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Through the fog of trade wars

The benefits of open markets shouldn’t be obscured by the prevailing rhetoric.

The state of international trade is currently one of the world’s biggest economic talking points. The raising of tariffs on Chinese goods by the US, and the retaliatory measures by China on American goods, has made markets understandably nervous.

Read: US readies new tariffs as Trump says he’ll meet China’s Xi

Even though there is broad agreement that some Chinese practices, particularly around intellectual property rights, deserve to be challenged, there is a lot of wariness around the current US administration’s tendency to talk about trade in zero-sum terms, where there is a ‘winner’ and a ‘loser’.

It is a position most famously summed up in a tweet from President Donald Trump in March last year:

Given the headlines the escalating trade tensions between the US and China in particular are creating, it’s encouraging to be reminded that the kind of thinking displayed in Trump’s tweet is far from universally shared.

“We believe strongly that it’s only through open trade, free trade, that you see the benefits that we all say we want to see – inclusive growth, job creation, sustainability and economic growth,” Emma Wade-Smith, the UK’s trade commissioner for Africa, told Moneyweb on the sidelines of the recent Afsic Investing in Africa conference in London. “When you look at countries across the world, those that are more open tend to have higher rates of economic growth, higher rates of job creation, greater economic stability.”

A win-win

If anything, the global consensus is still that markets should be opening up, not putting up barriers.

“When you look at the amount of additional regulations, tariffs and taxes that have been put in place – including by the G20 countries – over the last few years, that is not the trend we want to see,” says Wade-Smith. “We want to see those barriers coming down, not being increased. That kind of protectionist instinct is, on the one hand, understandable – but, we think, based on a misunderstanding of how to build growth and global trade.”

The trade relationship between the UK and South Africa, in her view, is a good example of a ‘win-win’ relationship.

“I think it is really important in both directions, and has been for many years,” she says. “South Africa is by far our largest trading partner in Africa and that value goes in both directions. There is £8 billion (R150 billion) worth of trade between our countries, and it is fairly balanced. I think it also goes beyond the pure trade figures when you look at the extent of investment in both directions, and you look at the human connection as well.”

She characterises the relationship as “broad and deep”.

“The UK is the largest foreign investor in South Africa, but investment also flows the other way,” she adds. “On British high streets you see South African investment all over the place, whether you want to by a bed or clothing or whatever it is. You also have the likes of Discovery Vitality and Investec doing some really great business in the UK, and there is an increasing amount of connectivity between our entrepreneurs.”

Investment flows

There is, however, no question that it has been more difficult for UK businesses to commit investments to South Africa in recent years. The local economic and political environment has affected how businesses view potential opportunities.

“We have seen investment levels at least plateau, as business confidence has been shaken a bit,” acknowledges Wade-Smith. “Investment is a really competitive environment, and investors internationally, not just from the UK, have a range of markets where they can go.

“It’s no secret that South Africa is in direct competition with other emerging markets.”

Although she thinks South Africa has remained “surprisingly robust”, Wade-Smith hears that many businesses are looking for signs of improvement before committing capital.

“Some of that is the elusive quality of business confidence, which can be hard to define and harder to understand how to get,” she says. “But I think a strong message from the government helps with that.”

She also believes that strong demonstration from South African businesses – that they are once again prepared to invest in their own country – would lift international confidence.

“There are also questions around policy certainty,” she adds. “For instance, we’ve seen all sorts of concerns around the mining sector. If you are investing in a mine or related infrastructure, you need policy certainty for quite a few decades to know that your investment is going to work for you.”

Hope for the future

For her, the UK has a genuine interest in these kinds of things being resolved.

“We want to see the best for South Africa and make sure that the investment environment continues to strengthen so that we can continue to build on that relationship,” she says.

She also sees a continuum between trade and investment, and the creation of jobs and economic security. That in turn helps to drive social stability and security, which benefits everyone.

“It’s really important that we have this economic growth to ensure that we have job creation, and that we’re giving hope to the next generation of young adults coming into the labour market every day, looking to make a meaningful contribution to the communities that they live in.”

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Before accepting Donald Trump’s financial acumen as gospel, it is worthwhile pondering whether he, with multiple business bankruptcies under his belt and one of the highest personal tax losses in the USA, is the right guru to take advice from. Especially when that certain country is the largest holder of US debt.

But the arguments around tariffs obscure that free markets are never free; that dominant players abuse their size and smaller markets (like SA, under 2% of the world economy) battle to compete with the majors. For one, the clothing industry (which did not need British or other investment) flourished until destroyed by the Chinese; that’s a lot of jobs and forex lost plus capital gone to waste.

Further, the most critical factor in international competition is the area where SA is most disadvantaged: education and skills; and SA has further handicapped itself with a “tariff”/protectionism called BEE.

End of comments.

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