NEVA MAKGETLA: SA will have to fast-track a strategy to deal with trade turmoil
Fallout of Trump tariffs on trade flows will be compounded by the effects on the world economy
04 February 2025 - 05:00
byNeva Makgetla
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Donald Trump beside US first lady Melania Trump. Picture: Carlos Barria
Since the 1960s, global economic growth has been largely grounded in the US functioning as an infinite consumption machine. The new Donald Trump tariffs are hacking at that foundation.
Now SA, like the rest of the world, has to come up with strategies to deal with the resulting disruption. The main effects include big shifts in trade flows and prices, and likely an economic slowdown in both China and the US. And that’s even before the US makes good on its threat to tariff, well, everything.
Trump’s tariffs do have some logic, but the logic is rooted in fiction. Reportedly, the US president believes tariffs are a sales tax on foreign producers, which could vastly increase revenues for the US fiscus. That would permit lower income taxes in the US. Unlike most countries, it doesn’t have a federal sales tax, so in effect Trump thinks tariffs can provide a painless substitute.
In fact, every sales tax — including tariffs — ultimately ends up being paid primarily by consumers, not producers. Prices will rise in the US. But the consequent redirection of trade flows and slower economic growth will also affect SA. And the costs are likely to outweigh the benefits.
As the affected countries seek new markets for their exports to the US, they will probably cut prices on their sales to the rest of the world, including to SA. In 2024 the US bought 13% of global imports and 15% of Chinese exports — already down from 19% in 2018. If China needs to find new markets in a hurry, SA could benefit from cheaper goods. But industries already squeezed by high imports will face even stiffer competition.
With luck, we will get cheaper electronics. That would be nice. US tariffs on Mexico and Canada could also bring discounts on maple syrup, tequila, petroleum and fertiliser. But top Chinese exports to the US include clothing, textiles and footwear; steel; and toys and other plastic products. If import prices for those products drop it will add to the pressure on already precarious local producers.
The diversion of trade from the US also means intensified competition for export markets. The main vulnerabilities are cars (a fifth of SA’s total exports) and fruit (about 4%). Mexico’s auto exports to the US come to 7% of total global auto exports. They are more than 10 times as high as SA’s auto exports worldwide. Mexican fruit exports contribute 7% of the global total. Its sales to the US alone are twice as high as all of SA’s fruit exports.
On the plus side, the US tariffs increase the competitiveness of SA exports to the US itself. The US now buys 8% of SA’s total foreign sales, including 10% of autos and 5% of fruit and vegetables. The benefits could be short lived though, as the US is threatening to impose 10% tariffs on all imports, or possibly only on steel, aluminium and pharmaceuticals. (Yup, the world has become far less predictable.) More than 25% of SA’s exports of aluminium go to the US, as does almost 10% of ferro alloys and 5% of other steel products.
The impact on trade flows will be compounded by the effects on the world economy. The disruption to supply chains can vastly slow growth, as we saw during the Covid-19 downturn in 2020. The effects are likely to be felt particularly sharply in the US and China — the former because of the supply-side shock; the latter as export markets are squeezed. These two countries alone account for a fifth of SA’s exports.
The Wall Street Journal has called this “the world’s dumbest trade war.” It’s hard to disagree. It’s also hard to manage irrational choices by the biggest economy in the world. The global economy seems headed for a profound restructuring and SA needs to fast-track a strategy to adapt to our strange new world.
• Makgetla is a senior researcher with Trade & Industrial Policy Strategies.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
NEVA MAKGETLA: SA will have to fast-track a strategy to deal with trade turmoil
Fallout of Trump tariffs on trade flows will be compounded by the effects on the world economy
Since the 1960s, global economic growth has been largely grounded in the US functioning as an infinite consumption machine. The new Donald Trump tariffs are hacking at that foundation.
Now SA, like the rest of the world, has to come up with strategies to deal with the resulting disruption. The main effects include big shifts in trade flows and prices, and likely an economic slowdown in both China and the US. And that’s even before the US makes good on its threat to tariff, well, everything.
Trump’s tariffs do have some logic, but the logic is rooted in fiction. Reportedly, the US president believes tariffs are a sales tax on foreign producers, which could vastly increase revenues for the US fiscus. That would permit lower income taxes in the US. Unlike most countries, it doesn’t have a federal sales tax, so in effect Trump thinks tariffs can provide a painless substitute.
Trump warns SA that US will cut off funding
In fact, every sales tax — including tariffs — ultimately ends up being paid primarily by consumers, not producers. Prices will rise in the US. But the consequent redirection of trade flows and slower economic growth will also affect SA. And the costs are likely to outweigh the benefits.
As the affected countries seek new markets for their exports to the US, they will probably cut prices on their sales to the rest of the world, including to SA. In 2024 the US bought 13% of global imports and 15% of Chinese exports — already down from 19% in 2018. If China needs to find new markets in a hurry, SA could benefit from cheaper goods. But industries already squeezed by high imports will face even stiffer competition.
With luck, we will get cheaper electronics. That would be nice. US tariffs on Mexico and Canada could also bring discounts on maple syrup, tequila, petroleum and fertiliser. But top Chinese exports to the US include clothing, textiles and footwear; steel; and toys and other plastic products. If import prices for those products drop it will add to the pressure on already precarious local producers.
The diversion of trade from the US also means intensified competition for export markets. The main vulnerabilities are cars (a fifth of SA’s total exports) and fruit (about 4%). Mexico’s auto exports to the US come to 7% of total global auto exports. They are more than 10 times as high as SA’s auto exports worldwide. Mexican fruit exports contribute 7% of the global total. Its sales to the US alone are twice as high as all of SA’s fruit exports.
On the plus side, the US tariffs increase the competitiveness of SA exports to the US itself. The US now buys 8% of SA’s total foreign sales, including 10% of autos and 5% of fruit and vegetables. The benefits could be short lived though, as the US is threatening to impose 10% tariffs on all imports, or possibly only on steel, aluminium and pharmaceuticals. (Yup, the world has become far less predictable.) More than 25% of SA’s exports of aluminium go to the US, as does almost 10% of ferro alloys and 5% of other steel products.
The impact on trade flows will be compounded by the effects on the world economy. The disruption to supply chains can vastly slow growth, as we saw during the Covid-19 downturn in 2020. The effects are likely to be felt particularly sharply in the US and China — the former because of the supply-side shock; the latter as export markets are squeezed. These two countries alone account for a fifth of SA’s exports.
The Wall Street Journal has called this “the world’s dumbest trade war.” It’s hard to disagree. It’s also hard to manage irrational choices by the biggest economy in the world. The global economy seems headed for a profound restructuring and SA needs to fast-track a strategy to adapt to our strange new world.
• Makgetla is a senior researcher with Trade & Industrial Policy Strategies.
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