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.
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