PERHAPS nothing has helped the layman understand the importance and impact, both positive and negative, of trade tariffs like the ongoing “trade war” between the US and China.
While President Donald Trump may have all sorts of other issues to deal with, many support his imposition of tariffs, especially on Chinese products, and he is being lauded by some for the possible resultant increase in domestic jobs and the recent growth of the US economy .
While tariffs and a raft of other protective measures, including quotas, can be helpful for any given industry, many would argue that what can most help domestic industries that are vulnerable to competition from imported g Higher local demand has many positive knock-on effects, including the protection of jobs and higher tax revenue for the government.
Some would argue that it can reduce competitiveness and can lead to higher prices and poor quality if a company or industry begins to find it has a monopoly .
It can also result in less availability of a product and, therefore, higher prices as demand outstrips supply, so balance is an important factor. But we at Proudly South African believe that increased localisation can rarely, if ever, have any detrimental effects on commerce if the model is right. Until the current tit-for-tat imposition of tariffs, there had been a general move away from using them as a means of protecting emerging or even declining industries.
Instead, multilateral agreements were negotiated between governments or trading blocks, including Agoa, the African Growth and Opportunity Act. More than $1.8 billion (R25.6bn) in South African exports to the US were covered by Agoa in 2017.
Now, overriding more favourable Agoa terms, President Trump is imposing a 10 percent tariff on aluminium imported from South Africa and 25 percent on steel. In 2017, we exported R4.7bn of the former and R11.8bn of the latter.
In retaliation, the poultry industry, which has long been at loggerheads with the US for their so-called immoral dumping of bone in chicken pieces, is calling for the suspension of quotas, which currently exclude US imports from anti-dumping tariffs, but in so doing are making a further $2.6bn of South African exports vulnerable to a “right back at you” move by Trump. All this is very convoluted and a little “he said, she said”, but let’s look at another local industry recently in the news as a result of tariffs slapped on importers, and that is our sugar industry.
Because of protectionist measures taken by other countries to favour their own producers, South Africa exports around 40 percent of its sugar production at lower than domestic prices.
Earlier this month, at the request of the local industry, tariffs were increased to combat high levels of imported sugar. But manufactures of goods that consume a lot of sugar, including food and soft drink companies, complained that this is pushing up their costs, which they may have to pass on to consumers.
While some companies, including a leading soft drink brand, claims to source 95 percent of its sugar locally, many do not, and so again we call for increased localisation in this as well as every other sector.
Minister for Trade and Industry Rob Davies recently quoted an old African adage: “When elephants fight, the ants get trampled” referring to the potential for fall out in the South African economy resulting from the economic giants of the US and China engaging in trade warfare.
While South Africa may stand to gain an export foothold for, among other products, nuts, wine and fruit, as the US and China slug it out over tariffs, the interconnectedness of world trade agreements means we will not be immune to the ramifications.
Our ultimate protection against trade volatility is to rely more on ourselves and to support localisation. Individual, business and industry consumers have a responsibility to the economy and we can make a significant contribution by making more “buy local” choices.
While all these trade wars persist, the focus for us as an economy should be to protect and support local industries, grow our economy , retain existing jobs and create much needed new jobs. And as Mama Miriam Makeba put it in her all-time favourite for many of us, titled Aluta Continua, the economic struggle does continue and we all have a role to play.
Eustace Mashimbye is chief executive of Proudly SA.