Game of tariffs: the trade war
9 Jul 2019 - by Devlyn Naidoo
President Donald Trump’s trade war is wreaking global havoc.
The trade element of Trumponomics is a striking departure from previous administrations’ policies, and a stiff challenge to the multilateral trading system. But critics must face some uncomfortable truths. The first is that some of America’s frustrations with its trading partners are justified. China’s system of subsidies and state-directed capitalism harms competing firms elsewhere, and raises questions about surveillance and security. India’s protectionism has
long been an obstacle to trade liberalisation. And the WTO’s dispute-settlement system has serious weaknesses.
There is a global disruptive influence about the US trade war and it’s hurting their own GDP contributors. To cite an example, a US-based motor-cycle manufacturer is looking to produce some of its bikes overseas to dodge retaliatory tariffs set by the EU in response to President Trump's duties on steel and aluminium imported from Europe. A side effect of this would be an increasing unemployment figure in the US with looming job cuts. Conversely though, the possible imposition of tariffs on around $US 300 billion worth of imports could force Foxconn (manufacturer of Apple iPhones) to move their operations out of China. From these two scenarios, it is glaringly clear that the game of tariffs is dependent on successful strategic implementation.
The SA economy is likely to experience several effects as a result of the trade war – among these higher cost of consumer goods (largely imported from the US and China), a lower GDP as a result and a decline in exports to the US markets. China, being one our largest trading partners, is primarily the reason for the severity of the effects we are likely to experience. As per Sars merchandise trade statistics, we recorded a trade deficit of R3 427 453 890 in April 2019, and whilst we are a little over two weeks from the official May 2019 trade statistics release date, a deficit is most likely an eventuality rather than a probability.
A word of advice to our local importers is to schedule their imports earlier rather than later and ultimately save on their bottom line. As per Section 73(1) and S73 (2) a and S73 (2) b of the Customs & Excise Act 91 of 1964; 73. “Currency conversion.-
(1) When the value of or the price paid or payable for any imported goods is expressed in a foreign currency, it shall, for the purpose of calculating the customs value thereof, be converted into the currency of the Republic at the selling rate at the date of shipment of the goods as determined by the Commissioner, in consultation with the South African Reserve Bank, or if no such rate is determined for such date, the latest rate determined before that date shall be used. (2) For the purposes of subsection (1) the date of shipment of- (a) non-containerised goods shall be the date of the bill of lading, air waybill, consignment note or such other document as the Commissioner may require; (b) Containerised goods shall be the date on which the container is taken on board ship as endorsed on the bill of lading or arrival notification or, if imported otherwise than by sea, the date of the air waybill, consignment note or such other document as the Commissioner may require.
The customs value upon which duties and taxes are calculated is based on the conversion of the foreign currency amount on the commercial invoice to the currency of the Republic on the rate published by the commissioner on the date determined. A significant number of imports are invoiced by overseas suppliers in USD (ISO 4217) and therefore considering the weakening of the rand and the effects of the trade war the local importer would save a decent margin on both the actual payment of their goods and on the import duties and taxes payable to Sars. It is best for businesses involved in international trade to stay safe and be smart during this tumultuous period, avoiding all unnecessary risks as the rand is expected to weaken amidst the escalating trade war.
A few trade battles may have been considered to have been won by the US and China but the trade war is from over. In the coming months we are sure to see America and China pull out all their trade armour and weaponry (quotas, trade barriers, trade policies to name but a few) in an attempt to claim victory. In doing so livelihoods and economies across the world will undoubtedly be affected.
The aftermath of this trade war will see many countries redesigning and re-evaluating their trade policies. Supply chains will definitely be disrupted and we could see a global recession as we move into the second half of 2019.
This war will definitely see the birth of a new order of international trade as countries look for alternatives to sustain their economies.
Devlyn Naidoo is currently a facilitator and customs mentor at the SA Maritime School and Transport College (SAMS), a privately owned college that provides training and skills development in international trade, freight handling and customs compliance.