When it comes to the market and economic crises that have suddenly been sprung upon us by US President Donald Trump’s Tariff Tantrum, sitting on your hands should be at least one of the options countries — particularly African nations — should consider.
And this, despite the immensity of the economic disaster that seems to confront us all.
One of the oddities of life, I find, is that often the best option in a crisis is to do nothing. It seems so wrong; a crisis demands action, almost by definition. Certainly, some situations do require immediate action, obvs. But as it happens, not all situations.
And I would argue that when it comes to the market and economic crises that have suddenly been sprung upon us by US President Donald Trump’s Tariff Tantrum, sitting on your hands should be at least one of the options countries — particularly African nations — should consider. And this, despite the immensity of the economic disaster that seems to confront us all.
This is certainly the case when it comes to investors, as opposed to policymakers. There is a reason there are hundreds of catchphrases along the lines of the very famous “Time in the market is better than timing the market” or, very apposite now, this one: “Buying every dip and selling every drip isn’t a strategy; it’s a stress response.”
But the African policy response isn’t so simple and it’s actually a question because the African Growth and Opportunity Act (Agoa) forum theoretically takes place in July. I think Minister of Trade, Industry and Competition Parks Tau captured the moment pretty well at his recent press conference with a calm and thoughtful approach. He stressed taking some time, sought to underline the fact that South Africa has its own trade requirements, but generally didn’t respond with the fury or supplication that some countries around the world have displayed.
And, by the way, that fury would be extremely well justified. The US press is gradually unpacking how the specific tariffs were set, and really it doesn’t look pretty at all. According to The Washington Post, Trump asked his team to do an analysis on the effective tariff rate on each nation.
This is a very tricky thing to work out because there are thousands of product lines. Anyway, the team did the work and presented it to Trump, but Trump didn’t like what he saw. The reason for that is obvious: to the extent that these numbers are available, the US trade-weighted average of tariffs imposed on its trade partners is only very slightly less onerous than the trade-weighted average tariffs imposed on the US. I am not making this up.
For example, before last week’s announcement, the trade-weighted average tariffs imposed by the US overall constituted about 2.2% of exports. According to the Cato Institute, not your average fluffy left-wing organisation, the trade-weighted average tariffs imposed on the US by the EU are about 2.7%. South Africa’s are about 5.8%, which is pretty standard for developing countries.
Instead, as many people have pointed out since then, the calculation Trump finally presented was constituted by the US trade deficit divided by imports, and the notional “reciprocal” tariff was then halved, with a baseline of 10%. As a result, the “reciprocal” tariff on China was 67% divided by 2, i.e. 34%, as opposed to the World Trade Organization calculation of the actual tariff imposed of 7.3% and the Cato Institute’s calculation of 3%. In effect, the numbers presented by Trump are fictitious.
So, why did Trump do that? The reason is obvious: this is an opening salvo in a negotiations process. According to the Office of the US Trade Representative, the tariff-level calculation is what is necessary to “reduce bilateral trade deficits to zero”. They are, in other words, totally made up, except that they are often quite onerous, though not so much for the US’s key allies: Russia, Cuba and North Korea. Juuuusst kidding. (About the allies — not about the zero tariffs.)
South Africa-US trade war: who has more to lose?
Trump is seeking to open negotiations on a footing to his advantage, in the same way that a market trader would cite a price from which to pretend to discount. And you know what they say about negotiations: a win-win negotiation is a situation in which both sides agree to blame each other in advance. And haven’t we seen a lot of that recently!
But strangely enough, some African countries can take advantage of the stated intention of the effort, which is to take Trump at his word that he wants zero tariffs on both sides. One of the ironies of the Trump Tariff Tantrum calculation is that countries such as Lesotho, Botswana, Mozambique, Madagascar and Mauritius notionally “charge” the US very high tariffs. The reason this is so is because they have very small quantities of US imports and larger, but still very modest, exports. That’s just how the formula works.
For these countries, the best solution would be to offer zero tariffs and call Trump’s bluff because I actually don’t think he really wants zero tariffs. And that is why loads of countries around the world – including Vietnam and, interestingly, Zimbabwe – have already made the offer. Even the EU has proposed this arrangement as a starting point.
What about the rest of the countries on the African continent? I think they should just wait.
Whatever the Trump team says, they have been shocked by the outcome of the announcement. Wall Street, which just weeks ago was lapping at Trump’s feet, is now furious with him. The announcement was so extreme, notionally increasing tariffs to levels not seen since the Great Depression, so deranged and so sudden, it made Trump look like a fumbling idiot rather than a tough negotiator about to embark on an extensive round of global hard-nosed bargaining.
The markets were violently damning, even knowing that this is probably just the start of a negotiation process! The selloff on global markets has been the worst in recent history, beaten only by, well, the market crunch the last time Trump was president. The politics is starting to change too and the Democrats are waking up from their post-election zombie state.
The point is that Trump now owns the US economy. If there is a recession, it is going to hang around his neck like an albatross. If it doesn’t happen, and the US economy holds up, it will be because Trump softens his stance. In both situations, just being a bit patient has to be the most sensible course.
