Theuns du Buisson
Source: Maroela Media
During the latter part of every year numerous organisations issue their lists of global risks for the next year. Major companies use these lists to do their planning to ensure that they are hedged against those risks.
In addition to all the usual matters, natural disasters, political uncertainty and so on, there is a new one this year: “Trump’s protectionism” which, according to the World Economic Forum (WEF), poses a significant risk to the global economy. I have never really been bothered by the WEF’s talk about how the globe would go up in flames at any moment if we do not trade beef for bugs. Unfortunately, however, many influential people take the WEF’s talk seriously.
Protectionism
This outdated policy is widely regarded as a major obstacle to economic growth, and rightfully so. It involves imposing duties to keep importes out of a country, thereby promoting the local industry. For example, South Africa imposes duties on steel and chicken meat imports. The end result is that steel and chicken are very expensive without us having a significant chicken industry, while the local steel sector still remains under constant pressure.
In short, protectionism is based on the fallacy that in trade there are winners and losers. The reality is that in proper trade everyone is a winner.
However, duties are also imposed for other reasons. For example, if a country uses slave labour, duties can be imposed to punish the exporter without, however, stopping the purchase of those products. The only ones actually punished are the consumers of these products because they have to pay more for the product while still having to soothe their conscience about using the products of slavery. Then there are other considerations too, such as the enormous duties imposed on CCTV equipment from China which, according to numerous experts, is used to spy on the entire world. The best-known duties are anti-dumping duties which are introduced to prevent another country from dumping their cheap, often inferior products in a country, destroying the local industry, and then it continues to export products at normal prices and volumes without the burden of a competitive market.
Regardless of the reasons, it is an accepted truth that any trade restrictions, be they quotas, duties or whatever else, are bad for the global economy. It is estimated that the global economy could double if all countries were allowed to export their specialist products without duties or other barriers.
How dangerous is it for South Africa?
Just as almost everyone accepts that trade restrictions and tariffs are bad, everyone also accepts that whatever is best for America is also best for the world. When America is doing well, the world is doing well. When these two general truths are at odds with each other it muddies the waters.
New duties and other trade restrictions make products and services more expensive for Americans, but they also create job opportunities and a more localised economy in America. Along with localisation come others risks that could be to the USA’s disadvantage in the long run. But then there are also numerous advantages. By moving factories back to the USA, major capital investments are made and even if many of the risks do play out it would be most unlikely that these investments would be undone by moving plants abroad again.
The main advantage of such a policy is that the USA will pursue energy independence. They produce their own oil, and with Trump’s proposed policy in place, it would be enough for their own needs and even for exports. This means that the rest of the world’s demand for oil falls, with the result that everyone, not just America, pays less for energy. Thus, everyone wins here and in today’s energy-intensive world, this is not to be laughed off.
Where South Africa, and everyone else are, however, directly affected is when it comes to exports to the USA. Here too, South Africa need not be too concerned. Most of our exports are raw materials and chemicals which are rarely, if ever, subject to duties. And even if that should happen, South Africa enjoys duty-free status under AGOA in respect of these products. The automative industry, which is directly in Trump’s sights, also enjoys this advantage. Our local industries will therefore enjoy a very strong competitive advantage. Unless AGOA comes to an end, or these local industries perish, we have little to be concerned about.
Is it really a risk then?
Any policy that suppresses economic growth or one that concentrates growth in one place only based on man-made circumstances is bad. Obviously, this is also a risk. However, for South Africa the biggest risk would rather be that our government continues to act in a hostile manner towards the West and that we are kicked out of AGOA as a consequence. In those circumstances, a more protectionist policy in America would only have disadvantages for us without any significant advantages coming our way.
Of course, all of this would only apply if Trump should move back into the White House. The alternative is another four years of poor growth and large-scale waste by the American government. And that is not good for anyone.
