How tariff war between US and China threatens Commonwealth summit
Trade liberalisation is Commonwealth leaders’ top priority as global commerce growth hits record highs
The Commonwealth heads of government meeting this week takes place as rumblings of a trade war between two of the world’s superpowers increase. Trade liberalisation is the top priority for the meeting in London and Windsor, yet the threat of tariff wars between the US and China dampens the prospects for global trade growth.
Intra-Commonwealth trade is estimated at about $700bn and is projected to exceed the $1-trillion mark by 2020. The Commonwealth has 53 member states, most of them former territories of the British Empire. In Africa 19 countries, including SA, are members of the intergovernmental organisation.
Roberto Azevedo, head of the World Trade Organisation (WTO), has said in a BBC News interview that global trade has grown the fastest yet in the past six years. US President Donald Trump, however, announced plans for a 25% tariff on US steel imports from countries such as China and a 10% tariff on aluminium. China retaliated by imposing tariffs on US goods and has threatened legal action against the US at the WTO because of unfair treatment. Azevedo says countries should show restraint and settle their differences through dialogue and collective action. A cycle of retaliation is the last thing the world economy needs.
John Stremlau, professor in the department of international relations in the School of Social Sciences at the University of the Witwatersrand, says the US is the wild card in global trade.
"If the US is prepared to subvert the international global trade that has evolved in the last 70 years then everybody has to take stock of how they maintain their relative competitive advantage," he says.
There will also have to be a renewed look at their access to markets and ways of finding a way forward in a globalised economy. It may even be necessary for Commonwealth countries to articulate opposition to the "beggar thy neighbour" policy. Such a policy is used by one country to remedy its economic problems in ways that tend to worsen the economic problems of other countries.
"The US is currently a wild card given the constitutional crises as well as the international crises that are stirring up the markets and making life more and more difficult for everybody," says Stremlau. China has made enormous inroads into Africa over many years. Some of the deals African countries have made with China are riddled with corruption and yet African governments have committed to a host of obligations that may be hard to honour in the long term, he says.
Trade Law Chambers CEO Rian Geldenhuys says when two superpowers take measures that are not in accord with global trade agreements, it spells dark days. SA will not escape the effect of it.
The Commonwealth will be unable to intervene in events at the WTO, but it can try to mitigate the fallout by expanding existing trade and forging new agreements, Geldenhuys says.
It will also be critical for Commonwealth countries to keep intratrade tariffs as low as possible and to remove or mitigate nontariff barriers such as quotas, embargoes and sanctions by large and developed countries, he says.
Stremlau says the Commonwealth is a community of democracies that tilt towards the liberal side of democracy and away from conservative thought, which seems to be the great divide in the world. "This is particularly important for Africa because of the aspirations for politically capable partners who are willing to play by basic liberal democratic [trade] rules," Stremlau says.
This is critical at a time when the temptations to put in place electoral authoritarianism or "illiberal democracy" are strong.
Stremlau says keeping the Commonwealth’s flame alive, especially with millions of people facing turbulent times on many fronts, is vital.
Member states face common challenges such as weak global trade and investment flows
The Commonwealth is home to half of the globe’s top emerging cities and, with a combined population of 2.4-billion people, is home to nearly a third of the global population.
"The Commonwealth advantage, with its shared values, regulatory systems and language, has the potential to increase intra-Commonwealth trade by 20% and can reduce the cost of doing business between member countries by up to 19%," the organisation says.
The UK is facing a huge trade dilemma due to the country’s scheduled departure (Brexit) from the EU in March 2019.
Stremlau says the UK will have to figure out how it will function independently from the EU after Brexit. The Commonwealth meeting will offer ample opportunity to examine other potential trade partners and other economic interests.
Geldenhuys agrees and says Brexit decision makers now have to think about trade relationships outside the EU. If there are strong bonds through the Commonwealth, it offers an opportunity to promote new free-trade agreements, he says.
Several sessions during the summit will look at ways to increase trade and how governments can help to facilitate increased trade.
Issues facing member states will be tackled through different forums, which will include discussions on business, women and youth.
The Commonwealth says member states face "common challenges such as weak global trade and investment flows, new cross-border security threats, the effects of climate change on small and other vulnerable states and threats to shared values of democracy, good governance and inclusivity".
The business forum will focus on five key areas: accessing modern financial services; easing the pathway for business and growth; harnessing the bloc’s technology and innovation; creating a new attitude to sustainable business, mobilising an export economy; and attracting inward investment.
Dirk Willem te Velde, head of the International Economic Development Group at the Overseas Development Institute, says that trade is growing rapidly between Commonwealth countries and offers big opportunities for job growth. This is particularly important for the poorest and most vulnerable states who export more than a quarter of their goods to other member states.
Researchers have found that the Commonwealth countries have to create 17.5-million jobs annually, amounting to 50,000 jobs daily. India needs to create 7.4-million jobs to meet the needs of its people, followed by Nigeria (2.3-million), Pakistan (1.8-million) and, finally, Bangladesh (1-million).
Ndivhuwo Mabaya, spokesman for International Relations and Co-operation Minister Lindiwe Sisulu, says the Commonwealth meeting offers an important platform for the government to network, engage and host parallel discussions on issues of interest.
President Cyril Ramaphosa will be accompanied to the heads of government meeting by senior government officials and representatives from the business sector.
Mabaya says key issues on the agenda are increased trade and the challenges of terrorism and organised crime.
SA is looking for every opportunity to attract investment to help tackle the challenges facing it, he adds.