A new extortion racket moved into global trade this year, with the US government demanding political and economic tribute for access to its market.
A realistic response has to start with an understanding of the US demands and negotiations tactics. In the event, no country that engaged the US so far has managed to return to the pre-tariff status quo. At best, they have reduced the increase in tariffs in exchange for costly policy and financial concessions.
The US announced soaring tariffs in April, apparently as the first step towards negotiations with individual countries. In practice, by early September it had only reached 10 agreements. And that’s using “agreements” loosely — just three had formal documentation, with the rest described in social posts and media releases.
As of early September countries with some kind of agreement, excluding Mexico and Brazil, were tariffed an average of 17% (weighted by population), compared to 27% for the rest of the world. For SA the figure was 30%. The exemption of ores and services meant the effective rate was somewhat lower.
A Trade & Industrial Policy Strategies analysis of the announced deals as of September found an extraordinary bias against middle-income countries, which include SA.
The baseline US tariff on high-income economies averaged 13% at the start of September, excluding Mexico and Canada. For upper middle-income economies it was 25%, and for lower middle-income countries over 30%. Most US trade with Mexico and Canada is still governed by the long-standing Canada-US-Mexico trade agreement (formerly Nafta), securing much lower effective rates.
The higher tariffs on middle-income countries resulted in part because the US unilaterally imposed additional punitive tariffs on China, India and Brazil. For China, the nominal cause was its exports of chemicals used in fentanyl; for India, it was high imports of Russian oil, although both China and Turkey are also major buyers; and for Brazil, it was prosecution of the former president for a coup attempt and new regulations on US digital platforms. The resulting general tariff was in effect 30% for China and 50% for Brazil and India.
Even without these additional tariffs, middle-income countries faced higher rates than their wealthier peers. Excluding China and Brazil, the average tariff was 17% for upper-middle-income economies, while it was 16% for lower-middle-income countries without India.
Predictably, the US focused its limited negotiations capacity on relatively large economies. Including Mexico and Canada, it reached some kind of agreement with countries that supplied 80% of its total imports, or an average of 7% each. The countries without agreements each accounted, on average, for less than 0.2% of US imports.
In exchange for a reduction in the threatened tariffs, countries offered big sacrifices in both policy and financial terms. Several, including the EU, ended all tariffs on US industrial goods. They also agreed to some combination of lower tariffs on US agricultural products; weaker restrictions on US services companies; and adopting US standards for imports. The EU, Japan and South Korea committed to huge financing for investments in the US, although all three claim that they are actually only pursuing business as usual.
Most countries also said they would procure US goods on a grand scale, principally agricultural products, aircraft and defence equipment, and liquid fuels. Indonesia will end export taxes on mining products to the US, in effect undermining a central pillar of its efforts to promote domestic mineral refining.
Finally, the lack of formal documentation meant the announced outcomes were unclear, sometimes hotly disputed, and often deeply unpopular. And all remain vulnerable to unilateral US decisions such as the recent order that steel tariffs would also apply to imported appliances and machinery.
In trade negotiations today, the US side is brutal, short-sighted and arbitrary. In these circumstances, clever negotiations tactics don’t help much. Rather, we need hard clarity about the costs and benefits of any proposal, the limits of our own power and the alternatives to a deal.
• Makgetla is a senior researcher with Trade & Industrial Policy Strategies.
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