Trade may be the medium for economic growth between nations, but it is also the cause of friction – sometimes extreme friction leading to sanctions or war.
There are today several examples of trade competition increasing tensions between countries. South Africa has its own problems in this regard. What can appear advantageous – something to celebrate – can also turn into a dour struggle for market survival or dominance. Insistence on localisation can make industries less competitive and can lead to retaliation.
The building industry is an example where localisation is being applied. Cement manufacturers locally were finding they were being undercut by cheaper importations from abroad. Appeals to the government led to a ban announced this week in which all government building projects are obliged to use only locally produced cement. The news was enthusiastically greeted. The share price of Pretoria Portland Cement (PPC) rose 8% in a single day. It presumes more certainty for increased production for PPC, more work for labour in the industry, and better profitability because of less competition.
But that is not the end of the story. If South Africa can do that to foreign imports, other countries can do that to South African exports too.
A few years ago, a similar situation arose when local chicken producers claimed the United States and Brazil were dumping surplus chickens on the South African market at prices that turned the local industry into a loss-maker. Jobs were at stake. Whole industries were at stake.
Foreign producers denied they were dumping, claiming instead that they were selling chicken parts – breasts and legs, but not whole chickens.
What was the difference to chicken consumers? – not much.
It set diplomatic wheels turning to arrive at a settlement.
In the present case of cement, questions have now been asked whether the Department of Trade and Industry had conducted a socio-economic impact study of localisation policies before making its decision. The minister, Ebrahim Patel, chose to dodge the question, replying that the economic effect of localisation measures would be monitored.
South Africa is by no means alone in having trade headaches. They abound in big nations and small.
France has been bitterly angered by Australia scrapping an existing submarine contract with France in favour of a British-American nuclear submarine contract.
It may be partly behind President Macron’s announcement this week of a plan to develop France into the high-tech champions of the industrial future, reversing the industrial decline that has been affecting France in recent years.
Another trade dispute soon coming to a head is that between brexited Britain and the European Union (EU) over trade in Northern Ireland.
Britain is proposing radical changes to the Northern Ireland Protocol which was part of the brexit deal to ensure that any goods passing through the Irish land border comply with EU rules.
Britain is objecting to EU rules and to European Court of Justice jurisdiction. The dispute requires expert diplomacy to avoid becoming a trade war, but it is not yet clear how bitter the dispute will become.
Another dispute that got nasty was that between Canada and China over use of Huawei Technologies’ fifth generation telecommunications networks. The dispute also has national security implications.
The dispute started in December 2018 when Canada arrested Huawei’s chief financial officer, Meng Wanzhou, on an extradition request from the United States. China immediately replied by jailing two Canadian business executives, holding them in bad conditions for almost three years. They were released when Meng flew back to China after a deal with the US was reached over criminal charges against her.
Popular opinion in Canada is overwhelmingly in favour of Canada banning Huawei, but any such ban would only further inflame a sensitive situation.
China’s view is that Canada “should provide a fair, just, open and non-discriminatory environment for Chinese companies.” This sounds fair enough, but Western countries are extremely suspicious of Chinese motives and suspect China of stealing technological secrets.
There is not much benefit to countries in turning to the United Nations to try to resolve these international disputes. The UN is not really the court of arbitration in these matters, because trade disputes tend to resolve themselves over time even if the winners and losers don’t feel fairly treated.
The UN mainly attempts to broker peaceful deals between nations especially in the areas of political disputes, and even these disputes have difficulty in being settled because five nations have veto votes on proposals – the United States, Britain, France, Russia and China – and one or more of them are sure to scupper any dramatic proposals that are put forward. This turns UN into a debating shop, which can let off steam without necessarily resolving disputes.
There is no inoculation that prevents trade disputes arising between nations, but perhaps the most stable way forward is for nations to concentrate their industrial and export efforts on products where they have a recognised advantage and where foreign nations have difficulty in competing.
In South Africa, we could claim to have an advantage in the range and availability of mined minerals, especially in platinum group metals, iron ore and coal, but also in production of different types of fruits and in the strength and quality of our wine industry.
The country has also established itself as a competitive car manufacturer but needs state support to stay competitive.
The fact that the country has a windy and sunny climate lends itself to the development of the solar and wind-driven electricity and heating industries, features that give it a continuous competitive advantage onto which it can confidently build.
These are relatively new endeavours but have huge potential for expanding into major engines of growth around which other industries can gather.
There are industries, however, where South African labour agreements and wages have already passed out of competition with Asian imports, where labour structures are lower. To compete in this area, requires making products distinctively fashioned, or higher quality or faster than competitors can make them. This applies to the fashion industry where quality and styling are so important and being first in the market make all the difference.
Above all, employers should be turning to training workers to have the skills that can win contracts on merit against any competition.
Overall, the picture of trade competition is extremely intricate. For governments to turn to trade bans is generally unwise and probably the least effective in the long run.