NEWS
'Liberation Day' is bad news for the SA economy
by Raymond Parsons: Professor at the NWU School of Business & Governance and a former special policy adviser to Busa.
The scale of the further wide-ranging US unilateral tariff hikes announced by President Trump will not only drive a huge wedge into the world’s multilateral trading system but is also bad news for the SA economy. The international impact of much higher US tariffs will now be disruptive of global value chains, invite retaliation, ignite inflation, dampen world economic growth and prompt repricing of risks in financial markets. The world’s trading system is at a fork in the road and global reaction has understandably been highly negative.
‘Tariff wars’ have a bad history. Whatever advantages may be thought to accrue to the US economy through much higher tariffs, ‘beggar-my-neighbour’ policies have never been good news for the world economy. The collateral economic damage is usually high. All the economic evidence suggests there will be many more losers rather than winners as a result. Some economies may potentially be brought to the brink of recession, with accompanying job losses and even social dislocation.
The additional US tariffs therefore come at a growing cost and their unpredictability will heighten the pain. Even after the latest watershed announcement by President Trump, the US retains the right to swiftly and occasionally retract or reinstate tariffs.
This uncertain environment created by the constant change in the ‘rules of the game’ makes trade and investment decisions by business very problematical. Tariff uncertainty can be as economically damaging as tariffs themselves.
Higher tariffs of 30% on SA exports to the US are also a serious headwind for SA. SA needs a calm and pragmatic approach based on evidence-based homework. The automotive sector will take a particularly hard hit. In seeking to manage higher US trade tariffs, SA must mobilise the necessary economic diplomacy to try to offset the economic damage and stabilise the situation. Given President Trump’s reciprocal approach to tariffs, SA must see what trade adjustments might be made to win concessions to ameliorate the situation.
SA must also prudently seize the moment to begin to identify alternative markets as the US withdraws behind protectionist barriers. The isolationist direction of US trade policy is now abundantly clear and is the ‘new normal’. For SA, the African Continental Free Trade Agreement (ACFTA) is one ready mechanism that seeks to reduce existing barriers to intra-Africa trade. African economies including SA will need to steadily integrate as the US pulls back. ACFTA must be given a much higher priority.
Then, as the world economy is now likely to be less supportive of domestic growth, it becomes all the necessary for SA to demonstrate a strong strategic pivot in growth policy to offset the negative consequences of external shocks. The need to accelerate internal structural reforms is even more urgent. Both government policy and business strategies will need to adapt to a new range of risks, as well as exploring new or alternative economic opportunities. To do so, SA must draw on the best advice possible to expedite and implement the necessary solutions.
Useful resources:
At the NWU Business School, we strive to change the way our students think about business. We want our students to become managers/leaders in their own right.