Rich people in developed countries pay less for all manner of things than poor South Africans do. Government ought to unilaterally drop import barriers to remedy this perverse situation.
In a recent column I noted how the Department of Trade, Industry and Competition uses the promise of protective tariffs to induce private companies to meet targets other than profitability, such as low prices, higher employment, or more investment, which would make the minister of that department, Ebrahim Patel, look good.
I mentioned the clothing and textile industry, in which Patel worked for many years as a union organiser, and which enjoys lavish protection from imports of higher-quality, less expensive clothing from countries such as Vietnam and China.
Because a few thousand unproductive jobs in a small, inefficient domestic industry need protection, every person in South Africa must pay up to 45% more for their clothing. Even clothing imported from African Continental Free Trade Agreement countries attracts the maximum 45% tariff.
This doesn’t bother the rich much, but for a poor person hoping to clothe their children, that is money they have to remove from the budget for food, healthcare, heating and housing.
Why is it fair to tax a poor person in order to protect an inefficient local industry? No private companies should live on the taxpayer dime, but even subsidising local businesses out of the pockets of the rich would be better than to levy import tariffs that affect everyone.
The rich pay less
This story repeats itself across tens of thousands of products. Someone I know recently remarked that both the car they bought and an expensive piece of workshop machinery would have been cheaper in nominal terms in Europe or the US.
Rich people in developed countries pay less for their stuff than we do, in South Africa. So not only do they earn more, but the products they buy – from building materials to electronics and trousers to cars – are cheaper in nominal terms.
A pair of Levi 501 jeans costs R677 in the US, while the same jeans in the same size costs R999 in South Africa. The US item would attract R471 in import duty to send to South Africa, not counting the shipping fee.
A book that costs R114 in the US costs R185 in South Africa. Another that costs R219 in the US costs R265 in South Africa. A graphics card that costs R3 011 in the US costs R4 568 in South Africa. A television that costs R9 035 in the US costs R11 999 in South Africa. The new Golf GTI starts at R473 600 in the US, but starts at R689 800 in South Africa.
This pattern is repeated in rich countries around the world.
Many products are impossible to compare, because the same models aren’t sold both here and overseas. Models destined for South Africa are often specced lower than those sold in developed countries, even though prices are comparable. In other cases, South Africa gets end-of-line model ranges while new models are already being sold for the same price in Europe, Asia or America.
Hurdles
All this is largely attributable to import tariffs levied by government to ‘protect’ our local industries. This happens even if there isn’t an industry to protect (such as in televisions or graphics cards).
To make matters worse, government has put in place high hurdles for private individuals to order anything from outside the country. Beyond three shipments per year, only registered import companies that have jumped through a dozen or more regulatory hoops are permitted to do so.
Almost everything we buy in South Africa is artificially overpriced, either by import duties themselves, or by interposing middlemen in the importation process.
The upshot is that our money doesn’t stretch as far as it might have done without such trade barriers.
The person who saves R3 000 on a television will spend that R3 000 on something else, like a holiday, or restaurant visits, or a new power tool, or clothes. Or they will invest it, either by depositing it in a bank where it gets lent out, or by buying stocks or bonds.
Second best
This repeats itself at every scale, in millions of transactions every day. It raises the cost of inputs for hundreds of thousands of companies, large and small.
It restricts choice and raises prices for both consumers and businesses by limiting supply sources and weakening competition.
It ensures that people have to make do with second-best goods, and industry needs only compete with second-best products, thereby guaranteeing that South African industry will never be competitive in global markets.
Terrific amounts of money are bled out of private wallets to pay for presidential dollar-thief tracing services, VIP protection, million-rand cars for municipal officials, power stations that don’t work as advertised but cost twice as much as expected, billion rand relief funds that nobody knows how to spend, and inflated contracts for the friends, family and business cronies of politicians.
Permitting unrestricted, tariff-free imports will save millions of citizens and companies money. Those savings will be spent on other goods, services, jobs or investments.
If local industries cannot compete with imports, then those savings will be available to pay for the development of products in which local industries do have a competitive advantage, or to develop service industries, or to make products higher up the value chain – such as the famed ‘Fourth Industrial Revolution’ companies the president is always on about.
That is how you grow an economy. If you tax all these potential savings away, don’t sit there scratching your head wondering where all the growth went.
Trade also improves ties between countries, as people interact with each other in peaceful and mutually beneficial exchanges. Free trade actively promotes peace.
Bargaining chips
Developing countries are often motivated to retain tariffs as punishment for, and bargaining chips against, the tariffs and subsidies of foreign countries.
History shows, however, that this has limited effect. Developing countries simply don’t have the market clout to make rich countries drop their trade barriers. If they did, farm subsidies in the rich world would have been consigned to history decades ago.
If developing countries like South Africa were to unilaterally drop trade barriers, though, their people and companies would benefit immediately. They would gain twice the benefit from trade with other developing countries who do the same. Better yet, they can go to the next meeting of the World Trade Organisation to shame developed countries into walking the talk on free trade.
Making it more expensive than it has to be to import stuff is morally wrong, and it is bad economics.
Unfortunately, protected industries can afford organised lobbying to motivate politicians to make rules that favour them, which is why import tariffs exist in the first place.
Would that small businesses and individual citizens could afford lobby groups to argue against the tariffs that big business wheedles out of gullible trade ministers.
In true Orwellian fashion, the Department of Trade, Industry and Competition actively suppresses trade, industry and competition.
What they should be doing is setting all import tariffs to zero.