While polling data still points to a very close race, recent survey trends suggest former US president Donald Trump will be re-elected. His proposed trade tariffs represent threats and opportunities for SA.
In an ideal world, trade tariffs wouldn’t exist and countries wouldn’t methodically attempt to game the system. Instead, the EU, US and Canada are expected to significantly raise tariffs on cars and solar panels coming from the world’s top manufacturer and exporter as they claim China subsidises its exporters to gain unfair trade advantages.
If there were no tariffs or subsidies, companies and countries would specialise in areas where they could develop comparative advantages, and this would maximise growth of the global economy. The World Trade Organisation seeks such a level playing field. China, along with Asia generally, has benefited spectacularly from the surge in international trade over the past few decades.
In the 1960s most of Asia and most of Africa were very poor. Then “Asian Tigers” developed robust export-led growth models through adding value within global supply chains. African exports continued to emphasise commodity exports. Whereas commodity exporting boomed during the 1970s and 1980s, given how global economic growth is now propelled by services and digital innovations, most of today’s commodity-dependent nations are poor.
Despite four decades of nearly 10% annual GDP growth, Chinese consumers, like those in SA, lack the spending capacity to employ all school leavers. Yet their youth unemployment rate of just over 20% is about a third of ours because a huge portion of their 20-somethings add value to exports, whereas remarkably few of ours do.
While exporting commodities is great for patronage-reliant political regimes, it deters upliftment. For instance, if the prices for our commodity exports were to spike, the effect on job creation would be meagre, but there would be greater scope to garner electoral support through increasing grants.
Both China’s annual trade surplus and the US’s deficit amount to roughly $1-trillion. The combined trade deficit of Europe and Japan is over half a trillion dollars, but their imports include a huge bill for energy. The US is in effect energy independent and North America is a net energy exporter.
The overall effect is that the US funds about a quarter of a trillion dollars a year in wages for workers in Asia, mostly in China. There is strong bipartisan political support in the US to ratchet this down due to China supporting Russia’s war with Ukraine, its threats to Taiwan and its practice of exploiting the soft underbelly of free trade by heavily subsidising its manufacturers in key sectors.
The oddsmakers expect Republicans will narrowly control the Senate and perhaps the House of Representatives. What would constrain Trump from aggressively reducing the US trade deficit with China is the direct effect this would have on inflation. The Chinese can also make various threats, but their hand is ultimately weaker as their economy is so dependent on access to US and European consumers.
China has sought to create alliances to further exploit the Western-led global architecture which has benefited it so richly. If Russia had been able to subjugate Ukraine, and if Iran had been able to reshape the Middle East, China would have benefited. Instead, both Russia and Iran overplayed their hands.
If Trump is re-elected there is a good chance he would cut a deal with Russian president Vladimir Putin that would benefit Russia, Ukraine, Europe and the US, among others. Russia’s inherent commercial and geopolitical interests align far more closely with Europe’s than with China’s. It is not hard to imagine Trump — or Elon Musk — making this case to Putin.
The reason China and Russia are aligned is that this suits their authoritarian leaders — not their citizens. To remedy their having entrenched the world’s most severe unemployment crisis, our political leaders must shun authoritarians to integrate extensively into supply chains serving North Americans and Europeans.
• Hagedorn (@shawnhagedorn) is an independent strategy adviser.
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