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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 in forefront with ASGI-SA initiative
2006-05-10

At the conceptualisation colloquium and stakeholder dialogue were from the left Dr Aldo Stroebel (senior researcher at the UFS Research Development Directorate), Dr Edith Vries (acting Chief Executive Officer of the Independent Development Trust) and Prof Frans Swanepoel (Director: UFS Research Development Directorate).

UFS in forefront with ASGI-SA initiative

Two staff members of the University of the Free State (UFS) have been appointed as members of the advisory board of the national programme for the creation of small enterprises and jobs in the second economy.  This programme forms part of government’s Accelerated and Shared Growth Initiative of South Africa (ASGI-SA).

Prof Frans Swanepoel, Director of the UFS Research Development Directorate and Dr Aldo Stroebel, senior researcher at the UFS Research Development Directorate, are working with a team of experts from the UFS on a draft implementation strategy for the national programme.  Both Prof Swanepoel and Dr Stroebel are also associated to the UFS Centre for Sustainable Agriculture.
 
“The strategy is being developed in collaboration with institutions like the Independent Development Trust, the Department of Agriculture, the National Development Agency and the Department of Trade and Industry,” says Prof  Swanepoel.  

The other team members of the UFS are Prof Basie Wessels, Director of the  Mangaung-University Community Partnership Programme (MUCPP) and Mr  Benedict Mokoena, project manager at the MUCPP.

Dr Stroebel was also member of the organising committee of a conceptualisation colloquium and stakeholder dialogue that was recently presented in Johannesburg.  The conference was attended by more than 400 delegates from government departments, higher-education institutions and civil society, including Dr Kobus Laubscher, member of the UFS Council.

The conference was facilitated by Ms Vuyo Mahlati, previously from the WK Kellogg Foundation’s Africa programme and opened by Ms Thoko Didiza, Minister of Agriculture and Land Affairs.   

“The colloquium formed the basis of an induction workshop during which a group of 150 individuals (50 teams of three) from all nine provinces, identified to initiate the implementation of the national programme, was trained and orientated towards an induction manual in collaboration with Hand-in-Hand, an Indian counterpart,” says Prof Swanepoel.

Dr Stroebel and Mr Benedict Mokoena formed part of the team to conceptualise and finalise this training manual.  The induction training includes a case study of a successful community self-help partnership model, namely the MUCPP at the UFS. Prof Wessels and Mr Mokoena are both playing a leading role in the further development of subsequent training initiatives throughout South Africa, in partnership with the relevant provincial departments.

“The involvement of the UFS in the programme is a compliment to us.  It reflects the value government sees in the use of academics and experts in the management of the ASGI-SA initiative.  It is also an indication of one of the aims of the UFS to play a role in South Africa and Africa and in the transformation and change that is taking place in our country,” says Prof Swanepoel.  

Media release
Issued by: Lacea Loader
Media Representative
Tel:   (051) 401-2584
Cell:  083 645 2454
E-mail:  loaderl.stg@mail.uovs.ac.za
10 May 2006

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