SA/USA Trade After the USA Presidential Elections

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SA/USA Trade

Brooks Spector, a former US diplomat in Africa and now an associate editor at the Daily Maverick here in South Africa, makes the telling point – don’t make predictions about who would win the USA presidential elections at least until Labour Day, the first Monday in September when voters turn their attention to matters Trump or someone else. However, there are likely to be only two electable candidates in the race in November, Donald Trump and Joe Biden. So Donwald Pressly, a seasoned political economist, looks at what the prospects for enhanced SA/USA trade under either of these men.

Even after a spate of American cities are looking a little like zones of a low-scale civil war – sparked largely by the George Floyd incident in Minneapolis – the polls are showing that Biden is well ahead in the race. The picture is slightly less encouraging for Biden in the aptly named, in the current circumstances particularly, battleground states – as the reputable website realclearpolitics.com – calls them. Biden is ahead in four of the five battleground states, but he gets a significant over 50 percent (50.5 percent) result at this stage in Florida. Realclearpolitics.com identifies the states which are likely to swing the vote in the electoral college: Florida, Wisconsin, Pennsylvania, North Carolina and Arizona.

Trump is ahead of Biden in North Carolina in the current polling as of writing this – at 45.8 to Biden’s 45.2. A few days back Biden and Trump tied in North Carolina. The national average indicates Biden leads Trump by quite a margin: The RCP national average is 50.6 (up from 48.6 percent two weeks ago) to Biden and 41.1 (down from 42.6 percent two weeks ago) to Trump. Biden is ahead by 9.5 percentage points (up from six). The electoral college outcome if there were an election tomorrow is 222 (183 two weeks ago) to Biden to 125 for Trump. But then polls at the same time in 2016 put Hillary Clinton far ahead of Trump – in both the electoral college and the popular vote… and look what happened.

Trade policy analyst Trudi Hartzenberg of Tralac believes that Trump will have it in the end.

So it could well be four more years. But she says if Biden is extremely strategic, he may just pull it off. At this stage, the polls indicate Biden would pull it off. Hartzenberg says a Biden victory could be achieved if he recognised his shortcomings, such as his advanced age, and surrounding himself with top class people including a vice-presidential candidate – Biden has already indicated the choice would be a woman – with policy understanding substance. The person who occupies the White House for the next four years till 2024, will have the most important influence on trade relations.

Hartzenberg puts it simply, Trump preferred bilateral – rather than multi-lateral – trade agreements. Kenya was bucking the trend of regional trade deals by going it alone with free trade zone talks with the United States. It will be unique in Sub-Saharan Africa – Morocco concluded a FTA in 2014 with the USA. “Kenya is keen to go ahead (with the free trade deal),” she said, noting that it was being challenged in the East African court of justice. It is clear Kenya sees a few more years of Trump ahead – and is adopting a realpolitik stance. South Africa, as an integral part of the Southern African Development Community (SADC) was unlikely to succumb to a one-nation-on-another-nation deal – although the USA had made it clear that it wants such a deal with a big player on the African continent.

So without likely movement in the direction that Trump wants, South Africa will not have much to replace the existing trade regime when the African Growth and Opportunity Act (AGOA), first enacted by Congress and signed into law by Bill Clinton in 2000, comes to an end in 2025. President Barack Obama’s administration signed a 10-year renewal of this legislative mechanism which eases trade restrictions for South Africa – and provides preferential access to the US markets for South Africa especially for motor industry products, notably BMW three series vehicles, and agricultural products. Hartzenberg noted that while SA benefited to a degree for its clothing market, it was Southern African Custom’s Union partner Lesotho which benefited significantly. Some 90 percent of its clothing production is sold in the USA. SA also had a good market for its catalytic converters produced in Port Elizabeth, East London and Cape Town. SA also exports “a lot of citrus,” Hartzenberg notes.

So what does this all have to do with Trump or Biden? Trump could be in office until the end of 2024 and he doesn’t look set to renew AGOA. The USA presidency, like South Africa, has a two-term limit. In fact, his administration has sent signals that AGOA won’t be renewed. Under Biden it most likely would be. Biden also supports a multi-lateral approach to trade negotiations while Trump had effectively disrupted the World Trade Organisation – he has threatened to withdraw from it, much like he has done with the World Health Organisation. Hartzenberg says what has happened under Trump is that new members have not been appointed to the WTO disputes appeal body – which was rich with eminent legal experts – rendering the mechanism rudderless. The impact is that Trump in the White House has the effect of dampening international trade as he favours US “home-brew” goods and services. He would prefer to “protect” local markets in the US, hence his battle with China in particular. A study by the National Bureau of Economic research, based in Cambridge MA, suggests that the President’s political party, the Republican Party (GOP), lost support in the 2018 congressional election in counties more exposed to trade retaliation – but also showed no  commensurate electorate gains from United States’ tariff protection. The America First policy has led to some strange outcomes including the decision by the US icon Harley Davidson to move some of its production to Europe to by-pass retaliatory EU tariff barriers.

Hartzenberg says Trump doesn’t promote trade with countries that have a positive trade balance, like South Africa. (See link to the Tralac Agoa website).

Here one sees that since the signing of the AGOA legislation, SA trade with the USA has rocketed and the SA trade surplus with the USA has widened. In 2000 SA exports to the USA amounted to US$4.2billion. This has risen by 104 percent to US$8.5 billion in 2018. Imports from the US were valued at US$4.2 billion in that year. Only some three percent of products were subject to US import duties, the rest qualified for GSP/AGOA or are duty free under US WTO commitments. The impact of Trump’s import duties can be seen in the jump from just US$7 million in duties in 2017 to US$56 million in 2018, mainly a consequence of special duties imposed on steel and aluminium during 2018. The AGOA website points to the success under AGOA with motor vehicles and parts exports amounting to US$573 million, citrus fruit making up US$66 million and wine from grapes exports reaching US$45 million. Tralac reports that 92 percent of SA wine entered the US duty free under AGOA/GSP during 2018. Most wine exports under AGOA consisted of the bottled product – rather than bulk. This is, of course, of relevance particularly for the Western Cape. Any change in the regime applying to AGOA, would have negative consequences if the AGOA regime falters.

Dr Ralph Mathekga, a policy analyst, said a Biden victory would be good for SA (and African-wide)/USA trade. It would shift the relationship to a multi-lateral approach. But he also suspects Trump is going to stay in office because he appeals to a pivotal slice of the American electorate which is antagonistic to “Main Street” – those that oppose the entrenched interest of the Democratic Party’s global “dynasty”, much associated with Hillary and Bill Clinton. Here the big boys are seen as benefiting from world trade flows. Donald Trump has articulated an “anti-establishment”, anti-Chinese message which he argues, appears to be the winning political recipe. If Biden won there would be a de-escalation of trade wars, which would be in South Africa’s interest. Mathekga argues that Biden is seen “as part of the establishment”. Mathekga puts it simply: “Biden has been part of the staple (read: old global world order) for a long time.” He argues that the Trump presidency effectively undermines South African and African trade in general with the USA. If one looks at the AGOA figures provided by Tralac, however, trade between SA and the USA has continued to grow during the Trump presidency, most likely because the tit-for-tat trade barriers have largely affected Mexico, China, Canada and the European Union. The irony is that because of AGOA, SA has benefited from free-er access to the USA markets – when USA trade with its big trading partners started to drop. For example, the US trade deficit with China in 2019 was US$345.6 billion. That is 18 percent less than 2018’s US$419.5 billion deficit. The United States is SA’s second largest export market – China is first making up 14.9 percent, then the United States at 8.3 percent of exports and then the United Kingdom at third place at 5.8 percent according to the SARS April 2020 Overview of exports and imports. The USA is third in ranking of the top five SA imports from – China, once again, first, at 23 percent of imports, Germany second at nine percent and then the United States at 6.1 percent. Total (global) SA exports were R53 billion and imports R88 billion.

So South Africa’s trade relations with the United States are significant. Right now it looks like the strength of the trade ties are not being disrupted by “political” – Trump go-it-alone – factors so much as the meltdown over the COVID19 fallout. SA exports to the Americas were  down significantly in May 2020 – by 48 percent (to R4.6 billion) from April – but SA imports from the States haven’t dropped that much – a drop of 10 percent (to R8.5 billion) from April – because of the COVID19 domestic lockdown. That means that the SA lockdown restrictions – on mines producing precious metals (the biggest export item to the States), the wine (farms) and citrus export markets – have had a big production and trade impact, which can’t be blamed on Trump. SA has also has generally enjoyed a positive global trade balance until the COVID19 lockdown. SA now has swung to a trade deficit (in April 2020) of R35 billion (from a positive balance of R24 billion in March).

Spector makes the point, under a Trump government, SA was on the back foot. Trump believes in “a transactional policy” towards other countries. “He doesn’t have any faith in the international economic regime. “The problem for South Africa is interest in expanding investment and trade (by) American entrepreneurs,” said Spector. If Biden wins, he was likely to throw his administration behind “the idea of AGOA version Two.” They may also be a “reincarnation” of the South African Customs Union negotiations towards a free trade agreement with the USA, which came to a grinding halt on the election of Trump in 2016. The idea was ignited under the George W Bush presidency. A free trade agreement would have meant that the two parties take steps to put remedial actions in place “when (trade) things don’t go right”. Spector noted that AGOA which had removed barriers to 3 500 product lines had improved exports significantly, providing an estimated 80 000 extra jobs. This, of course, remained in place, and would remain in place throughout the term of whomever is elected the next US president. Despite his caution about predictions, Spector doesn’t think Trump will make it back because US employment was “a deep freeze”. Even if there was a sharp return from recession in the States – and the better unemployment figures released last week can only be good for the incumbent, Trump has only five and a bit months to turn his economy around. Spector reels off former presidential incumbents who lost office because of recessions. George H Bush senior lost after one term because “of a relatively modest recession”. Gerald Ford also lost in the midst of a modest recession. And Trump has 40 million US citizens now unemployed because of the COVID19 matter… But as Spector acknowledges, he predicted a Hillary Clinton victory in 2016, so it is still early days. Political commentator Jonathan Katzenellenbogen suspects that just as Nixon used the anti-Vietnam war protests for his electoral benefit in 1972, Trump may well do the same with Black Lives Matter movement – which has caused violence across American cities including LA, Chicago, Mineappolis, and Washington DC where an Episcopal church (attended regularly by Lincoln) near the White House was torched – by turning middle class voters off the Democrat opposition. But Simon Barber, a former Brand South Africa representative in the United States, believes the opposite: “There is no way Trump is going to be re-elected. He was an accidental president to begin with, a fluke of the electoral college.” Yes, the Dems will make things unnecessarily exciting, he acknowledged, but they (the authorities) didn’t have to teargas anyone to take a knee with kente cloth. ‘Defund the police’ is a witless slogan, but not enough to rescue Trump,” notes Barber. So, one supposes, we will just have to see what November produces.

Donwald Pressly is a veteran political economy writer.