[Opinion] SA dithers while global trade shifts

Amidst the US-generated trade turmoil, Chinese president Xi Jinping announced last week that “zero-tariff treatment for 100% tariff lines” would be accorded to all 53 African nations that have diplomatic ties with China.

This will provide those African countries with tariff-free access to Chinese markets, much along the lines of the duty-free access to the US market which the Africa Growth and Opportunity Act (AGOA) offers to 32 African countries for over 1,800 products.

With the current iteration of AGOA set to expire in September, and few signs that it will be renewed, African governments will be especially interested in new tariff-free trade agreements. Many African countries will be additionally incentivised to seek trade with China because they face high reciprocal US tariffs that were announced earlier this year. Those tariffs are set to be reactivated on 9 July. From that date, South Africa faces a 31% tariff rate on its exports to the US.

China is not pursuing this trade option for purely altruistic reasons. It is seeking to increase its trade with countries around the world, to help alleviate some of its ongoing domestic growth headaches, secure access to raw materials, and increase Chinese soft power at a time when many countries feel the US is generating geopolitical shocks and uncertainty.

Through late 2024 and into 2025, the Chinese government has worked to portray itself as the defender of a rules-based global system, advocating for free trade. In November 2024 Mr Xi said: “We should tear down the walls impeding the flow of trade, investment, technology and services, uphold stable and smooth industrial and supply chains, and promote economic circulation in the region and the world.”

Hinges on the details

However, whether a tariff-free agreement is meaningful for South African exports hinges on the details. While China is South Africa’s top export trading partner, this trade has been composed mostly of raw materials and commodities. This is also true for many other African countries.

While these countries are anxious to export other products, they face significant non-tariff trade barriers when it comes to exporting agricultural products into China, and are generally uncompetitive with Chinese industry when it comes to manufactured products. South Africa’s trade with the European Union and US is relatively more diversified, with manufactured and value-added exports better represented than in the trading relationship with China.

Should South Africa choose to take advantage of tariff-free export to China, it will not mean much of a domestic manufacturing and industrial benefit if trade continues mostly along raw materials lines.

Any new trading agreement, while welcome, will not cure South Africa’s domestic trade infrastructure and policy impediments and failures. Reform of the country’s ports and railway network, as well as a steady move away from protectionist, subsidies-first trade policy, will ensure a more conducive domestic manufacturing environment and allow South Africa to be less dependent on and desperate for the beneficence of larger countries. (Note: A national shipping carrier is not the answer to the country’s persistent trade infrastructure problems).

In the Centre for Risk Analysis May Macro Review report, SA Faces Ultimate Trade Test, we found that, “such a large injection of global trade volatility presents an opportunity for South Africa to objectively assess its trade and investment policies. The country’s potential role in acting as a major integrator of the Africa Continental Free Trade Area also plays in its favour. However, to take advantage of any such shifts and opportunities, South Africa’s trade infrastructure, including functional ports, railways, border posts, and roads, must be fixed and modernised.”

Is Transnet moving with sufficient speed at reforming its expenditure priorities towards infrastructure maintenance and upgrades, and away from ever more consumption (salaries)? Does the now settled-in board continue to enjoy support from government, and is there sufficient political will to shake up vested government, business, and labour interests, so that South Africa’s logistics policy space is actually changed?

Significant cap

Transnet’s monopoly on railways has served as a significant cap on South Africa’s trade and growth potential. Writing in Business Day, Lawrence Edwards, Matthew Stern, and Jing Chien find that, “Since 2000 export growth has slowed, and by 2022 export volumes were only 5.7% higher than in 2008.”

On trade policy, South Africa’s Localisation Master Plans and other forms of protectionism, including never-ending subsidies shielding local industry from market forces, should also be reconsidered and revised. If South Africa could build, and earn an international reputation for having reliable, safe domestic trade infrastructure, the country would benefit over the longer term from the various changes to global trade that are taking place in 2025.

However, should the Government of National Unity dither on necessary logistics reforms, this exceedingly rare opportunity in global trade will pass South Africa by.

Article originally appeared here.