To trade jaw-jaw is always better . . .

10th February 2017

By: Terence Creamer

Creamer Media Editor


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The backlash against globalisation and scepticism over the benefits of free trade is currently so strong that there is a real risk that countries could retreat into ill-considered and destructive forms of protectionism. In other words, forms of protectionism – sold as patriotism – that undermines growth and employment.

That is not to say that there are no negatives associated with trade liberalisation. There definitely are. Post-1994, South Africa is littered with examples of where overly exuberant liberalisation played a role in accelerating deindustrialisation and destroying the very types of jobs that this country is now so desperate to recreate. Nevertheless, there is now a risk of overcorrection, as the populist antitrade winds blow ever harder, particularly from the West.

It was somewhat refreshing, therefore, to hear a recent defence of trade, delivered by European Union (EU) ambassador to South Africa Marcus Cornaro. True, his free-trade apologetics more than suited his argument against South Africa’s recent interventions to stem the import of chicken from the EU – an issue that will hopefully be resolved in a way that is supportive of as much domestic job retention as possible. Still, it offered something of a welcome counter point to the populist urgings of the day.

“We live in a world where closing borders and building walls – brick walls and trade walls – is gaining popularity and where simplifications are becoming the norm, together with textbook protectionism,” Cornaro lamented.

Trade deals were becoming a “handy scapegoat” when more fundamental competitiveness issues were arguably to blame. “It is easier to keep domestic markets closed and erect barriers to trade and investment than to restructure and reform. In the short term, protectionism might deliver, especially in terms of popular support. In the medium to long term, however, they are bound to fail.”

To be sure, the “lure of protectionism”, as the ambassador described it, is strong and is likely to grow stronger in light of President Donald Trump’s “America First” vision.

However, trade issues are more complex than thoughtless reactions will ever countenance, or acknowledge. Take Trump’s view that a withdrawal from the Trans-Pacific Partnership (TPP) deal will support a revival in US steel and manufacturing industries. An analysis by Wood Mackenzie suggests that a reversal of the policy “is not an entirely positive outcome for the US steel industry”. The study shows that the US steel industry made more money by selling steel to TPP trading partners in 2015 than it lost by importing from them. It also warns that costs will rise and consumers will suffer should manufacturing industries need to wean themselves off imported steel, which accounts for some 60% of steel consumption.

To date, The South African authorities are showing few signs of eschewing evidence-based tariff determinations in favour knee-jerk interventions. However, as the antitrade pressures mount it may become as difficult for trade diplomats as it will be for international diplomats to heed Sir Winston Churchill’s famous assertion that “to jaw-jaw is always better than to war-war”.

Edited by Terence Creamer
Creamer Media Editor



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