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Dr Calvin Mudzingiri
Dr Calvin Mudzingiri, Assistant Dean: Faculty of Economic and Management Sciences, University of the Free State, Qwaqwa Campus.

Opinion article by Dr Calvin Mudzingiri, Assistant Dean: Economic and Management Sciences, University of the Free State, Qwaqwa Campus 


The sudden hike of import tariffs by US President Donald Trump and his administration to countries across the world is set to reduce the volume of goods traded and affect citizen welfare across the globe. The Trump administration implemented a global 10% import tariff and a varying targeted reciprocal tariff to a host of countries, including South Africa. The reciprocal import tariff to be levied on South African export goods to the US is set at 30%. Historical data show that yearly trade between SA and US amounts to $23 billion and the US is SA’s the second biggest trading partner after China. The high tariff will reduce the competitiveness of South African export goods to American markets, leading to reduced demand of SA exports in US markets, low income to firms, job losses, low income to households and ultimately lower South African economic growth.

 

SA and US trade

South Africa exports platinum, locally assembled cars, raw aluminium, ferroalloys and agriculture products, among other goods, to the US. The implication of the US administration’s 30% tariff hike could result in job losses in the mining, automobile, agriculture and many other industries. More income losses to SA agricultural exports can also be experienced if the African Growth Opportunity Act (AGOA) expires in September 2025, if the US congressmen decide not to renew the agreement. Given the low economic growth rate in South Africa in 2024, which is estimated at 0.6%, the tariff hike by the US will exacerbate sluggish economic growth and recovery from the COVID 19 pandemic. 

Statistics also show that SA imports energy products, machinery, vehicle, industrial and other consumer goods. The goods and services SA imports from the US play a critical role in developing and sustaining local industry. SA can decide to source the goods from other markets and if this happens with all economies where tariffs were imposed, the US will be worse off. There is a possibility that economies which received a tariff hike from the US will implement a reciprocal tariff hike to the US reducing the volume of global trade. The reduced trade volumes have dire implications for job creation, income generation by firms and households, making citizens worse off.


US current trade policy

It is important to note that President Trump administration’s trade policies are premised on a trade notion synonymous to ‘mercantilism’, which was practised in Europe between the 16th to 18th centuries. Under mercantilism, an economy aims to maintain a trade surplus, the government regulate the economy, discourage imports (in the case of the US using tariff hikes) and promote growth of home industries among other initiatives. Conventional economics wisdom has proved that policies pursued by the Trump administration of protectionism are a breeding ground for trade wars. There is great potential of fellow trading partners retaliating and if that happens, global citizens will be made worse off as they will be forced to pay high prices for goods due to additional costs driven by tariff hikes. In addition, US industry relies on raw materials from other countries. If the suppliers of raw material resources retaliate, the production cost model of US firms will rise, reducing export competitiveness of US exports.

Trump’s administration is calling for firms across the world to move and produce goods in the US to avoid tariff levies. The action works against the benefits of free trade and can affect firms’ comparative advantages. The production cost structure in the US can be higher than in other countries leading to firms realising low profits if they move to the US. It is essential to note that free trade with absolutely no trade barriers will enhance the welfare of citizens at large, since goods and services will be purchased at low prices. The US government’s act of over-regulating trade can limit economic growth not only of other countries but even that of the US economy.

 

Options for the SA government

In the face of trade adversity, the SA government must not fold its hands and do nothing. It is enlightening to note that the authorities have already initiated diplomatic and trade negotiations. Negotiations can possibly focus on tariff reduction, maintaining the AGOA, and delving deep in the logic used to arrive at the 30% tariff hike. The diplomatic initiatives must encompass improving perceptions and clarity of SA policies such as the Expropriation Act which is one of the reasons cited by the US administration in ratcheting the tariff trade war.

South Africa must re-orient its trading patterns and partnerships. The aggregate world gross domestic product (GDP) is greater than the US total production for goods and services. There is need for SA to improve trade relations with other economies to broaden its trade base. The current frosty trade relationship between SA and the US presents a window to strengthen trade with the EU, Asia, BRICS plus, Africa, and any other economy willing to get into trade partnerships. SA must explore other markets where the export goods still enjoy competitiveness.

To ensure economic resilience to trade wars in the long run, SA needs to seriously invest in research and development that promote value addition of local production, enhancing local production and technology advancement that can stimulate economies of scale, which can boost competitiveness of export goods. Competitiveness can be further enhanced by improving energy production efficiency, which is a crucial input of goods and services production. Developing a powerful and skilled human capital base can lead to labour productivity efficiency, further enhancing competitiveness. SA has a dilapidated infrastructure ranging from roads, rail, buildings and industry among others. Improving the infrastructure will go a long way in improving local production, leading to creation of jobs and improved incomes for households.

Boosting local economic activity can stimulate local consumption of goods as household income improves. If the incomes of SA citizens improve, there is a potential to increase local consumption. Goods meant for export markets can end up being consumed in the domestic markets, providing a homemade solution to dwindling export goods markets. The SA government must consider developing and supporting new industries that can compete in the local and international markets. In this way, the trade challenges posed by unfriendly US administration trade policies can present opportunities to the SA economy in the long run.

News Archive

UFS honours Dr Ben Ngubane
2010-05-19

 
 Prof. Teuns Verschoor, acting Rector and Vice-Chancellor of the UFS, and Dr Ben Ngubane.
Photo: Stephen Collett


The University of the Free State (UFS) yesterday conferred an honorary doctorate on Dr Ben Ngubane, Chairperson of the SABC Board, during its autumn graduation ceremony held on the South Campus in Bloemfontein.

Dr Ngubane received the degree Philosophiae Doctor (Honoris Causa) for his immense contribution towards positioning South Africa as a major and an influential player in the development of arts, culture, science and technology internationally.

“I want to thank the UFS for this honour bestowed on me and accept this honorary doctorate in all humility and with great gratitude. I am comfortable to regard myself inextricably part of this university and its mission and will always be a worthy ambassador for this institution and what it represents. I am a proud Kovsie!” said Dr Ngubane after receiving the honorary doctorate.

“The world is changing at a rapid pace. Universities not only respond to such changes, they have become critical engines in the reshaping of that world through knowledge production and research innovation. Sitting at the tip of the African continent, and in the centre of South Africa, it is crucial to the ambitions and agendas of the UFS to be constantly aware of how the world of knowledge, innovation and scholarship is changing with respect to higher education, and how the UFS can best contribute to and benefit from such changes,” he said.

“A university worthy of its name thrives on the universality of ideas and people that come with the cross-currents of international scholars and students on its campus. The International Institute for Studies in Race, Reconciliation and Social Justice, to be launched shortly at the UFS has the potential to become a leading centre of scholarship acknowledged globally.”

Dr Ngubane said that the UFS is now well positioned and has the right strategies in place to become truly internationally recognised, with a proven ability to deal successfully with diversity, embedding in its students a humaneness and respect for the dignity of others, as well as an institution with an increasing through-put rate and with research outputs displaying excellence at international level.

Dr Ngubane was the first Minister of Arts, Culture, Science and Technology in the new, democratic South Africa appointed by the former President, Nelson Mandela, in 1994. He was re-appointed to lead this ministry again by former President Thabo Mbeki in 1999.

As Premier of KwaZulu-Natal from 1996 to 1999, Dr Ngubane is credited for his role in bringing about peace and reducing the political violence that ravaged the province at that time. In 2004 he was appointed as Ambassador to Japan where he initiated, among other projects, the South Africa-Japan University Forum (SAJU).

He holds Honorary Doctorates from the universities of Natal, Zululand, the Medical University of South Africa (Medunsa) and the Tshwane University of Technology.

Media Release
Issued by: Lacea Loader
Director: Strategic Communication (acting)
Tel: 051 401 2584
Cell: 083 645 2454
E-mail: loaderl@ufs.ac.za  
19 May 2010
 

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