China, US trade war to cost South Africa jobs | Fin24
 
Loading...

China, US trade war to cost South Africa jobs

May 07 2018 12:40
Peter Fabricius

When the elephants fight, the ants take a pounding,” said trade and industry minister Rob Davies in March about the rising tensions of a possible trade war between the US and China. 

He was sure that South Africa wasn’t in any country’s sights in such a war. But it could suffer considerable collateral damage nonetheless.

Trump fired the opening shots on 22 January by approving global safeguard tariffs on $8.5bn in imports of solar panels and $1.8bn of washing machine imports. 

Then, on 1 March, he announced tariffs of 25% on all imported steel and 10% on imported aluminium, on national security grounds. 

On 2 April, China retaliated by imposing tariffs on about $2.4bn of US imports of aluminium waste and scrap, wine, pork, fruits, nuts and other products. 

On 3 April, the Trump administration threatened to slap a 25% import tariff on a further 1 333 Chinese products, worth $46.2bn, mainly machinery, mechanical appliances and electrical equipment. 

Two weeks later, on 17 April, China slapped anti-dumping duties of 178.6% on sorghum from the US.

The most direct harm to SA could come from Trump’s new import tariffs on steel and aluminium. Last year SA exported about $375m (R4.7bn) worth of aluminium and $950m (R11.8bn) worth of steel to the US. 

The new tariffs would override the duty and quota-free access that SA has to the US market under the Africa Growth and Opportunity Act (Agoa). 

The likely loss of those sales because of the steep new import tariffs would seriously damage a few companies and cost thousands of jobs, Davies said. 

An estimated 7 500 jobs in the steel supply chain alone are at risk.

Aggravating the impact, the US has exempted Canada, Mexico, the EU, South Korea, Brazil, Argentina and Australia from the tariffs, giving them a huge advantage over local manufacturers. 

SA tried to negotiate an exemption from the tariffs on the grounds that its exports represent such a tiny part of total US imports, but did not succeed. 

A US-China trade war could be good news for South African wine, fruit and nut producers, because of the 15% retaliatory tariff China imposed on these US products, the Western Cape tourism and investment agency Wesgro told Business Insider. 

But Cobus van Staden, senior researcher on China-Africa relations at the South African Institute of International Affairs, believes the opportunities for local agricultural exporters would be small, in part because of our low yields. 

He believes the downside would be greater than the upside, largely because of the impact on manufacturing.

In a world economy where products are increasingly made in global supply chains, Trump is clearly shooting himself in the foot. 

The Peterson Institute for International Economics in Washington has pointed out that about 85% of the 1 333 Chinese products that the US targeted on 3 April, “are intermediate inputs and capital goods, so the tariffs would damage American companies’ supply chains and competitiveness in making goods and services to sell in the US and the world”. 

Van Staden says the upward spiral of input costs in a global trade war among economic giants would hurt SA likewise, mainly its vehicle assemblers and other manufacturers.

Nedbank economists Nicky Weimar and Dennis Dykes warned on 10 April that SA’s already faltering manufacturing production output was “particularly vulnerable to any further escalation in the trade war currently raging between the US and China”. 

This could undermine an already patchy recovery of the economy from a bad 2017. Inflation would then be pushed up by a falling rand. 

The eventual impact on SA depends of course on whether the US-China trade war heats up. Some economists have warned of a severe global recession or even depression, noting that it was America’s Smoot Hawley Act of 1930, imposing heavy tariffs to try to save jobs, rather than the great stock market crash of 1929, that plunged the US and the world economy into the Depression.

Peter Draper, director of Pretoria-based Tutwa Consulting, doesn’t think it will get that bad. He suggests that Trump and his Chinese counterpart, Xi Jinping, could still sign a truce. 

Trump is under growing pressure from agricultural groups, Republicans worried about this year’s mid-term elections, and others, to back off. 

But there is broader support for investment measures being drafted in Congress to tighten controls over Chinese investment in US high-tech industries, and perhaps also controls over US outward investment in “sensitive” industries. 

Underlying this is a strategic concern, shared by key US allies like the EU and Japan, about China seeking to take the lead in the high-tech industries of the future, Draper, says.

However the hardening ideological stance at the heart of the Trump administration, mirrored on the Chinese side by Xi’s ‘”strong leader” projection and mobilisation of anti-US sentiment around the “100 years of humiliation” narrative – are mitigating against a resolution.

The impact on SA depends on how these tensions play out. 

“In a full trade war scenario, it is difficult to see how anybody wins. As the markets have been signalling, trade wars are bad for growth, which would be bad for us. 

The bigger worry is that a sustained tussle will undermine the WTO, and the foundations of the multilateral trade order. 

It is already under enormous stress, not least owing to US pressure on the dispute settlement system, but it could conceivably break in a worst case scenario,” says Draper.

And that, clearly, would be a catastrophe for all. 

Peter Fabricius is a consultant to the Institute for Security Studies and a freelance foreign affairs journalist.

This article originally appeared in the 10 May edition of finweek. Buy and download the magazine here, or sign up for our weekly newsletter here.

trade  |  usa
NEXT ON FIN24X

A storm is coming…

2019-12-09 11:55

 
 
 
 
12 December issue
Subscribe to finweek
Loading...