SA economy caught in crossfire of Trump’s trade war with China
South Africa, like other emerging economies, relies on a strong Chinese economy to stimulate our demand for raw materials.
This picture taken on January 6, 2017 shows workers inflating a giant chicken resembling Donald Trump in a factory in Jiaxing. A Chinese factory is hatching giant inflatable chickens resembling Donald Trump to usher in the Year of the Rooster. The five-metre (16-foot) fowls sport the distinctive golden mane of the US president-elect and mimic his signature hand gestures with their tiny wings. / AFP PHOTO / Johannes EISELE
As South Africa deals with plenty of our own economic problems, factors beyond our control could lead to further hardship, said economist Lumkile Mondli.
Speaking to Power News, Mondli warned that South Africa could be among the countries who will suffer most thanks to the ongoing ‘trade war’ between the US and China.
This comes after announcements from Washington indicating that Trump’s administration will impose roughly R3 trillion in new tariffs on Chinese goods.
6,000 different items including rice and textiles will see their import taxes increased.
Trump warned that he would introduce even more tariffs if China chose to retaliate against his actions in any way.
READ MORE: How a global trade war would hurt SA
This latest move appears to have scuppered chances of trade talks between the two countries, with a trade delegation China was planning to send to the US now unlikely to go through with it, according to South China Morning Post.
Mondli told Power FM that job creation, self-reliance, and SA working with other African nations are the only ways forward.
“The lesson that we take from these trade wars is a [need to] focus on internal economic development where we mobilise funding for our infrastructure. As a country, we need to ensure that we are able to meet the demands of our people,” he said.
“There’s also much more focus in intra-Africa trade, particularly with the African continental fruit trade agreement that South Africa has signed.”
Even before the trade war had escalated to its current level, Moneyweb reported that the trade war would have a significant impact on global growth, leading to implications for our attempts to climb out of a technical recession.
READ MORE: There’ll be no winners in global trade war, China’s Xi warns
A strong global growth environment would be supportive, but weakness in the global economy would make it even more difficult for the country to accelerate its fortunes.
South Africa is also highly dependent on foreign investment inflows. The global environment already shifted investor perceptions, with risk appetites diminishing significantly and emerging markets falling out of favour, before the trade war was in full swing.
All of this is bad news for a country that relies on portfolio inflows to balance its current account deficit. The rapid weakening of the rand since the middle of May, with it reaching R15 to the dollar (it is currently just under) is an indication of this.
“If you’re an open economy like South Africa, you are extremely vulnerable,” Schoeman explained. “We massively rely on risk.”
A falling rand also inevitably leads to higher inflation. This too is negative for the local economy.
Around 60% of South Africa’s GDP is consumer spending, and rising prices depress consumer activity. If inflation climbs higher, that then takes away from GDP growth.
The implications for South Africa are therefore likely to be largely negative. There is, however, one potential silver lining.
“Maybe we could benefit in the long run if we took exports away from other countries,” said Schoeman. “But we would have to prove ourselves.”
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