Nobody Wins A Trade War
Trade wars only result in ludicrously increased tariffs that harm the very nation implementing them, while consumers suffer on all sides of the pond.
South Africa’s government would be beyond foolish to respond to increased United States tariffs with retaliatory tariffs. Nobody actually wins a trade war. While politicians may boast about trade balance and getting even, consumers and people on the ground inevitably suffer.
The rise of protectionism and tariff warfare because of US President Donald Trump’s ascendancy will only hurt US consumers and the global economy. While Trump is obsessed with the notion of protecting US jobs from foreign competition and building up US manufacturing, his policies are founded in repeatedly refuted economic theory. South Africa must not follow suit.
Balance of trade
On 2 April 2025, Trump announced “reciprocal tariffs” based on a flawed formula calculated using the US’s balance of trade with other countries. The issue is that balance of trade has nothing to do with tariffs, and there is nothing inherently wrong with an imbalance of trade.
Balance of trade is not meant to be an indicator of profitability. All it indicates is how much a country is buying versus how much they’re selling to a respective partner. Thinking that you need to have a positive trade balance with every country is just foolish. Some countries have goods that you need, and some countries want your goods. Inevitably, your balance of trade will be different with different partners. This isn’t unfair. It’s because global supply and demand differs nation to nation.
Additionally, a country like the US has a rich consumer base that can afford to purchase far more goods than they need to sell. The US makes the bulk of its money not from physically traded goods, but from a sophisticated service and financial sector. This is the goal of a modern, developed country. Citizens of a rich country don’t want to work as labourers or in factory jobs. They aspire to work in comfortable office jobs, as technology entrepreneurs, or in other luxury industries which are not present in balance of trade.
Balance of trade should not inform tariff policy. If anything, seeing that you purchase far more goods from a foreign trade partner indicates that your country needs those goods, and therefore you should drop tariffs to lower the input costs for your local industries.
Tariffs are a tax on locals
Tariffs are not some wonder tax on foreign companies that can be used to ease the burden on local taxpayers. Every tariff is paid for by the importer. That means that local companies and individuals are paying tariffs for buying foreign goods.
This cost is then handed down the value chain. A company importing a vital good that isn’t available in the US must pay a tariff, which makes their entire product or service more expensive. This cost is then handed down to consumers, who must cut their spending in other places in order to make up the shortfall.
The only way that tariffs harm foreign companies is by lowering the spending power of local consumers. This simultaneously harms local companies and the entire economy.
And the protectionist idea that deterring imports through tariffs will result in increased local jobs is just delusional. No country can effectively manufacture every single conceivable good that is needed in a modern economy. And even if they can, they can’t do so effectively.
Countries specialise in different goods and have different factors that allow them to excel in some ways and not in others. China is a global manufacturing hub because its vast population enables cheap labour that is needed in that sector. The US is no longer a manufacturing hub because its people want cushier jobs with higher pay. It’s that simple.
The solution isn’t to impoverish Americans so that they are forced to take factory jobs. It’s to enable Americans to make money in the way most effective for the country and use that money to buy goods cheaply from anywhere in the world.
Retaliatory tariffs only serve as a political tool. As an economic tool, all they accomplish is duplicating the plight of the original country onto your own. A tariff war could be easily compared to two men shooting themselves in the foot in protest of one another.
Protectionism doesn’t work
The evidence is clear; protectionism doesn’t work. IMF research clearly shows how tariff hikes reduce output and productivity, raise unemployment and inequality, while not even improving balance of trade.
2018 US tariff hikes on Chinese goods resulted in a loss of real US income. The Chinese economy didn’t suffer tremendously. The US one did.
In 2002, increased US steel tariffs meant to protect the local steel industry resulted in tens of thousands of job losses in the steel industry due to rising input costs. South Africa faced similar results with our steel localisation attempts.
South Africa’s anti-dumping measures, aimed to stem the tide of cheap goods in our economy have accomplished little to build our manufacturing sector, and have only served to raise input costs and deter foreign investment, while denying our poor consumers access to goods they otherwise cannot afford.
Conclusion
We trade because we desire something somebody else has, and they desire to be paid for that thing. There is no loser in that transaction. China is not looting the United States of its trade balance. And attempts to stifle imports don’t result in increased manufacturing.
Trade wars only result in ludicrously increased tariffs that harm the very nation implementing them, while consumers suffer on all sides of the pond. South Africa will do well to not get involved in any tit-for-tat tariff hikes, and the world will only return to the prosperity we saw during complete globalisation when this experiment with protectionism ends once again.
Nicholas Woode-Smith is the Managing Editor of the Rational Standard and a Senior Associate of the Free Market Foundation. He writes in his personal capacity.