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Back to Index 08 March 2017

US foreign and trade policy developments risk for SA economy

Professor Ashish K Vaidya during a panel discussion at Nelson Mandela Metropolitan University Business School’s Strategic Conversations Changing global business conditions: Decisions affecting economies around the world.

Port Elizabeth, 07 March 2017 – Nelson Mandela Metropolitan University (NMMU) Business School today hosted a panel discussion with US and South African economists in academia to unpack the impact of recent developments in foreign, trade and economic policy.

The discussion comes at a critical point when anti-trade, protectionist and anti-globalisation movements and rhetoric continue to shape the global politico-economic landscape.

NMMU Business School visiting Professor of Economics and President of Saint Cloud University, Minnesota, USA, Prof Ashish K Vaidya said “a great degree of uncertainty currently exists in relation to changing global conditions.

“To sum it up, the last 12 months have been a very unusual period for the US and certainly unexpected on many levels. There is a great deal of uncertainty which has emerged from the new administration. On the one hand we have Trump and on the other hand we have a Republican Congress. In some cases, we have alignment between the two and in others we have disagreement.

“What people are trying to understand is where the alignment is between President Trump’s agenda and Congress’s agenda,” he said.  

Prof Vaidya went on to explore the possible impact of alternative economic and trade scenarios in the US.

“Most experts agree that corporate tax cuts and tax reform are imminent. We predict there will also be a more business friendly approach to labour, with policies allowing more flexibility.

“Proposed infrastructure spending is a big topic of debate in congress at the moment with $1 trillion being set aside for development projects which will have a powerful multiplier effect.

Commenting on the impact of these developments, NMMU Deputy Dean of Business and Economic Sciences and Professor of Economics Hendrik Lloyd highlighted both the negative and positive economic and trade implications for South Africa.

“The US is moving into an era of expansionary fiscal policy which leads to corporate tax cuts and a tighter monetary policy which could see an increase in interest rates. Since the benchmark rate for corporate tax could be decreased there should be greater opportunities for the expansion of private domestic funding of infrastructure. This together with a more protectionist approach to foreign policy will have a significant impact on emerging and frontier economies, including South Africa,” he said.

“Protectionism is the new way of thinking about the global economy. Whether you are looking at the US or France, or the UK and Brexit, it seems to be a trend and tendency,” he said.

“Approximately 40% of multinational corporations headquartered in the US operate in emerging economies such as South Africa. Repatriation of capital is a possible concern for the South African economy if US businesses take advantage of corporate tax cuts. What we will then see is the flow of capital away from South African markets. 

“In terms of foreign and trade policy, the recent pronouncement related to the renegotiation of NAFTA highlight the US’s unwillingness to be dictated to when it comes to their sovereignty.

“How will this influence trade agreements such as AGOA? This is something that South African economists will have to grapple with in coming months,” Prof Lloyd said.

On the other hand, he believes an increase in infrastructure spending in the US could have a positive spin-off for South Africa and other emerging economies in terms of boosting resource spend.

When asked whether local economic protectionism could advance the South African economy, Prof Vaidya was unconvinced.

“I don’t think so. Economies with protectionist barriers have not always succeeded. Economies of the world have become so entangled that a retreat from globalisation will not be easy,” he concluded.