US trade war with China will bruise SA
South Africans need to be forewarned that if the US continues its trade war with China, our economy will not be spared the traumatic effects of a global recession.
If the US proceeds with its threat to impose tariffs on an additional $300billion (R4 trillion) worth of Chinese goods, it could lead to a global recession in as little as nine months - that is, according to the chief economist at Morgan Stanley, Chetan Ahya.
Not even the dire warnings of former US Treasury Secretary Lawrence Summers, and US Federal Reserve Chairman Jerome Powell - that the US trade war is a “grave mistake” - have deterred President Donald Trump from his present course.
Trump’s financial miscalculations have a long history if we consider his mistakes regarding his casino empire, which resulted in white elephants that left him with massive debt.
It is troubling that Trump is now championing a trade war to the detriment of the US economy, which has serious global economic ramifications.
It would seem that Trump is simply ignoring the warnings from banks, rating agencies and economists of the dire consequences for the US economy of an escalating trade war with China.
Moody’s projects that US tariffs on Chinese goods will cost US businesses and consumers $100bn next year.
The US think tank Trade Partnership predicts that due to the trade war US gross domestic product will be slashed by 1.01%, which will cost 2.16million US jobs, and household spending in the US will increase by $2294 annually. How can all of that possibly “make America great again”?
The US economic growth rate is already in decline this year, starting at 3.2% in the first quarter, reduced to 2% in the second quarter, and projected to be 1.8% in the fourth quarter.
The trade war has already hurt the US manufacturing industry as well as agriculture.
In 2016 the US exported $21.4bn worth of agricultural products to China, which decreased by more than 50% to $9.1bn last year.
China was forced to take countermeasures and import goods from other countries, settling its accounts with other currencies than US dollars.
China’s imports from Brazil, for example, have surged with the number of soya beans being imported from Brazil increasing by 30%, while the amount imported from the US decreasing by 49%.
US farmers have had to put much of their soya bean crop in storage. The number of US farmers filing for bankruptcy is now at a 10-year high.
If Trump thought it was a brilliant idea to ban Chinese technology giant Huawei, it will force China to establish new production, supply and value chains that exclude the US. American high-tech products will simply be cut out of the massive Chinese market of 1.4billion people.
Alienating the world’s new leader in 5G technology and arguably the country leading the Fourth Industrial Revolution is probably not the smartest move for a US president to make.
By the end of next year, 5G will cover the whole of China but will not even have been introduced in the US.
In a glaring example of executive overreach, Trump has ordered American companies to pull out of China.
The executive vice-president of the US Chamber of Commerce, Myron Brilliant, has set the record straight, saying that the president does not have the power to tell US companies what to do.
Not only would US companies leaving China further dim US economic growth prospects, but even the Wall Street Journal points out that if US companies move their supply chains to south-east Asian countries, they will pay a high price and face labour shortages and poor infrastructure.
But what is perhaps more relevant to us as South Africans is the impact of this trade war on global economic growth.
The World Bank has downgraded the forecast for Africa’s economic growth from 3.3% to 2.8% this year as a result of the trade war. Even European economies are shrinking, many of which are important trade partners for South Africa.
According to the World Economic Institute, Germany has seen its economy shrink 0.1% in the second quarter due to US tariffs on China, the lowest in the past decade. Britain’s economy has shrunk by 0.2%. The Organisation for Economic Co-operation and Development forecasts that the trade war could cost global GDP $600bn in 2021/22.
What makes the situation even more unpredictable is that since the trade talks started between the US and China in February last year, there have been 12 rounds of consultations, and the US has backtracked on its commitments six times.
At each G20 Summit, Trump has agreed to stop imposing additional tariffs on China, only to renege on such promises and announce additional tariffs weeks later.
* Ebrahim is the Independent Group Foreign Editor.