Why Trade Policies Matter

Protectionist trade policies may have worked decades ago. But if we want to improve South Africans’ economic well-being and participate more productively in the global economy, we need to liberalise our trade tariffs.

- Johan Fourie

Let’s assume that Katlego earns R8 000 a month and spends R1 000 on clothes. Katlego loves fashion. It’s a way to express herself and a requirement at her job as receptionist. It also signals to a future partner that she is upwardly mobile. She wants a better life than her parents had.

What can government do to make Katlego’s aspirations a reality? There are many options. Reduce VAT and income tax – although this isn’t likely to matter much. Intervene directly by building better infrastructure: perhaps reduce the fees of Katlego’s train tickets to work, or simply improve the efficiency of the trains to ensure they run on time.

Or more indirect measures: establish a farmer support programme that cuts the price of food; or implement measures to combat the anti-competitive behaviour of an agro-processing cartel in order to reduce artificially high food prices. There are many other examples but, truthfully, they would have limited impact on Katlego’s budget.

But what if there was one policy – one that can be implemented with a minister’s signature – that would increase Katlego’s budget by 5%? In fact, it would help all South Africans – but especially low- to middle-income earners that spend a large proportion of their meagre budgets on fashion retail in the formal sector.

There is such a policy. It is called an import tariff. And we need to scrap it.