LUNGILE MASHELE: Trump wants politics not markets to hold sway

The energy transition that started more than a decade ago has come under serious scrutiny. Energy transitions are necessary at a pace and scale that a country can afford, but they are nuanced. Energy experts have been warning for some time that countries do not have single issues, and a singular driver or sector for economic growth is bad for the economy.

Economies are market or state led. In a market-led environment the market will dictate products and prices, determine growth sectors and areas of greatest shareholder profit maximisation. In a state-led economy, there is a focus on people, politics, natural resource endowments, skills and how all of these grow a sustainable economy.

Most countries follow a hybrid approach (state and market led) which augurs well for the development of a country. This is when the government sets policy and creates an enabling environment for the private sector to implement. The problem SA faces is that over the past few years we have become a market-led economy with a strong private sector focus and reliance. This was intentional, and follows the hollowing out of the state and its resources.

This creates a predatory private sector that thrives on government failures and at times even manufactures crises to be able to invoice. But we are not alone — our European counterparts are finding out the hard way what happens when certain actors use the state to drive private interest.

In a recently leaked EU document relating to the scaling back of environmental legislation, the overarching theme is the deindustrialisation the EU has faced over the last decade, the failed energy transition, and the high electricity tariffs that are affecting competitiveness. Expectedly, the EU private sector was the biggest beneficiary of these energy policies.

Globally, there is a rise of the far right and a focus on domestic economics. Over the past two years elections have demonstrated that immigration, deindustrialisation and inflation are critical issues interconnected with the economy. In the EU, energy poverty has increased, unemployment is rising and there is a housing and a cost-of-living crisis.

The EU is calling for a return to basics, a return to industrialisation that leads to economic growth. It is reaching out to allies and those sanctioned or ostracised by the US government. It is going far and wide seeking minerals, gas and alternative forms of energy. Sanctions on Russia and the resultant gas price rise, followed by tariff volatility, held a mirror to the EU — and the picture was horrifying.

The US is following a different route — an isolationist one, focused on domestic energy production, energy security and affordability. In a recent article, renowned economist Yanis Varoufakis discussed Donald Trump’s economic strategy, emphasising his belief that America’s global economic role is detrimental.

Trump views the dollar’s dominance as a burden that is causing US manufacturing decline. His plan involves using tariffs to force foreign central banks to lower their interest rates, while maintaining US consumer prices and benefiting American producers.

Trump’s goal is to renegotiate international economic relations, ensuring a stronger America. Varoufakis warns that while Trump’s plan is risky, it is also sophisticated and should not be underestimated. 

Trump’s plan could lead to higher energy costs if tariffs are imposed on energy imports. His plan is to depreciate the dollar while maintaining its status as the world’s reserve currency, but a weaker dollar could make energy imports more expensive, affecting affordability. This would necessitate an increase in domestic energy production, thereby enhancing energy security. But it might not immediately lower costs. 

What the US is doing speaks to a shift in the global economic landscape and the end of economic imperialism. Trump is saying markets won’t dictate, politics will. And he, with the greatest political power, will determine the economic decisions and the distribution of wealth. Very shortly we are bound to see money follow power.

• Mashele, an energy economist, is a member of the board of the National Transmission Company of SA.