The World Trade Organisation (WTO) plays a pivotal role in shaping international trade, yet its impact varies across different economies. In the current geopolitical climate, with US President Donald Trump’s foreign policy posing looming threats to SA’s economic status, concerns are growing.
Republican legislators have even written a scathing letter to Trump lobbying for SA’s exclusion as a beneficiary of the African Growth & Opportunity Act.
Since the early 1990s the WTO has facilitated China’s entry into global markets, leading to a surge in trade liberalisation. This shift allowed China to flood international markets with competitively priced goods, altering global economic dynamics.
SA’s mounting economic challenges
SA’s economic struggles require a critical reassessment of
21st-century challenges. Globalisation, which accelerated rapidly in the 1990s, is now slowing. During this period the outsourcing and offshoring of manufacturing industries led to a significant rise in global trade.
The transition saw a surge in two-way trade, particularly in components and finished goods, largely due to the movement of manufacturing to China. This shift propelled China’s GDP growth, but as China’s economy has matured its export-to-GDP ratio is now declining, affecting global trade patterns.
Over the past century global trade has evolved through three phases, as identified by Richard Baldwin in The Great Convergence. The first phase involved goods crossing borders, in the second factories moved across borders, and the third phase brought about the relocation of offices.
SA has felt the impact of all three phases, particularly the second and third. The influx of cheap Chinese goods in the early 2000s contributed to the decline of our manufacturing sector. Similarly, the UK faced factory closures as China rose to dominance in global markets.
The second unbundling and Trump's disruptions
The second unbundling of the global economy — marked by the movement of factories across borders — has been a defining factor in trade shifts. Trump’s policies threaten to disrupt this phase.
Advances in information and communication technology (ICT) have made it possible to co-ordinate the production of complex goods across multiple countries. Only 35% of components and parts used in the production of vehicles in SA are produced locally, the balance being imported, meaning 65% come from abroad. The WTO’s intellectual property protections have played a key role in enabling such global co-ordination.
Before the rise of the internet, cellphones and email, such intricate production networks were nearly impossible to manage. The emergence of ICT facilitated cost arbitrage, allowing manufacturers to split production stages across countries based on labour costs. However, most of the outsourcing opportunities have already been exploited, causing globalisation to plateau.
China’s economic strategy and SA’s missed opportunities
China’s rapid industrial expansion, fuelled by cheap labour, has reshaped global markets, weakening local industries worldwide, including in SA. However, as China’s labour costs rise it is adopting a strategy similar to Japan’s in the 1990s. Japan, once a manufacturing powerhouse, offshored low-skilled jobs and textile production to Taiwan, Singapore and South Korea. China is now doing the same, positioning itself as a global economic headquarters while relocating low-cost production to emerging markets.
Meanwhile, Group of 7 (G7) firms have leveraged ICT to transfer their manufacturing expertise to emerging markets, sparking industrial take-offs in those regions. However, SA has failed to capitalise on this trend due to restrictive foreign policy decisions. Policies such as BEE and stringent labour laws have deterred foreign investment, hampering industrial growth. Countries such as Ethiopia and Rwanda have seized these opportunities, using G7 technology to fuel their own economic development.
SA’s manufacturing sector is unlikely to recover under current policy constraints. Companies such as Starlink have abandoned investment plans due to mandatory local ownership requirements. Instead of maintaining rigid transformation policies, SA should adopt China’s approach — absorbing foreign technologies, fostering innovation and competing on a global scale.
China’s manufacturing dominance
China now accounts for 35% of global manufacturing output, surpassing the combined output of nine major economies, including the G7, India and SA. In gross and value-added terms China remains the dominant manufacturing superpower. Its exports play a crucial role in global supply chains, including in the US, making it difficult for the world to reduce reliance on Chinese production.
Many Western and Japanese firms have relocated their production to China, which has historically been a manufacturing powerhouse. In the 1800s China’s manufacturing output exceeded that of the UK. However, industrialisation in Britain, followed by the rise of manufacturing in the US, France and Germany, led to China’s deindustrialisation in the early 1900s. By opening its economy to foreign manufacturers China has in effect reclaimed its position as the world’s leading producer.
Beyond sheer production capacity, China excels in technological innovation, logistics and management efficiency. When Japanese and German companies initially invested in China they sought to retain proprietary manufacturing technologies. However, knowledge and expertise inevitably diffused, not through industrial espionage but through improved organisational strategies, workforce training and management techniques.
How can SA move forward?
For SA to reintegrate into global manufacturing trends it must rethink its economic policies. Stringent regulations and protectionist measures have discouraged investment and stifled innovation. Instead, the country should focus on leveraging foreign technology, fostering a business-friendly environment, and building a globally competitive industrial sector. Without these changes SA risks being left behind while emerging markets surge ahead by embracing globalisation.
However, SA must also avoid the potential pitfall China may face — overinvesting in manufacturing when the future economy is set to be driven by advanced services. With services already making up 60% of the SA economy, government should prioritise strengthening ties with businesses to expand high-value service industries.
• Mabasa is an executive manager in the office of the deputy minister of mineral & petroleum resources.
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