THE ‘TRADE WAR’
It has been an interesting few weeks in world politics (how often have we said that since the beginning of time?) But really it has been an interesting time, with America imposing tariffs on some Chinese products in an effort to protect American industry. What’s interesting is that these two powers are seemingly changing roles, with America wanting to be more closed and ‘internalistic’ to resurrect or resuscitate some of its dying industries, while China seems to want to expand and globalise.
In typical media sensational phraseology, it has been called a “Trade War” between America and China: America is looking to impose US$ 46-billion worth of products from China (9% of Chinese exports to America), while China has retaliated by imposing US$ 50-billion worth of exports, about 38% of American exports to China, which include aircraft, cars and … soya beans! In terms of proportions, by my arithmetic, America will hurt more from this slapping contest than will China.
INTRA-AFRIKAN TRADE
Meanwhile, on the Afrikan continent, we’ve also seen talk about trade and trade tariffs. We have imposed a great number of restrictions on trade between ourselves, which to me is sad and bizarre. Perhaps it’s a colonial hangover, and/or countries trying to boost manufacturing within their own countries. I see benefit from Afrikan countries trading more with one another. As an example, S.A. gets most of its oil from Saudi Arabia (40% in the 7 years from 2010 to 2017) and not Nigeria (30%) or Angola (16%).
But maybe I see benefit because I’m speaking from a South African perspective. Our companies are the ones that probably stand to gain the most. Well, arguably so are the multinationals who use South Africa as a platform to exploit the Afrika market. For smaller economies on the continent there are real fears of significant tariff revenue losses and an uneven distribution of costs and benefits. Countries with significant manufacturing capacities will likely see significant economic growth and welfare gains, but small economies will face great fiscal revenue losses and threats to their local producers. In the South Afrikan context, this is similar to how the big supermarket chains entering new areas in recent years has killed off local industry, like butchers, bakers and vegetable sellers.
There is resistance to drops in import tariffs by bigger countries like Nigeria, and understandably so, after all protectionism built some of their biggest companies, including Dangote and they’re not really about to forego that benefit. In fact I wouldn’t be surprised to learn that Aliko has tried to lobby government not to sign to a new intra-African trade agreement which would drop import tariffs.
THE RISK
To link these two issues, we export a lot of products to China, which are converted to things like electronics, medical equipment, televisions, cars, printers, chemicals which are sold back to us, and which are exported from China to America among a lot of other places around the world. The US$ 46-billion of goods America wants to tariff is a lot of money, and if America imposes tariffs on products entering through its harbours, there’ll likely be a drop in sales and therefore a slow-down in production. A slow-down in production will of course hurt us poor blades of grass down here… hence the pain that’s already been displayed through the recent drop in the JSE’s All-Share and Resources indices.
As we know the term ‘slow-down’ is synonymous with the terms ‘job-losses’ and ‘restructuring’.
This downside is likely to be balanced somewhat by potential drops in tariffs between Afrikan countries, but who knows how long that will take to kick in, and as explained, that’s likely to benefit countries with lots of manufacturing capacity, not all Afrikan countries who will participate. And if we look closely enough, will it not be multinationals with trade posts in countries like South Afrika who will benefit most?