It’s as yet unclear what the global trade war that US President Donald Trump is about to unleash could mean for SA. But the trouble with trade wars is they risk hitting the most vulnerable nations hardest. So emerging markets, SA included, should be afraid, very afraid.
Trump’s comments last week have already caused jitters in emerging market stocks, which took a pounding on Friday. While Brazil, South Korea and China are the most exposed to the threat of new tariffs, South African stocks were also affected, dragged down by ArcelorMittal, which fell 5.5%.
Trump wants to deliver on his election campaign promise to put steep tariffs on US-produced steel and aluminium to protect local industry. Ironically, perhaps, this is something SA has done in the recent past, imposing safeguard tariffs on steel imports in terms of World Trade Organisation rules in an effort to cope with the impact of the global surplus that huge excess capacity in China’s steel industry has caused. SA was one of the last markets without protection from Chinese dumping. That has been remedied, legally, rescuing the domestic steel industry, albeit at some cost to downstream steel producers.
By contrast, Trump’s big tariff plans don’t seem to be in line with global trade rules at all. He is reported to be planning new tariffs of 25% on steel imports and 10% on aluminium imports. He is justifying this in terms of protecting national security, which, writes Peterson Institute senior fellow Chad Bown in the Washington Post, would be an unprecedented shift in US policy. "While there have been many historical episodes of the US steel industry demanding — and being granted — import protection of some form, what is taking place this time is truly different."
The US commerce department did two rather secret investigations into steel and aluminium imports — which account for about 2% of total US imports — and concluded that they threatened national security because the imports were harming the US steel and aluminium industries, which could become unable to respond to US military needs in a time of war.
The commerce department recommended comprehensive import curbs that would cut steel imports 37% and aluminium 13%, raising costs for steel-and aluminium-intensive sectors such as motor vehicles, infrastructure and canning. Not only would this affect companies and workers in those sectors and increase costs for consumers, but the size and scope of the curbs is so great that other countries could not ignore them. They would have to retaliate, imposing tariffs of their own. So that would mean, for example, that the EU and Japan could be expected to follow suit by closing their markets to any number of US imports. The knock-on effects for other countries are bound to be significant.
The thing about Trump’s national security approach is it doesn’t have the transparency or policy processes or restrictions of the usual routes to tariffs. He can impose his new steel and aluminium protections unilaterally, with no time limit and without being subject to government review.
Global trade has long taken place between countries that abide by the rules-based system led by the World Trade Organisation (WTO) and its rules and dispute-settling mechanisms. The WTO does allow trade restrictions for national security reasons, but that overrides its rules-based system so countries very rarely use it, and if they do the risks are huge. The WTO rules allow countries to contest the US through a formal dispute process. That raises the prospect of a global dispute at the WTO over Trump’s tariffs, which could have devastating effects on international economic and political relations whatever the outcome.
Trump has already moved far away from the US’s traditional role as global leader, turning his country, in effect, into just another child having tantrums with its siblings. This time, he is taking it many steps further and the potential fallout for global trade and international relations is frightening.