Trade war is "tax without revenue", says Sarb Governor Lesetja Kganyago

South African Reserve Bank (Sarb) Governor, Lesetja Kganyago, has likened the prevailing uncertainty in the global trade and economy caused by the trade war over import tariffs as a “tax without revenue”.

Speaking during a media briefing in Washington D.C. on Thursday, Kganyago said the 2nd G20 finance ministers and central bank governors meeting reflected on the current economic developments and the extent of the uncertainty that engulfed the financial markets as a result of the trade measures that had been taken with respect to the impact on trade and the response in the form of tariffs, and what that actually meant for financial stability.

Kganyago said the tit-for-tat that was taking place over tariffs meant that countries might actually not be talking to each other, adding that they were coming to the point where the tensions have become so elevated that countries were speaking past each other.

“There was also a need to take immediate and coordinated efforts as needed to de-escalate and reduce the current volatility and uncertainty, and to provide policy clarity. Basically, uncertainty was seen as a tax without revenue, and that we cannot let the uncertainty become the new certainty,” Kganyago said.

“There are time limits that have been set. Some tariffs are supposedly off the table for a period of 90 days. It's ticking every day. The days are becoming fewer. 

“And in an environment where every country is negotiating bilaterally, these things could actually take a lot of time, meaning that the uncertainty might be with us for long, and that there was a call that says that you have got to actually be de-escalating, and the way to de-escalate is to actually be engaged in dialogue.” 

Kganyago said the meeting also reflected on the benefits from globalization, and members were supporting an open, rules-based, and transparent trading system with the World Trade Organizations at its core. 

He said there was also a big reflection that the current rules might have to be relooked in a bid to have a much fairer trade. 

“There was also a reflection on the global imbalances, and that was strongly emphasized, and that we need to look at the root causes and review both the internal and global policies that intensify these imbalances and increased trade barriers and trade tensions that we had seen, and that the IMF should actually be playing a key role in assessing the country-specific policies,” he said.

Finance Minister Enoch Godongwana said the meeting opened with discussing the international financial architecture, which focuses, among other things, on the continued agenda of the reform of the multinational banks. 

Godongwana said the key item was that work has been done, but what the G20 needed to do was to develop a reporting mechanism for the banks, which it hoped to be concluded by the end of September.

“The issues also continue to deal with the debt vulnerabilities, particularly in emerging economies and the African continent. In this regard, the common framework is an instrument. We will be publishing case studies of countries that have gone through that process,” Godongwana said. 

“On the focus, another focus agenda was on the African continent. As you would be aware, given the fact that the presidency [of the G20] now is on the African continent, we've given a spin and a focus on Africa.

“Then a key of those challenges that need to be done on the African continent, and deepening some of the institutional arrangements we've had, like the combat with Africa, replenishing the African Fund, African Development Fund, and generally, how do we deal with the cost of capital and access to capital for the African continent. Those are some of the challenges that we grappled with this morning.” 

BUSINESS REPORT