[Opinion] SA’s Goldilocks moment?

Taking the context of 0.8% average growth from 2012-2023 (and 0.6% alone in 2024) the IMF’s projection is likely the more accurate of the two. It is within this now entrenched low-growth context that South Africa is presented with the opportunity of increased global trade and investment volatility and uncertainty.

US reciprocal tariffs could prove to be the least of the South African economy’s and its manufacturers’ worries. The 90-day tariff pause announced by President Trump will lapse in July, following which the original 31% US tariff imposed on South African imports will come into effect once again, (assuming the South African government does not manage to reach a trade or other deal with the Americans).

The bigger harm to South African manufacturing and industry could well prove to emanate from China. Should the world’s two largest economies’ tariff war continue, emerging markets such as South Africa are primed to experience an influx of Chinese goods.

According to its recently released Global Trade Outlook and Statistics report, the World Trade Organisation expects world merchandise trade to contract by 0.2% this year – from the 2.7% growth originally projected. Given that the US accounted for between 8% and 9% of South African exports in 2023-24, higher tariffs could render South African imports to the US prohibitively expensive for American businesses and consumers. One of the consequences of this new higher US-tariff will be that South African companies and exporters need to find and develop alternative export markets.

New export markets

As South Africa would need to develop new export markets, so too would Chinese exporters need to look elsewhere in order to trade more goods and components. A large influx of cheaper Chinese goods will hurt South African industry and manufacturers, especially in the automotive sector.

Entities such as Volkswagen, Mercedes, BMW, Ford, Toyota, and so on, already taking strain from lower-priced Chinese vehicles in South Africa, Europe, and elsewhere, could then experience additional strenuous competition.

In this scenario, the South African government will be tempted to raise tariffs on imports across the board, forcing South African companies and consumers to turn to pricier alternatives (where they are able to).

Those countries and regions that take a more protectionist route, with more state controls and attempted additional management of economies, will likely set themselves up to be yet more exposed to future trade volatility and trade shocks. Additionally, often the protectionist route produces higher component, materials, and business costs, to the ultimate detriment of companies and consumers in the country that is being more protectionist.

Misguided

Given its history of misguided (and, when measured by outcomes, chronically underperforming) Localisation Master Plans (and other forms of protectionism and trade barriers, including various tariffs and subsidies), the best route for the South Africa government to follow is to reassess current plans across the board, and to be ruthlessly pragmatic when implementing any new or adapted industrial and trade policies.

A large part of such rejigging would of course frustrate vested interests: those in the political and private space who have the influence and deep pockets to ensure tariffs, subsidies, and other forms of protectionism are set up to their own benefit and to the ultimate cost of the economy. Breaking these vested interests will be exceedingly difficult work.

Should the country want to offer the right kind of environment that satisfies a range of developed and emerging market trading partners, including a more transactional US administration, a patient Chinese government, and newer global kingmakers such as Turkey and the United Arab Emirates, the government must get port and railway networks operational and fit for purpose.

On trade and industrial policy, the shift should be away from picking winners in industries that are not critical for national security (although even there, some of the holy cows of steel and defence might need to be culled), and towards removing arbitrary, corruption- and waste-encouraging “local content” initiatives and schemes.

Article originally appeared here.