As if we didn't have enough to worry about already
The looming US-Chinese trade war is going to need some very sane thinking if SA is to emerge unscathed
South Africa is embroiled in a number of raucous debates – land, inequality, race, Jacob Zuma’s appearance in the criminal dock, Vicki Momberg’s jail sentence and, more recently, how to remember Winnie Mandela.
But in this war of words and flaming rhetoric we are in danger of missing the greatest threat to our economy and the hopes of recharging growth and jobs, the two essentials for the much-spoken, seldom-sighted “better life for all” to borrow the ANC election slogan.
From this list there is much we could and should have done to improve our sovereign economic prospects. But what if the greatest danger that might blow the hopes which accompanied the arrival of Cyril Ramaphosa and the junking of his economically reckless predecessor lies beyond our shores and completely outside our control?
Last Friday, the hitherto booming US stock market took a big hit, with one day’s trading losses in the S&P 500 Index down 2.2% – which cumulatively since the beginning of 2018 has lost 10% overall, mirroring similar trends on both the Dow Jones Industrial Average and Nasdeq exchange.US President Donald Trump, who is both reckless and inconsistent, has, over the decades, been consistent in at least one respect: he is an economic nationalist and protectionist; he believes America has been wronged by the easy terms and unfair practices in international trade.
When he was a real estate mogul, he fulminated his views in the New York Times. But now as president of the largest economy in the world, he is acting on his instincts, and the world might, it is by no means certain, witness the most brutal trade war since the 1930s.
Readers with an eye on history, and not on Twitter where you simply invent your own facts to fit your prejudice, will be alarmed at the prospect.
The immediate cause for this global concern is what historian Niall Fergusson dubbed “Chimerica” – the US and China – the world’s number one and two economies respectively. Trump has announced $100-billion of tariffs on Chinese imports, while China has responded with its list of $50-billion. The origins of the dispute are twofold: alleged theft of US intellectual property by Chinese firms and the trade deficit with China of around $100-billion which the US resents.
Of course the protectionist response of Trump and the Chinese determination not to “lose face” – its president-for-life Xi Jinping is also an extreme nationalist – could see this escalate into a race to the bottom.
And that is where the history lesson helps. In 1930 the US Senate imposed the Smoot-Hawley Tariff Act, which increased duties on more than 20,000 imported goods. But when America’s then leading trade partners (Canada and Europe) retaliated, tit for tat in kind, US exports fell by more than 60%.
The Financial Times editorialised at the weekend: “Economists dispute the extent of the damage, but there is little doubt that the measure (Smoot-Hawley) deepened the Great Depression and had lasting effects.”Of course the world today is very different from 80 years ago. We have global supply chains, instant communications and a well-integrated international trade system. But Trump has little regard for these niceties and the Chinese leadership are determined to “avenge two centuries of humiliation”. So, as they say in racing, “all bets are off”.
Quite where this leaves our country and this continent is bewilderingly unclear. Our bilateral trade with the two big economic gorillas amounts to a rounding error. But we hugely depend on the Africa Growth and Opportunity Act (Agoa) for our motor car industry’s survival and we certainly depend on China as our key trading partner. But we could simply be collateral damage as the two giants’ rampage across the trade jungle.
On the other hand, none of the measures proposed by either side has yet been implemented and there is a 60-day period before they are effected. But neither Trump nor the Chinese have signalled a climb-down and cool heads, much required now, are in short supply.
Africa as a whole has a total economic size equivalent to Great Britain, itself devoured by Brexit problems.
But while the Trump tendency might have been expected, even our most objective analysts did not even a month ago anticipate a looming trade war.
One of the most authoritative and influential commentaries on our economy and its prospects is the Budget Review published alongside our national budget by the national Treasury.
The February 21 edition, barely six weeks old, provided a snapshot of the world economy and its risks for our country.
It noted that, while global risk factors were “elevated”, the world economy “continues to provide a supportive platform for South Africa to expand trade and investment”.But tucked away in its text is a paragraph which might prove eerily prescient:
“The threat of rising protectionism could result in trade barriers that constrain exports, production and growth, while raising political and military tensions.”
Of course key US allies already negotiated exemptions from Trump’s first round of tariffs – a 25% import tax on steel and 10% of aluminium. Australia was so favoured, our own initiatives have yet to get a response. And we currently export R11.2-billion in steel products to the US.
We might win some small change with China turning to SA for fruit and wines, it having slapped tariffs on such products from the US.
But, small as our economy is, we can never be a winner in a global dispute of this kind. Indeed, as James de Villiers writing in Business Insider SA notes, “the disadvantages of a trade war between two superpowers far outweigh the benefits to SA”.
There is much merit in Trump’s contention that China misuses intellectual property, especially that from his country. But there is much demerit in his proposed protectionist solution.
In this conflict, which hopefully will not become an all-out economic war, South Africa should not choose a side but simply protect its own interests as best it can.
We do not have a stellar record in protecting international investment, and we discarded our special protections for international investors more than a year ago. We also are mighty keen to demand BEE and other regulatory compliance from wary foreign investors. And we are midway in a process of unpicking the essential protection of property (including intellectual property) under the guise of land reform. Time now perhaps for a rethink.
Let’s just hope that, if economic sanity is not restored in Washington and Beijing, it will arrive again in Pretoria.