opinion

By Peter Fabricius

POLITICAL ECONOMY

China, US trade war to cost

South Africa jobs

“w
New tariffs imposed by US president Donald Trump in the trade war between the US and China could
result in thousands of job losses in the steel and aluminium industries.

hen the elephants fight, the ants take a pounding,”
said trade and industry minister Rob Davies in
March about the rising tensions of a possible trade
war between the US and China.
He was sure that South Africa wasn’t in any country’s sights in such a
war. But it could suffer considerable collateral damage nonetheless.
Trump fired the opening shots on 22 January by approving global
safeguard tariffs on $8.5bn in imports of solar panels and $1.8bn of
washing machine imports. Then, on 1 March, he announced tariffs of
25% on all imported steel and 10% on imported aluminium,
on national security grounds.
On 2 April, China retaliated by imposing tariffs on
about $2.4bn of US imports of aluminium waste and
scrap, wine, pork, fruits, nuts and other products.
On 3 April, the Trump administration threatened to
slap a 25% import tariff on a further 1 333 Chinese
products, worth $46.2bn, mainly machinery,
mechanical appliances and electrical equipment.
Two weeks later, on 17 April, China slapped anti-
dumping duties of 178.6% on sorghum from the US.
The most direct harm to SA could come from Trump’s
new import tariffs on steel and aluminium. Last year SA exported
about $375m (R4.7bn) worth of aluminium and $950m (R11.8bn)
worth of steel to the US. The new tariffs would override the duty and
quota-free access that SA has to the US market under the Africa Growth
and Opportunity Act (Agoa). The likely loss of those sales because of the
steep new import tariffs would seriously damage a few
companies and cost thousands of jobs, Davies said. An A US-China trade war could
estimated 7 500 jobs in the steel supply chain alone be good news for South
African wine, fruit and nut
are at risk.
about 85% of the 1 333 Chinese products that the US targeted on 3 April,
“are intermediate inputs and capital goods, so the tariffs would damage
American companies’ supply chains and competitiveness in making
goods and services to sell in the US and the world”.
Van Staden says the upward spiral of input costs in a global trade
war among economic giants would hurt SA likewise, mainly its vehicle
assemblers and other manufacturers.
Nedbank economists Nicky Weimar and Dennis Dykes warned on
10 April that SA’s already faltering manufacturing production output was
“particularly vulnerable to any further escalation in the trade war
currently raging between the US and China”.
This could undermine an already patchy recovery of the
economy from a bad 2017. Inflation would then be pushed
up by a falling rand.
The eventual impact on SA depends of course
on whether the US-China trade war heats up. Some
economists have warned of a severe global recession
or even depression, noting that it was America’s Smoot
Hawley Act of 1930, imposing heavy tariffs to try to save
jobs, rather than the great stock market crash of 1929, that
plunged the US and the world economy into the Depression.
Peter Draper, director of Pretoria-based Tutwa Consulting, doesn’t
think it will get that bad. He suggests that Trump and his Chinese
counterpart, Xi Jinping, could still sign a truce.
Trump is under growing pressure from agricultural groups, Republicans
worried about this year’s mid-term elections, and others, to back off. But
there is broader support for investment measures being drafted
in Congress to tighten controls over Chinese investment in US
high-tech industries, and perhaps also controls over US outward
investment in “sensitive” industries. Underlying this is a strategic

15%
producers because of the
Aggravating the impact, the US has exempted concern, shared by key US allies like the EU and Japan, about
Canada, Mexico, the EU, South Korea, Brazil, Argentina China seeking to take the lead in the high-tech industries of the
and Australia from the tariffs, giving them a huge future, Draper, says.
advantage over local manufacturers. SA tried to However the hardening ideological stance at the heart of
negotiate an exemption from the tariffs on the grounds retaliatory tariff China the Trump administration, mirrored on the Chinese side by Xi’s
that its exports represent such a tiny part of total US imposed on these US ‘”strong leader” projection and mobilisation of anti-US sentiment
imports, but did not succeed. products. around the “100 years of humiliation” narrative – are mitigating
A US-China trade war could be good news for South against a resolution.
African wine, fruit and nut producers, because of the 15% retaliatory tariff The impact on SA depends on how these tensions play out.
China imposed on these US products, the Western Cape tourism and “In a full trade war scenario, it is difficult to see how anybody wins.
investment agency Wesgro told Business Insider. As the markets have been signalling, trade wars are bad for growth,
But Cobus van Staden, senior researcher on China-Africa relations which would be bad for us. The bigger worry is that a sustained tussle
at the South African Institute of International Affairs, believes the will undermine the WTO, and the foundations of the multilateral trade
opportunities for local agricultural exporters would be small, in part order. It is already under enormous stress, not least owing to US
because of our low yields. He believes the downside would be greater than pressure on the dispute settlement system, but it could conceivably
the upside, largely because of the impact on manufacturing. break in a worst case scenario,” says Draper.
In a world economy where products are increasingly made in global And that, clearly, would be a catastrophe for all. ■
Shutterstock

supply chains, Trump is clearly shooting himself in the foot. The Peterson editorial@finweek.co.za
Institute for International Economics in Washington has pointed out that Peter Fabricius is a consultant to the Institute for Security Studies and a freelance foreign affairs journalist.

8 finweek 10 May 2018 www.fin24.com/finweek

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