Amandla!: Here we are in South Africa, assailed by tariffs from Trump, with no reasonable prospect of those tariffs being removed. Firstly, what are the effects of the tariffs likely to be on our economy?
Rob Davies: The auto tariff has had a devastating effect on auto exports to the United States. According to the Automotive Business Council, Naamsa, in April and May, there was a more than 80% decline in exports to the US. I think that we’ve virtually stopped exporting to the US. About 11% of auto exports go to the US. But it does impact on the Eastern Cape, because the firm that was exporting was Mercedes-Benz, the C class.
And then on top of that, we’ve got a range of agricultural products, of which I think citrus is the most important. We are a very competitive producer of citrus. Now we will have to pay the 30% tariff. If and when AGOA expires, that will be 30% on top of an additional tariff. I think that those exports would be quite sharply hit. And there is wine, macadamia nuts and various other agricultural products.
What are excluded are minerals that the US wants or needs for its manufacturing industries. The US has stated that its objective is to rebalance global trade in favour of the US. But when you take into account that raw materials are excluded, it is changing the character of trade between a country like ours and the US back to the typical neocolonial model of suppliers of raw materials. The products that are sharply hit are products that are more value-added: industrial products, high-quality agricultural products, and so on.
So far, a number of transactional deals have been negotiated with other countries. But a feature of all of them is that in no case has anyone managed to negotiate for access to the US market that is better than what existed before, or even a return to the status quo. Each of them has had to make concessions to the US to come out a little bit less worse than they would otherwise have been.
South Africa is in a list of countries that the US has put down as still under negotiation. And the DTIC has been trying to negotiate a deal with the US since before the famous or infamous visit to the White House. And it’s pretty obvious that the US doesn’t give any priority to negotiating a deal with us. And since there’s a loading for political and policy issues, I don’t think it looks like that will be achievable without looking at some of those.
So what are they? Their biggest beef starts with the ICJ case, the genocide provisional measures and the ruling that there’s a plausible case to be answered of genocide going on in Gaza. That was a landmark. Right now, most people and many governments in the world would agree that there’s genocide going on in Gaza. But at the time, it was very important in shifting the analysis in that direction. So we’ve seen a sort of tit for tat. You accuse Israel of genocide? Well, there’s genocide against white farmers taking place in South Africa, even though, of course, I think we all know that’s a preposterous allegation.
I think there’s another factor that feeds into that, and that is the way in which so-called ‘replacement theory’ has been an influence on the Make America Great Again (MAGA) position. This has led to the removal of Diversity, Equity and Inclusion legislation in the US. The idea behind all of that is that whites, or European civilisation, have been displaced by others. And one of the results is the South African far right’s access to decision-makers in Washington.
So a delegation led by the Vreiheits Front and some farmers’ organisations came back and said there were four things needed for a reset: 1) Denounce the song, ‘kill the farmer, kill the boer’. 2) Declare farm owner murders (I don’t think they were interested in farm worker murders) a priority crime and subject to the Hawks. 3) Repeal the Expropriation Act; any expropriation or land reform must take place at full market value (which, of course, would require a constitutional amendment). 4) Exempt all US companies from any form of black economic empowerment legislation.
These are quite big intrusions into domestic and foreign policy. And it doesn’t look like they’re in any great hurry to conclude a negotiation with us on purely economic grounds.
So the US as a market for South Africa’s products, and particularly value-added products, is clearly much less available than it used to be. That’s part of a broader trend. Industrialisation on the basis of exports of finished goods into the Global North was the path which all Asian industrialisers followed, including China. Now, they are turning to their domestic markets and their regions. The world is being reshaped away from the model of hyperglobalisation and neoliberalism, created by the US in the latter part of the 20th and early part of the 21st Century. It is now perhaps giving way to a highly contested shift towards a more multipolar world order, in which things like regionalism and contestation between power blocks is going to be much more the fact of life. We need to take account of this and re-evaluate it in terms of the way in which economic strategies and strategies for development are cast and thought about.
A!: That raises the question, what could that look like for South Africa? Are we talking about developing the market on the continent? Are we talking about developing markets in other parts of the world, in India, in China?
RD: These are the things that need careful study and reflection. One immediate reaction by almost everyone is to diversify to other markets. But if there are big surges of products into other markets, and these start to have disruptive effects, we might not find those markets as ‘open’ as they are now. So while it might be a short-term relief, I don’t think that’s a long-term strategy.
I think we need to look at our region and our domestic market. Imports are going to want to come into our market, including imports that cannot so easily access the US. We may want to make sure that we capture a larger share in our domestic market for domestically manufactured goods. So some of the auto manufacturers have been talking about raising tariffs on automotive products coming into South Africa. I know there’s a discussion about raising the level of local content of components and other such issues. That would be just one area. But I’m sure that there can be several areas like that.
In the medium- and long-term, I think that the combined population of a continental free trade area (CFTA) would be equivalent to about the world’s eighth-largest economy. We should be looking at that on the African continent. That will require that the strategic importance of the CFTA is understood not just as a place for a few people to dump finished products. I think that we need to reinforce messages like investment-led trade to third parties. And that means that if you want to benefit from the CFTA, you come and invest, build some productive capacity, meet the rules of origin, and then you can have access to the CFTA market. If you are a foreign-owned automotive company or an electronics goods company, and you invest in one of our countries, you are able to sell to the rest of them. That’s the way you benefit from it, not by selling us finished products. So we need to reinforce the external coherence of the CFTA.
We also need to move forward with the work on regional value chains. We need to cooperate to have industrial policy efforts that are going to support deep industrialisation. This becomes particularly important when we talk about green industrialisation, or moving into low-carbon products. This transition to low-carbon products has been driven to a very, very large extent by advice and research coming from the Global North, meeting their own agendas.
I think there’s no chance it’ll be a just transition, unless we actually do succeed in occupying positions in those value chains which are higher value addition, and not just producing the raw materials. So we’ve got to work to set conditions for access to critical minerals. Because that’s another part of the Trump agenda, which we haven’t talked about – to go around and seek minerals deals with everyone. So far, it’s Ukraine. And this ‘peace deal’ between Rwanda and the DRC, in which there were critical minerals clauses, where the US were going to benefit.
We need to start to work much more coherently and collectively on the continent. Whether that happens or not depends on the politics and political will. But if it doesn’t happen, we risk being overwhelmed by events and relegated once more to a position as the producers and exporters of primary commodities, which I think is going to be exceedingly challenging for many of the people on the continent as we face the trade turbulences, but also the climate change issues.
A!: Looking at the question of critical minerals, early on in this process, Gwede Mantashe said, in effect, screw him. We’ll keep our minerals back home, and he won’t get any. What kind of leverage, if any, do we have with our platinum, chrome, and other minerals that the US wants?
RD: As the US does what it wants unilaterally, it’s also upending the so-called ‘rules-based trading system’ that it was at the forefront of crafting. And so the rules are much less forceful than they used to be. In particular, the enforcement mechanism has been disabled by the US, which acted to cripple the appellate body of the World Trade Organisation. At least one developing country, Indonesia, has taken advantage of this. They have an export tax on raw nickel, which was challenged by the European Union at the WTO. The European Union won at the panel level, and the Indonesians appealed to the non-existent appellate division. And so they’ve been able to continue with it. All they’ve got is smelting, but the earnings from the value chain have risen 30-fold and have had positive effects on incomes in the provinces where the nickel is. So I think that just shows that there are gains to be made.
Now in Africa, I think a lot of the horses have bolted or are in the process of bolting. And there are all sorts of pressures on individual countries. But there are advantages to be had by setting conditions. What policy tools you actually use is open to debate. But I think that we do need to be setting a general proposition at the level of the AU that the continent is no longer willing just to supply raw materials. We are going to insist on conditions, attach conditions, defend each other, and work together to form supplier cooperation arrangements of one sort or another. I think that we do need to go in that direction, and that will require some level of political will. It’s not going to happen just by market forces alone. It’s going to have to be policy-directed.
A!: What’s your reading of what the government is currently doing? It’s not well known for responding rapidly to anything. Are they actually taking measures to mitigate? Is anything useful happening at the level of the government?
RD: I’m responding to what I see in the press, and occasionally I might talk to somebody. First of all, they are trying to do a deal, and they’re trying to limit the deal to the normal stuff of economic and trade negotiations. But I don’t think there’s any sign yet that there’s any seriousness about engagement on the US side. And then the government has talked about diversifying. But the point you’re making is, are they happening at the pace or scale required? And I suspect at the end of the day, we will take some pain from this. But the ‘art of the deal’, to coin a phrase, is not to overpay for things that are not commercially viable. The art of the deal now is to make sure that we don’t overpay for something purely nominal.
I think on the neoliberal and far right, there’s a kind of message that this is Armageddon. Everything’s coming crashing down. Trump’s agenda is rational and reasonable. We must just accommodate ourselves to that. That agenda is obviously very, very reactionary. We need to get it into perspective. It’s a shock, it’s a loss, but it’s not Armageddon. And, compared to many other policy issues around creating jobs in South Africa, I’m not sure that the loss of the US market is the biggest thing in town: compared to our inability to get a decent infrastructure programme off the ground; or our inability to develop adequate programmes of climate-proofing every community and village and municipal area in this country, and having public employment programmes to do that.
Rob Davies is a member of the Central Committee of the SACP and an Honorary Professor at the Nelson Mandela School of Public Governance at UCT. He is also a former Minister of Trade and Industry.
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