industrial powers from elsewhere. Generally, as the infant industry “grows up,” protections are rolled back.
Local Rwandan clothing producers are going to struggle to compete with massive global companies like Nike. And if donated clothing is allowed to pour in practically for free, they’ll stand little change. Given that Rwanda has a national per capita income of roughly $800 per year (nominal), there’s no need for the United States to trample on their sovereignty or to snuff out their already struggling industries.