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How the new US trade policy will affect SA

The US flexes its muscle with likely negative implications for SA’s exports, its jobs, the cost of goods, and intellectual property agreements: Isaah Mhlanga, Executive Chief Economist at Alexander Forbes.

 

NOMPU SIZIBA: South African trade with the United States has hit what could be a very costly snag; this after the US’s decision to narrow the number of countries it considers to be developing nations. This occurred earlier in the week. It follows President Donald Trump’s protest sometime last year that it was wrong that the World Trade Organisation rules allowed some of the world’s richest countries to claim to be developing countries, and therefore benefit from the so-called “generalised system of preferences”. South Africa has been used to trading with the United States on a preferential basis and, of course, it enjoys the duty-free benefits of being part of the Africa Growth and Opportunity Act, also known as the Agoa trade regime.

So what are the implications of this latest US action? To break it down for us, I’m joined on the line by Isaah Mhlanga, the chief executive economist at Alexander Forbes. Thanks very much Isaah, for joining us. So just in basic terms explain to us the preferential access to United States that South Africa has enjoyed until now.

ISAAH MHLANGA: Essentially you have about 36% of South Africa’s total export that goes to the United States without any tariffs or duties. And that’s quite a significant amount. But if we consider for some subsectors such as agriculture, for instance, that percentage goes to about 75%, which means these are now going to be subject to tariffs, which means it’s going to be much more expensive for us.

And because of that access to the US market without tariffs, South Africa has maintained a trade surplus in terms of goods trade with the US since the inception of Agoa in 2000, and exports have increased by 104%, which is a significant growth.

If you look at 2018 alone, South Africa exported to the US about R8.5 billion, while it imported about R4.2 billion, which means we had a trade surplus of R3.76 billion, which benefits of Africa quite significantly. And those trade dynamics are likely to change going forward.

NOMPU SIZIBA: Great, you did your homework on the numbers. So – is the latest decision a foretaste of what’s to come in terms of South Africa’s participation in the Agoa agreement, then?

ISAAH MHLANGA: I think so, but also you have to look at what has been the stance of the US as far as trade policy is concerned.

In terms of trying to force countries to agree to what it wants – you would know over the past two years or so there have been tensions with China, and trade is being used … So this is going to be used as a tool which the US is going to use to force countries to do things that it wants. But unfortunately it’s going to be to the detriment of many emerging markets, many of whom are in Africa – into which South Africa falls – that are going to no longer access the US markets freely.

NOMPU SIZIBA: Look, it’s bad enough that the South African economy has been lacklustre, with even observations of lower global demand for manufactured goods, for example. So what sort of net impact is this going to have on the South African economy – and ultimately jobs?

ISAAH MHLANGA: Well, for the South African economy I think we just have to look at some of the sectors that will be impacted negatively, because it’s going to be far more expensive for the US to import from SA, because we no longer have that free access. Motor vehicles and parts, for instance, is one of the big sectors which exports about R0.5 billion.

If you also look at citrus fruits, and look at the wines and grapes, those are some of the sectors that have a big concentration in terms of employment, and which are labour-intensive, which means there are going to be negative implications from an employment point of view, but also from a total exports point of view, given that we now have to compete with other countries on a fair basis, because we have been excluded from these generalised preferences.

NOMPU SIZIBA: Yes. But what do you suppose is the motivation for this action? Surely South Africa, as much as it has a rich endowment of minerals and so on, is still technically a developing country – although I’m hearing that this may also have something to do with our Copyright Amendment Bill, which US media-industry interests argue will harm their intellectual property rights. What are your thoughts on this?

ISAAH MHLANGA: Yes, that’s true. It seems to have a … for South Africa. This seems to have originated from that sentiment that our intellectual property rights are not to the standard required by the US and, as a result, an attempt to force a change. They’re going to take away this privilege of exporting to the US without duties, which they can then use as a tool to force South Africa to change some of those intellectual property rights.

But this is not just done to South Africa alone. It’s done to many other countries. About 35 countries have been removed from these special preferences, which means trade is going to be a tool which the US is going to use more generally. It’s specially for countries that enjoy a trade surplus with the United States.

NOMPU SIZIBA: Yes. Do you think that we and these other countries were just being hit because of China? China is considered to be a developing country, even though it’s the second-largest economy in the world, and even though it can go toe-to-toe with America on a number of fronts. Do you think we are collateral damage?

ISAAH MHLANGA: It’s quite possible that we are collateral damage, but we are also in a grouping with China called Brics, which means we do support China in that Brics grouping. So we may be targeted because of our association within that grouping.

But also, if you look within emerging markets, South Africa does punch above its weight as far as global policies are concerned, whether we look at the G20 – we are part of the G20 – which means we are quite visible in terms of how we relate to the rest of the world. So, yes, we may be collateral damage, but I think in our own right we do have a bearing in terms of how global policies are concerned.

NOMPU SIZIBA: Isaah, thank you very much for your time sir, as always.

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The chickens are coming home to roost…

SA siding with all the terrorists and despots of the world against the US, while enjoying zero duties on its exports to the US.

Those days are OVER. Welcome to the real world, squirrel.

End of comments.

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