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07 April 2025 Photo Supplied
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

Internationally acclaimed academic applauded on Africa Day
2011-06-02

 
 Prof. Ali Mazrui, an internationally acclaimed and renowned academic.

One of the world’s top academics was given a warm welcome in the rather cold Free State recently.

Prof. Ali Mazrui, an internationally acclaimed and renowned academic, visited us as part of our Africa Day celebrations as arranged by the Centre for Africa Studies. He delivered a keynote address, entitled ‘Pro-democracy uprisings in an African experience: from Sharpeville to Benghazi.’

A festive atmosphere and the sound of drums welcomed this intellectual giant as well as other delegates upon their arrival at the CR Swart Auditorium on our Bloemfontein Campus. Some of the delegates who attended the Africa Day Celebrations, included: Mr Tom Amolo, High Commissioner from the Republic of Kenya; Mr Dan Kgothule, MEC of Arts and Culture in the province; Prof. Jeff and Dr Carla Ramsdell, visitors from America; Dr Allan Boesak and Prof. Nicky Morgan, Vice-Rector: Operations.

Prof. Frederick Fourie, former Vice-Chancellor and Rector of our university, also attended the celebrations, as did some scholars from neighboring schools.

Welcoming Prof. Mazrui, Prof. Jonathan Jansen, Vice-Chancellor and Rector of our university, quipped that he was relieved the world had not ended the previous weekend as was predicted, because he was looking forward to listening to such a renowned intellectual.

Prof. Lucius Botes, Dean of Humanities, followed Prof. Jansen at the podium. He said the ability to go from following a bridging course to being one of the top 100 intellectuals in the world, indeed distinguishes Prof. Mazrui as an exceptional academic. This intellectual is, among others, an Albert Luthuli Professor at the University of Jos, Nigeria and Andrew D. Professor Emeritus and Senior Scholar in Africana Studies at Cornell University.

In his introduction, Prof. Mazrui said he feels honored and flattered by this opportunity. He proceeded by referring to the history of Africa Day and added that he would rather prefer an Africa Week to an Africa Day to ensure that everybody has the opportunity to celebrate the continent.

He sang the praises of South Africa, as almost every other African country which attained liberation from European colonial rule in the 20th century, has been unable to maintain its democratic order beyond its first decade of independence.

“The Republic of South Africa, on the other hand, liberated Nelson Mandela in 1990, held its first democratic election in 1994, and already has its third president. Nearly two decades after Apartheid, South Africa has not outlawed opposition parties, or experienced a military coup, or permitted the Head of State to govern the country as a dictator.”

In his speech he compared the uprisings in Sharpeville during 1960 and Soweto during 1976 with the more recent pro-democracy uprisings in North Africa, based on the role that weapons and the lack thereof, as well as the youth and women played in the respective cases.

He concluded by saying the uprisings in Tunisia and Egypt have already resulted in ousting dictators who had been entrenched in power for decades, adding that in Libya a third dictator’s future is on the line. “Never in the history of the Arabs have there been so many popular uprisings which seem to be inspired neither by Islam nor by anti-imperialism, but in the quest for liberal reforms. Half a century earlier in Sharpeville and Soweto, South Africans experienced their own political awakening.”

Prof. Kwandiwe Kondlo, Director of the Centre for Africa Studies, closed the event with a word of thanks to the American academic and his wife, guests and attendees. He said discussions prior to the event revealed that more research has to be done regarding gender issues on the continent.

Prof. Mazrui also participated in conversations at the institute and a media briefing which was hosted earlier the day.

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