SA vows fight­back in global tar­iff war

US-China trade skir­mish will knock ex­ports of lo­cal goods

Sunday Times - - Business | Trade - By ASHA SPECK­MAN speck­[email protected]­day­times.co.za

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

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