SA mustn’t embrace tariff madness
We should not fall prey to the allure of protectionism and so-called localisation
South Africa must not allow itself to be pulled into a global trade war of tit-for-tat with an economically illiterate Trump administration. US President Donald Trump’s recent attacks against the free trade system, that brought not just the US but the world into a golden age of prosperity and technological progress, have ushered in a dark time in modern history. But South Africa can still seek opportunities within the chaos – so long as it does not embrace the madness of tariffs and protectionism.
The world economy is already too integrated to allow for countries to end trade. That is non-negotiable. All that escalating tariffs will cause is prices to spike and the buying power of consumers to continually shrink, while jobs are threatened by industries reliant on imports and exports that foreign consumers can no longer afford.
Trump has already levied a ludicrous 31% tariff on South Africa - a hefty rate that Trump-apologists have called “generous”, citing the apparent 60% tariff that South Africa puts on US goods. But, of course, this 60% is a lie. The average tariff that South Africa places on US goods is 7.6%, and that doesn’t include the cavalcade of tariff-free US goods sold in the South African market.
The problem is that Trump didn’t base his table of “reciprocal” tariffs on actual tariff rates. He based it on a flawed equation, based on trade deficits. Trump has a delusional idea that trade deficits are a form of theft. But, in reality, all they are is an indication that US consumers and businesses enjoy purchasing imports from a particular country more than that country purchases US goods in return.
Of course, the US is going to run a large trade deficit! This isn’t like borrowing money and being in debt, and it’s not exploitative. The US is the richest country in the world. Its consumers enjoy incomes far exceeding most of the worlds. They can afford to purchase imports from countries that can produce goods they want more efficiently and cheaply.
Trump’s trade deficit obsession also doesn’t take into account that the US’s main source of revenue is in the providing of services. Technology, research, finance and business services. These aren’t as tangible as clothes, electronics and cars - but they are far more valuable. The US is an advanced economy with an advanced way of making money. It doesn’t need to worry about selling commodities and building an industrial base - it’s passed that stage!
Yet, Trump is obsessed with punishing countries merely for selling products that American consumers want. But not just that. He has placed a universal tariff of 10% on all countries, including Singapore, which according to the Singaporean Trade Minister, the US runs a trade surplus with of over $30 billion in 2024.
It is clear that Trump’s information is flawed, and his solution is madness. He is willing to throw away all of America’s prosperity and hard work building a global economy for populist brownie points.
South Africa must be careful to not be dragged into this madness. We benefit from trade. Our local industry produces billions in tax revenue by selling commodities overseas. And our consumers benefit from cheap imports from more established economies.
We should not fall prey to the allure of protectionism and so-called localisation. All countries have different strengths and weaknesses. High tariffs only hold back our consumers and companies from cheap imports that can lead them to saving money that can then be invested or spent more efficiently.
And no, we should not use tariffs to protect local industries from foreign competition. Any company that can’t compete with a foreign one hasn’t proven to have the inherent advantages needed to deserve help. And if they are deserving of help, and can compete globally, then they don’t need tariff protections.
South Africa must embrace free trade even more than it has. When the crowd is running towards a cliff, it is up to the sane man to stop and turn around – pulling as many people back with him.
We must enter into as many zero-tariff, free trade agreements as possible with as many countries as possible. Not only will this give us access to lucrative markets and cheap imports but will also open up an opportunity for South Africa to become an influential reseller of imported goods.
If country A and B have high tariffs against each other, South Africa can act as a middleman, selling goods from country A to B with lower or no tariffs. We could even take advantage of cheap imports to spur industrial growth, turning cheaply purchased raw materials into profitable manufactured goods.
As of writing, Trump has suspended most of his new tariffs for 90 days, but the trade war with China still continues to escalate, and so long as Trump maintains a mercantilist view of world economics, this is only a short reprieve.
As they say, a bull market makes profits. But a bear market makes fortunes. We can ride out this bear market and this new storm. We must only seize the opportunity and not follow the mad-men into oblivion.
Nicholas Woode-Smith is the managing editor of the Rational Standard, an author and a political analyst. He is a senior associate of the Free Market Foundation and writes in his personal capacity.