SA must reject protectionism

Martin van Staden / Midjourney
Martin van Staden / Midjourney

This article was first published by Business Day on 10 December 2024

The South African government must not be tempted into embracing even more protectionist and regulatory policies. While politically popular among the economically ignorant, throughout history protectionism has proven repeatedly throughout to only stifle the economic growth of a country and drive it further down the path of stagnation and deindustrialisation.

As global conflicts erupt between the West and wannabe hegemons in the form of China and Russia (and, perhaps even Iran), deglobalisation seems inevitable. The United States seems to be on the verge of embracing relative economic isolation, with president-elect Trump proposing exorbitant tariff barriers in an effort to encourage local industry.

The general consensus among economists and experts is that this populist policy will not work, and will either have little effect on US (United States) consumers, or at worst a negative one. This is a lesson that the US will soon have to learn.

But while the US may suffer from increased protectionism, trade tariffs and an aversion to free trade, it still has the sheer economic mass and sophisticated local industry to survive such a bad policy. South Africa, on the other hand, is a developing country that needs access to global markets to drive economic growth and prosperity.

Developing economies have not benefited from protectionism.

Argentina’s attempts to guard its local industries with high tariffs, export taxes and currency controls resulted in stagnation, mass inflation and a continued decline in global relevance. Only the election of free marketeer Javier Milei has averted this continued slide, as the new Argentinian president has slashed protectionist policies.

Venezuela’s import controls and nationalisation of key industries to reduce dependence on foreign products resulted in undermined productivity, economic vulnerability and overreliance on oil exports, and a severe shortage of essential goods.

Even past forays by the US into protectionism have damaged its development, with the Smoot-Hawley Tariff Act of 1930 exacerbating the Great Depression.

Japan is often touted as a positive example of protectionism, but this comes from a very selective reading of history. Japan’s protectionist policies were meant to establish a strong industrial base in chemicals and steel manufacturing. The fledgling industries of consumer electronics and automobiles was seen as a nuisance by economic planners and were not granted protection. We can see today that it was not the protected industries that thrived, but those that were given increased difficulties.

Protectionism has damaged South Africa’s economy severely. A 2011 paper titled “Cumulative Costs of Trade Protection in the South African Economy” by Dr Andreas Freytag identified “old interventionist tools” – tariffs and protectionism – as causing massive harm to the South African economy.

As of the 2011 study, the most protected product groups were textiles, clothing, footwear, food and beverages. Even by 2011, and much more pronounced now, it is clear that the average applied tariff of 22.4% on clothing and textiles has not protected South Africa’s clothing industry from foreign imports. Our local textile industry has faced continual decline since the 1990s despite these protections. Even with tariffs added on imports are still cheaper.

If these protections were to be removed, South African consumers who are already purchasing imports would save more money, that they could then spend more widely, or save responsibly. Local industry would need to adapt to survive. A move that, combined with general liberalisation, could possibly help the dying industry innovate effectively and resurrect.

Protectionist, and what the government terms ‘localisation,’ policies hurt consumers and coddle industry. Coddled industries are not exposed to the proper incentives to grow and prosper. If they do survive at all, it is only due to costly regulations and tariffs that hurt the people who matters – the citizens of a country.

The goal should not be to play a resentful game against imports. It should be to product enough of our own wealth that we can then purchase the goods we need from abroad. No country can survive isolated economically; even the strongest economies who isolate themselves eventually wilt away and starve.

Rather than embrace protectionist policies, the South African government should be working towards increased free trade, and augmenting trade.

Non-tariff barriers to trade need to be eliminated. The most notable of these is port congestion. This can be solved through transparent and mass privatisation of port infrastructure, alongside the creation of free economic zones across South Africa’s coast to encourage local development of new ports. Localisation requirements must be scrapped, and mass deregulation of the import/export sector must occur alongside a complete audit and close monitoring to combat corruption and theft.

Tariffs must be cut as much as possible, if not completely. The government should enter into beneficial trade agreements with positive economic partners like the US and the European Union to encourage mutual exchange of goods.

Regulations that hinder the creation and growth of businesses, and those that exist to benefit one over the other, must be scrapped. A level legislative playing field ensures that only the most deserving enterprises prosper.

The freer South Africa’s economy becomes, the wealthier this country will become. And as wealth grows, jobs will be created, and poverty will diminish. Like trade, it’s a win-win. The government must only have the will to make the right changes.

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The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation. This article may be republished without prior consent but with acknowledgement to the author.

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