My career in journalism started at the height of the Reagan/Thatcher free-market era. At the Financial Mail under Stephen Mulholland and Nigel Bruce, US ideologues such as Don Caldwell and Richard Grant were recruited. They had the dual role of writing “on message” copy and training us on the benefits of free market policies, what we now refer to as the Washington Consensus.
So it seems particularly odd to me that the US Republican government under President Donald Trump is so keen on tariffs. Previously it was Democrat senator Bernie Sanders, on what passes for the left in America, who was the US tariff cheerleader.
This isn’t the first time the Republicans have been the high tariff party though. For much of the 19th century, when the US was building its industrial base in competition with Britain and Germany, the Republicans were all for tariffs. But in our lifetimes, particularly since the Reagan presidency, the party has backed free trade.
During Bill Clinton’s presidency the Democrats followed suit. But Trump now argues that these presidents sold the US down the river, allowing other countries — notably China — to grow at the expense of the US industrial base. There was certainly a naive view that once China became more capitalist, it would become more democratic and free. This has turned out to be completely wrong.
There were also high expectations that the 1992 European Single Market would make the EU as competitive as the US — after all, it had a similar population and the potential without trade barriers was immense. Yet Europe has slipped quite catastrophically relative to the US. These days, Germany and France are poorer per capita than the poorest state in the US, Mississippi, which nobody would describe as affluent.
Britain, which no longer has the benefit of the single market after Brexit, is in the same economic ballpark as its larger continental neighbours, and the prospects for these countries, if tariffs become a permanent feature of the world economy, look grim.
Trump’s aim to restore US industry to its 1950s pre-eminence looks like a pipe dream, though. Iconic US companies such as Westinghouse, General Motors and General Electric are unlikely to return to their former glory, and Kodak isn't going to rise from the dead.
What do tariffs mean for SA? The free trade benefits from the US’s African Growth and Opportunity Act have been one of the bright spots in our dismal economy recently, in particular how they have benefited agriculture.
SA might be tempted, for political as well as economic reasons, to hope that the Brics will fill the void left if the US turns its back on us. That looked like a feasible strategy while China was booming.
Under apartheid, far from being a free market capitalist stronghold, SA was highly regulated, with a spider’s web of control boards. The textile industry was nicely profitable and a big employer, particularly in the Durban area with large businesses such as Frame and Romatex. But without tariff barriers these businesses collapsed. The AECI subsidiary SA Nylon Spinners in Bellville closed altogether. Perhaps a Trump-style populist will emerge in SA and call for the revival of these local industries.
The motor industry in the Eastern Cape is still to a large extent held up by government intervention, though more by subsidies than tariffs. It would certainly be a catastrophe if we followed the lead of Australia, which has seen its motor industry — including the iconic Holden brand — disappear. But as a rich country with low unemployment, Australia lives to fight another day. The implications for SA — and in particular the impoverished Eastern Cape — would be far more serious.
There is a lot to be said for a pragmatic approach rather than a purist free market one. The UK government is right to try to save British Steel, for example, given the implications for downstream industries if the last major steel plants disappear.
SA might be tempted, for political as well as economic reasons, to hope that the Brics will fill the void left if the US turns its back on us. That looked like a feasible strategy while China was booming. But the disastrous capital losses in the property market there mean it could take years for China to get back onto its growth trajectory.
Russia is a smaller economy than Italy now, so it won’t provide much of a growth engine. India looks like the Brics nation to watch. Within 25 years it is likely to overtake China to become the second-largest economy in the world, and there are ties of culture and language to SA. We are also both democracies in the Commonwealth.
Despite some of the rhetoric, the US has not set out to punish SA specifically. It can’t afford to cut ties altogether because of our strategic location. A Chinese naval base in Simon’s Town would be an unacceptable outcome.
It has been a big adjustment for SA as we moved from being the number one gold producer to number 10 or so; New Zealand is, or soon will be, a larger supplier of virgin gold. The move to electric cars has also been a shock to the platinum industry — perhaps with Trump petrol cars will be given a stay of execution, as might global demand for thermal coal.
As savers and investors we need to remember (though we are often reminded) that the JSE no longer represents the SA economy. That’s not much help in the event of a global recession. But the JSE includes a few relatively recession-proof businesses such as Anheuser Busch-Inbev and British American Tobacco. Maybe they will do even better as people turn to booze and fags for solace in tough economic circumstances.
• Cranston is a former associate editor of the Financial Mail.
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