Will Morocco Become A Battleground In A Global Trade War?
10th December 2024
The country offers a bridge to Western markets for Chinese makers of electric vehicles. President Xi's visit shows how important China regards its domination of the industry.
Chinese President Xi Jinping stopped off in Morocco on his return from the G20 summit in Brazil in November.
The flying visit is a sign of the importance China attaches to safeguarding its domination of the electric-vehicle industry as it prepares for the return to office of US President Donald Trump. It could also signal the emergence of the North African country as a battleground in a forthcoming great-power trade war.
China's EV exports face increasing protectionist policies in Europe and the US. The EU's Green Deal and its Open Strategic Autonomy policies are designed to protect industrial supply chains and reduce their reliance on China.
Meanwhile the US Inflation Reduction Act (IRA) aims to encourage ‘friendshoring' and undermine China's efforts to dominate Western supply chains in green-energy industries, particularly EVs and batteries.
China exported 1.2 million EVs in 2023, a jump of 77.6 per cent over 2022. Of total exports, 47 per cent went to the European Union. But in October, the EU approved new tariffs of up to 35.3 per cent on Chinese EV imports on top of the standard 10 per cent car-import duty. In the US, the Biden administration hiked tariffs on Chinese EVs from 25 per cent to 100 per cent this year and Trump has already threatened 60 per cent tariffs on all Chinese goods.
These measures would increase prices for European and American consumers and squeeze sales and profit margins for Chinese exporters. They would also shield markets from China's overcapacity and trigger intensified competition among American and European EV manufacturers. Chinese companies are already engaged in a cut-throat price war at home that is draining their profits.
US and EU tariffs will also speed up Chinese offshoring. That will entail Chinese manufacturers moving manufacturing operations abroad so that they can avoid new export restrictions and continue to send their products to Western markets.
Mexico of Europe
Washington policymakers worry that this is already underway in Mexico, with Chinese EV companies trying to access the US market using Mexican production as a launch pad.
For Chinese auto makers, Morocco could now play that same role for Europe. The country controls 72 per cent of all phosphate-rock reserves worldwide - positioning it to become a global EV battery production hub as the world moves away from NMC lithium-ion batteries and adopts cheaper and safer lithium iron phosphate (LFP) batteries.
Under Trump, the US and the European Commission may roll out new measures targeting Chinese EV investments and joint ventures in third-party countries, including Morocco.
Morocco is also a member of China's Belt and Road Initiative since 2017 after signing a strategic partnership agreement with China during King Mohamed VI’s 2016 visit to Beijing.
This makes Morocco an ideal pick for offshoring China’s EV industry. Rabat’s biggest advantage is its free-trade agreements with the US and the EU and its membership in the African Continental Free Trade Area (AfCFTA).
Its geographical proximity to the EU, African and US markets reduces shipping and insurance costs. Morocco also has some of Africa’s most advanced car industry infrastructure, rail and road systems, well-trained and cheap labour and a mature manufacturing governance framework. Its relative political and social stability and economic openness make it a magnet for foreign investors.
Upgrading industry and infrastructure
China’s efforts in Morocco are twofold: it is seeking to build its partner’s industrial base and help upgrade the infrastructure necessary for connectivity and exports.
For instance, Morocco and Guchen Hi-tech signed a $6.4 billion memorandum of understanding in June 2023 to construct an EV battery gigafactory near Rabat that would be the largest in Africa.
In November, China Overseas Engineering Corporation (Covec) won the contract for rail construction in the Western Atlantic port of Casablanca as part of the Kenitra-Marrakesh high-speed railway. This makes Covec the fourth Chinese company involved in the project.
King Mohamed VI is also interested in securing China’s support for the Nigeria-Morocco Gas Pipeline (NMGP) project, expected to enter the initial-tenders phase in 2025.
Another important trend is that many companies in Western and Western-friendly countries are defying US and EU de-risking policies by signing partnerships with Chinese companies abroad. Some are even relocating their supply chains to third-party countries to avoid missing out on doing business with the Chinese.
In Morocco, businesses from Canada, Australia and South Korea have secured deals with Chinese companies to build EV battery plants and produce chemicals needed for battery manufacturing. Other cooperation includes car assembly and components.
For Morocco, this is a great opportunity for China to help it transform into an industrial hub and a global trade centre straddling major markets in the West and Africa.
This also allows Morocco to hedge as it tries to get out from under France’s wing and adopt a more independent foreign policy. Rabat would also like China’s support against Algeria in its dispute over Western Sahara, although this seems unrealistic given Beijing’s balancing strategy in the region.
Hedging its bets
At the same time, Morocco hopes to avoid paying the cost of being too close to China by pursuing a bilateral, transactional approach and hesitating to join China-led multilateral arrangements, such as the BRICS.
Local media quickly denied Morocco had applied to join the group ahead of the BRICS summit in Johannesburg last year, presumably to avoid the West’s irritation. Moroccan officials think their country has ‘not much of a choice’ as 90 per cent of Moroccan car exports are sold in the European market.
Nonetheless, Morocco’s role as a workaround for Chinese EV companies may put it at the heart of great-power competition, regardless of any mitigating measures the government may adopt: its place in China’s long-term planning to circumvent Western trade barriers will undermine the effectiveness of initiatives such as the IRA and Minerals Security Partnership.
Under Trump, the US and the European Commission may roll out new measures targeting Chinese EV investments and joint ventures in third-party countries, including Morocco. The Biden administration has already discussed restricting imports of Chinese EVs and their components over data-security concerns ‘no matter where they are assembled’.
Morocco may thus emerge as a focus in a forthcoming trade war. That could create considerable challenges. But if it manages to protect its interests and come out unscathed, it may provide a playbook for other countries in the Global South to follow.
Source - https://www.chathamhouse.org/2024/12/will-morocco-become-battleground-global-trade-war
