SA vows fightback in global tariff war

US-China trade skirmish will knock exports of local goods

As a trade war between the US and China escalates, South Africa is prepared to defend itself by hiking its own tariffs, Trade and Industry Minister Rob Davies said this week.

The international trade tiff resulting in raised tariffs on over 800 products imported into the US affects South Africa’s duty-free access benefits under the African Growth and Opportunity Act.

This will be on the discussion table when Davies attends the Agoa Forum in Washington, DC in three weeks.

“Our view is that we’ve become collateral damage in a dispute which is not of our making,” Davies told Business Times on Thursday. “We are concerned about the instability that’s emerged, the fact that the rules of the global trading system are under pressure because these are now unilateral measures. I think the issues are going to be that we’re going into a very different ball game in global trade.”

South Africa at this stage was unlikely to alter its trade policy but the situation was being closely monitored. Where the International Trade Administration Commission of South Africa made a recommendation on evidence before it “and we have tariff space in terms of our World Trade Organisation rules, which allow us to raise tariffs, we are prepared to do that. We will also reduce tariffs,” Davies said. He said these measures would not constitute “protectionism or be in violation of any undertakings we made in forums like the G20”.

In May the US spurned pleas by Davies for an exemption on steel and aluminium tariff hikes. Products covered by Agoa have been subject to a 25% duty on steel imports and 10% on aluminium. South Africa accounts for less than 1% of steel imports to the US and just over 1% of aluminium imports, posing little national security threat to the US. The local steel and aluminium industry provides about 7 000 jobs.

The US may also hike tariffs in the automotive sector, which accounts for 30% of South Africa’s manufacturing sector. Trade and Industry Director-General Lionel October said that so far one motor manufacturer may be affected.

The US’s fire is primarily aimed at China, with the world power threatening a further 10% tariff on $200-billion (about R2.7-trillion) of imports from China, in addition to an earlier tariff on $50-billion worth of imports. The first wave of tariffs is expected to take effect early next month. China hit back with tariffs on over 600 US products.

Holger Schmieding, chief economist at Berenberg Bank, said in a note that the moves had created the “most dangerous trade tensions in decades”. In April there was a better chance that the worst of the tensions could be over by midyear but this was no longer the case, Schmieding said.

On Friday AFP reported that the EU, in retaliation, had imposed tariffs on iconic US products such as bourbon and jeans.

US President Donald Trump has rejected an olive branch from Europe and a suggestion to join forces against China’s practices on trade that include restrictions on US companies operating in China and forced technology transfers in exchange for market access to China.

Schmieding said to a degree some countries may be reluctant to succumb to Trump’s bullying “and be more willing to incur short-term losses in order to defend the rules of the world trade system against the Trump threat [to China]”.

Davies is keeping the indirect impact of retaliatory tariffs and possible dumping of goods in his sights but also the WTO.

The rules of the global trading system were not sufficiently supportive of the needs and interests of developing countries, especially as there was “an unfinished agenda” on the reform of agricultural trade, particularly production subsidies and balancing the rules in favour of development, he said.

“We will insist and continue to defend the idea that there are differential obligations between developed, developing and leastdeveloped countries. We will continue to defend those important principles, some of which are now being questioned in the light of what we see now.”

South Africa, meanwhile, will strengthen trade ties on the continent. President Cyril Ramaphosa is due to sign the African Continental Free Trade Agreement soon. A tariff schedule was being finalised between East African countries and the Southern African Customs Union providing “commercially meaningful market openings”.

The impact of the trade war has already hit the rand.

Feroz Basa, a portfolio manager of the Old Mutual Global Emerging Market Fund at Old Mutual Investment Group, said the rand weakening to R13.50 to the dollar from a previous high of R11.50, is largely due to a potential trade war and rising US interest rates. The weaker rand coupled with higher oil prices would create cost-push inflation, which leads to higher prices, lower demand and lower GDP.

“When you start a tariff war, you’re creating an environment that leads to a protectionist society. In that protectionist environment you increase the cost of goods for your consumers who in turn demand less, which leads to fewer jobs being created,” Basa said.

The trade war comes at a time when South Africa’s current account deficit widened above expectations as imports outpaced exports, data published this week showed. As the rand plunged to its lowest levels in seven months, deputy Reserve Bank governor Kuben Naidoo told Bloomberg TV in Portugal this week that the bank may hike rates. “If we do think there is a risk of second-round effects, we will have to act.”

We’ve become collateral damage in a dispute which is not of our making

Rob Davies

Minister of trade and industry