BUSINESS MAVERICK

US-Sino trade war will provide few opportunities for SA

By Ed Stoddard 14 May 2019

US President Donald J. Trump (L) and Chinese President Xi Jinping (R) shake hands during a press conference at the Great Hall of the People (GHOP) in Beijing, China, 09 November 2017 EPA-EFE/ROMAN PILIPEY

An old African proverb holds that ‘when elephants fight, it is the grass that suffers most’. As the US and China lock tusks over trade, grass on a global scale is getting trampled. And for South Africa, there appear to be few green shoots amid the carnage.

There may be a silver lining for South Africa’s economy from the escalating US-China trade row. With tensions bubbling in the Middle East and oil supplies from Venezuela and Iran falling sharply, the Washington/Beijing stand-off is the one thing keeping a lid on crude prices. If it weren’t for this simmering trade war, South Africans would probably be set to pay even more at the pumps.

Lower oil prices are good for South Africa, it is our biggest import by far,” said George Glynos, director at ETM Analytics. This cannot be understated as its consequences flow through all of the economy’s pipelines. Private sector profits, inflation, the balance of payments: the oil price impacts all of these sections of the economy.

And that may be about the extent of any benefit that South Africa will get out of the US/Sino arm wrestle. China is now South Africa’s single largest trading partner as a country. One school of thought holds that the trade tussle will cool Chinese economic growth, which in turn will curb its demand for South African exports such as iron ore and coal. That, in turn, will impact the profits of the miners that produce such stuff (including the likes of Anglo American), and also be a negative on the trade and current account balances, with implications for the currency.

On the other hand, tit-for-tat tariff hikes should provide at least some opportunities for exporters around the world. If American farm products, for example, are suddenly denied access to the Chinese market, farmers elsewhere can rush to fill the hole. The same goes for Chinese manufactured goods heading for the Walmart shelves of America. There is already evidence that Vietnam, for one, has benefited from this state of affairs.

But then, Vietnam has a growing industrial base, while South Africa’s has been dwindling. South Africa is hardly going to fill even a fraction of the potentially looming Chinese void of consumer goods flowing into the world’s biggest economy.

We are not a great replacement for China with most things the US buys in volume. There are very few industries where we have the scale that the US requires,” said Donald MacKay, Director of XA International Trade Advisers.

The same goes for market opportunities in China. US-soybean exports to China have been a major casualty of the trade skirmishes, but South African grain farmers simply do not produce enough of the stuff to jump in.

We only produce around 1.2 million tonnes of soybeans, so we can’t take advantage of the Chinese shortages,” said Wandile Sihlobo, the head of research at the Agricultural Business Chamber of South Africa.

Basically, we can watch from the sidelines as this saga rumbles on, and hope that it at least keeps the oil price in check, without smacking our mineral exports to China. In the meantime, if South Africa puts some effort into its industrial base, it might eventually find itself in a position where it can take advantage of gigantic trade spats.

Over to the incoming ANC administration. DM

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