Donald Trump’s capacity to threaten SA with tariffs has been greatly undermined by BEE and localisation policies.
Trump’s tariff threats are similar to OPEC restricting oil supplies in the early 1970s. Today OPEC wouldn’t risk overplaying its hand as that would accelerate the transition to EVs. But whereas access to oil once limited global economic growth, the limiting factor now is access to purchasing power.
The high-growth countries of recent decades eluded this constraint by running large trade surpluses with the only country, the US, which can, and does, routinely run massive trade deficits. As this creates millions of jobs in many countries, those countries are vulnerable to Trump’s threats. Conversely, SA is immune to the loss of large numbers of jobs from Trump tariffs as ANC policies preclude high-volume job creation through growing value-added exports.
The US can run massive trade deficits while maintaining full employment because successive generations of Americans have become more productive and wealthier. This was made easier by America’s independence coinciding with the emergence of the industrial era.
The indigenous population was devastated by lack of immunity to European diseases and subsequent battles for land and resources. Today’s Native Americans who still resist full integration into the US economy are among America’s poorest communities. A similar pattern exists among descendants of slaves, some of whom are fully integrated and highly productive, while others remain disaffected and vulnerable to political exploitation.
The US is suddenly backpedalling from diversity, equity and inclusion (DEI) policies. Despite the nation’s success having relied greatly on diversity, excessive leftist indulgences confirmed to many Americans that politicians preaching equity were exploiting disadvantaged communities. Too many Americans have been exposed to the benefits of prioritising merit.
Trade barriers
If cross-border trading contracted sharply, all countries would suffer, but the US would, on a relative basis, benefit. Nonetheless, the US has long led efforts to remove trade barriers, with China being the biggest beneficiary in recent decades.
By emphasising value-added exporting, China avoided being limited by its modest domestic purchasing power, and instead maintained nearly a 10% annual growth rate for over four decades. If China had mimicked the ANC and emphasised localisation and redistribution, most Chinese would still be poor.
Localisation policies require that high productivity gains accrue alongside consumers finely balancing spending versus saving. This is much harder than export-led growth and results in significantly lower sustainable growth rates. As localisation-focused economies and those reliant on exporting commodities are slower to adopt productivity-enhancing innovations, that today’s global economy is driven by disruptive innovations very much favours countries focused on value-added exports.
Much has changed since OPEC’s oil embargo. Today, most poor countries are commodity exporters and most commodity-exporting nations are poor. Power and wealth is now much more frequently derived from digital breakthroughs than from controlling mineral or hydrocarbon deposits.
Through innovation, the US grew its crude oil production from 5 million barrels per day in 2008 to 13.2 million last year, becoming the world’s largest producer. Similar ingenuity made it the largest exporter of liquid natural gas. Yet the US economy is driven not by geology or manufacturing but by innovation in technology and finance.
Renewables
China, as the world’s pre-eminent manufacturer, seeks to weaponise its position by dominating key sectors such as renewables, EVs, computer chips, and drones. This dominance is intended to deter sanctions should China invade Taiwan or bully its neighbours.
Such aggressive government subsidisation is flagrantly inconsistent with global free trade. China has launched a global trade war, forcing a US response. Hence, both Democrats and Republicans favour a much tougher stance on China’s trade tactics.
Despite dwindling prospects, the ANC remains aligned with anti-Western nations led by China, Russia, and Iran. Russia’s military reputation has nose-dived, its long-term growth flattened, and it was powerless to support its Syrian ally, Bashar al-Assad. Meanwhile, hundreds of thousands of young Russians are either dying or fleeing their homeland.
Tehran’s regional influence has collapsed as it is unable to support its proxies, Hamas, Hezbollah, or the Houthis. Nor can Iran defend its own airspace. China’s economic model has also been shown to be deeply flawed. High household savings has been concentrated in residential real estate thus provoking a housing bubble despite its working-age population being destined to sharply contract.
China must maintain its huge trade surplus, but Europe, Japan and Canada are becoming intolerant of its predatory trade practices. This mitigates resistance to Trump’s tariff threats. European leaders, among others, recognise their modest ability to defend against Russian or Chinese aggression without US leadership. Trump’s tariffs serve to pressure them into imposing their own tariffs on China, something they are already inclined to do.
SA’s policies and positioning are indefensible economically and geopolitically. A majority of black South Africans are being condemned to poverty as our economy is about a third too small for full employment. Yet the ANC clings to localisation policies, ensuring ongoing stagnation − or worse.
Back channels
Trump and Russia’s President Putin seem likely to negotiate an end to the Ukraine war which would benefit nearly everyone. Iran has little choice but to seek less hostile relations with its neighbours and the US. Various reports hint at such progress through back channels.
Trump could devastate China’s economy with aggressive tariffs but he is unlikely to do so as that would spike US inflation while risking a perilous response. However, China must also fear that Trump could convince Russia to pivot towards the wealthier West.
There are now many plausible scenarios in which the anti-Western axis pivots towards more beneficial engagement with the West. Under all of them, the ANC’s economic and geopolitical stance will appear profoundly misguided.
[Image: Gino Crescoli from Pixabay]
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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