US tariff turmoil creates strategic opening for SA

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JEREMY MAGGS: Now, you’ll know that a US court ruling has dealt a significant blow to Donald Trump’s tariff strategy, raising fresh questions, I think, about whether his assertive or aggressive trade agenda is beginning to unravel. After years of bold promises that tariffs would strengthen the US economy and pressure trading partners, critics are now arguing the real burden has fallen on American consumers.

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I want to get a view on that and also the impact on emerging economies such as ours in South Africa. Joining me is Professor Rajneesh Narula, director of the Dunning Centre for International Business. Professor, on a global scale, and welcome and thank you very much for talking to me, is this court ruling, in your opinion, a technical setback? Or perhaps more broadly, is it striking at the legitimacy of the entire tariff strategy?

RAJNEESH NARULA: I think you’ve hit the nail on the head there. It formally raises the question of the legitimacy of his actions. I think it’s the beginning of a challenge to his rule by executive order and sidestepping Congress and Senate, and all the normal checks and balances that are built into the US Constitution.

JEREMY MAGGS: Many Americans, Professor, believed initially that the tariffs would lower prices and boost domestic industry, but that hasn’t materialised at all, has it?

RAJNEESH NARULA: It was really quite a bit of a stretch. I think Donald Trump and the Trump administration generally seems to have a view that we would return to an era somewhere in the ‘50s and ‘60s where, America was a manufacturing nation, where there was full employment, where everybody had a house and a mortgage and a car and so forth, and a world which, we see in the movies of the ‘50s and ‘60s.

They still have this attachment to this idea that somehow this might be reversed and that the inequalities they’re feeling in the US would somehow also be addressed.

Now, creating a bygone era by pretending that we haven’t had globalisation, it’s a bit of a myth. I think that’s really where it’s all gone wrong. It started off with a dream to recreate a world in which there was no trade, there was no FDI (foreign direct investment), there were no multinationals really to speak of; you could buy American and there was nothing else to buy, so to speak. By raising tariffs, his people clearly have had this idea that this would somehow turn the clock back.

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JEREMY MAGGS: So ultimately, a misunderstanding of the complexity of global supply chains.

RAJNEESH NARULA: Precisely. You’ve hit the nail on the head once again. The fact of the matter is globalisation has three aspects to it. One is the movement of goods and services. The second is the movement of capital, and the third is the movement of people. Because there’s structural imbalance of where the people are who you need for particular jobs, and that’s why we see so much immigration taking place, both formal and informal.

You can’t have one without the other two, if you see what I mean. You can’t have the cheap goods and services without having the free movement of capital that is the foreign multinationals coming and going, or, in fact, the movement of people.

But there are a lot of right-wing views that immigration is a terrible thing, nation building is important, everybody else is bad, we are good. That is the view.

JEREMY MAGGS: Professor, if I may, perhaps I could just pivot the conversation towards this neck of the woods. I was wondering if you have a view on how policymakers in Pretoria, here in South Africa, should be interpreting this moment?

RAJNEESH NARULA: Well, that is in fact, a burning question I’m going to be discussing next week in a webinar I’m running – what should Africa do in general and in particular South Africa? There’s one view that’s very popular right now, which is the Carnegie view.

Carnegie made a speech in Davos saying the middle powers should get together.

Because the way things are turning out, there are going to be two blocs. There’s going to be a US-led bloc and a China-led bloc and a bunch of underlying countries which are neither in nor out, but in the middle.

The Carnegie idea was that all the middle countries should get together. The question, of course, is that somebody had to provide the public goods, the security, the infrastructure, the funding, the equivalent of the World Bank, the equivalent of the WTO (World Trade Organisation), the equivalent of all of these agencies and of course, physical security.

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Somebody has to do that and all the middle countries are all too small and too fragmented and of course, too proud to accept the leadership of someone else. Do you see what I mean?

Someone has to make the rules for these middle countries and each individually feels they should be the leader of the middle countries, and that’s really going to be the challenge. Indonesia, India, South Africa, Brazil, they may look like they can agree on stuff (but) they each have their own policy to address.

I think really the solution for South Africa is to drive the African integration scheme, which has been floundering for a long time. Here is the opportunity for South Africa to lead the continent (with) a little bit of carrot and a bit of stick to bring all the countries together to sign up, to actually have movement within Africa, of goods, of services, of capital, of people, just as like an EU, but an African Union that actually works in that way rather than simply one that is about sound bites and storytelling and what might be one day.

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JEREMY MAGGS: Predicated, of course, on whether South Africa has the wherewithal and I guess, the ability to drive that very delicate diplomatic agenda.

RAJNEESH NARULA: Well, yes, you’ve got a point there. I think the fact of the matter is this is long-term thinking and there are very few, if I may say so, leaders in countries who are willing to take that leadership role for the continent. So that’s why I say the carrot and the stick, because one has to be a little bit heavy handed in pushing through this agenda and accepting the cost because there may be a cost.

In the case of the US, they’ve accepted the cost of this post-war peace process for the last 80 years.

In a way, Trump isn’t wrong when he says we no longer want to pay for the public goods that you’ve all enjoyed, the safety you’ve enjoyed. We want you to pay for your own, look after yourself.

In the same way, now it’s South Africa’s turn to be the big boy and say, we are, for better or worse, the senior people on the bloc, these are the rules and we’re going to put the resources in to speak up on behalf of a larger population, with a return in the long run. No one does anything for free. But there is a huge amount of potential here.

JEREMY MAGGS: Professor, thank you very much indeed. Professor Rajneesh Narula, director of the Dunning Centre for International Business.

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