Pro­tect­ing SA from Trump’s anti-trade ac­tion

Al­though, as trade and in­dus­try min­is­ter Rob Davies has said, South Africa is ‘col­lat­eral dam­age’ in the US’s trade war with China, we can and should act at least to mit­i­gate the fall­out from the gath­er­ing global con­test.

Finweek English Edition - - Contents - By Peter Fabri­cius

south Africa may well be a “non-com­bat­ant” and an “in­no­cent by­stander” in the eco­nomic war­fare which US Pres­i­dent Don­ald Trump has launched against Amer­ica’s ma­jor eco­nomic ri­vals, as trade and in­dus­try min­is­ter Rob Davies has fre­quently com­plained. But it can and should act at least to mit­i­gate the fall­out from the gath­er­ing global con­test, which now also in­volves Iran.

Six months ago Davies first com­plained that SA was suf­fer­ing “col­lat­eral dam­age” from the trade war which Trump had launched mainly against China. The “Sec­tion 232” im­port du­ties of 25% on steel and 10% on alu­minium which the US im­posed were mainly aimed at China and other ma­jor economies, he said. But SA was in ef­fect caught in the cross­fire.

Davies vig­or­ously lob­bied the US for an ex­emp­tion, ar­gu­ing that SA’s ex­ports of steel and alu­minium to the US were tiny, rep­re­sent­ing about 1% of to­tal US steel im­ports and 1.6% of to­tal alu­minium im­ports. Con­versely, the 330 000 tonnes of steel which SA ex­ported to the

US in 2017 rep­re­sented 5% of to­tal SA pro­duc­tion and about 7 500 jobs in the steel sup­ply chain.

Davies also said the tar­iffs breached SA’s ben­e­fits un­der the African Growth and Op­por­tu­nity Act (Agoa) which al­lows SA and other el­i­gi­ble African coun­tries to ex­port most goods into the US duty-free. His ar­gu­ments fell on deaf ears. The US ex­empted many other coun­tries, but not SA.

Then in May, Trump asked his com­merce de­part­ment to in­ves­ti­gate whether im­ports of for­eign ve­hi­cles also threat­ened na­tional se­cu­rity and should also there­fore be hit with 25% im­port tar­iffs un­der Sec­tion 232.

In 2017, SA ex­ported about $1.4bn in auto prod­ucts to the US, mostly com­plete cars. In July, Davies said he had just met US com­merce sec­re­tary Wil­bur Ross in Wash­ing­ton to urge him not to im­pose the auto tar­riffs on SA.

He ex­plained to Ross that SA auto ex­ports to the US con­sti­tuted only about 0.4% of to­tal US auto im­ports (some $335bn in 2017).

Davies told fin­week in mid-Septem­ber that he had not yet re­ceived a re­sponse from Ross.

Econ­o­mist Christo­pher Wood of Trade and In­dus­trial Pol­icy Strat­gies (TIPS) be­lieves the US metal im­port tar­iffs will prob­a­bly not have a ma­jor im­pact on SA be­cause US in­dus­tries are un­likely to make huge in­vest­ments in the pro­duc­tion of im­port sub­sti­tutes, when they prob­a­bly be­lieve the im­port tar­iffs will dis­ap­pear when Trump leaves the White House.

Davies sug­gested the same when he told fin­week that most of the US im­porters of SA alu­minium prod­ucts – most of which serve niche mar­kets – were con­tin­u­ing to buy de­spite the 10% im­port tar­iff hike.

Wood thought the greater dan­ger for SA, though, was that the dis­rup­tions in trade pat­terns would cause an over­sup­ply of key com­modi­ties in the global mar­ket, which com­pa­nies would then try to off­load on open mar­kets, like South Africa’s.

SA is also likely to suf­fer some “col­lat­eral dam­age” from an­other theatre of Trump’s global eco­nomic war – the trade and fi­nan­cial sanc­tions which he re-im­posed on Iran in Au­gust. Those re­scinded the Joint Com­pre­hen­sive Plan of Ac­tion (JCPOA) deal which his pre­de­ces­sor, Barack Obama, and sev­eral Euro­pean coun­tries had struck with Tehran in 2015, which lifted sanc­tions in ex­change for Iran sus­pend­ing de­vel­op­ment of its sus­pected nu­clear weapons pro­gramme.

The new US fi­nan­cial sanc­tions pre­vent any coun­try or com­pany which does busi­ness with Iran from also do­ing busi­ness with the US.

From SA, the cell­phone ser­vice provider MTN faces the most risk as its sub­sidiary MTN Iran­cell pro­vides about 21% of its sub­scribers. MTN an­nounced last month that “the sanc­tions may limit the abil­ity of the group to repa­tri­ate cash from MTN Iran­cell, in­clud­ing fu­ture div­i­dends”. At 30 June 2018, Ira­nian rial-de­nom­i­nated div­i­dends re­ceiv­able and loans amounted to R3.4bn, it said.

MTN also warned share­hold­ers that the US sanc­tions could de­pre­ci­ate the ex­change rate of the rial and so re­duce the value of such div­i­dends as it might be able to repa­tri­ate. MTN did not re­spond to ques­tions about how any busi­ness deal­ings it might have with the US could be af­fected by the sanc­tions. The US oil sanc­tions, which kick in on 5 Novem­ber, will prob­a­bly also im­pact on SA, since the US would also pun­ish other coun­tries that buy oil from Iran. But the im­pact should not be great, as SA now only im­ports about 7% of its oil from Iran, a sharp de­cline from be­fore the last round of US sanc­tions against Iran.

How­ever, Davies told fin­week that SA’s main prob­lem with the US sanc­tions on Iran was the op­por­tu­ni­ties they had de­nied this coun­try for do­ing more busi­ness with Iran. South Africa had been try­ing to es­tab­lish more busi­nesses there for years.

“But banks had to de­cide be­tween do­ing busi­ness with Iran and do­ing busi­ness with the US. None were pre­pared to choose Iran.”

Davies said SA’s dis­cus­sions with Iran had re­sumed af­ter the first round of sanc­tions was lifted un­der the JCPOA. “Now the new sanc­tions will make it even more dif­fi­cult,” he said.

And Trump’s global trade war is also likely to im­pact SA in­di­rectly, along with all coun­tries, as it drags down the

Rob Davies Min­is­ter of trade and in­dus­try

Don­ald Trump US pres­i­dent

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.