Cumulative Costs of Trade Protection in the South African Economy

The research paper argues that South Africa's trade protectionism creates a net negative effect on social welfare by distorting the economy through four main channels: exchange rate, input demand, purchasing power, and retaliation. It highlights that while specific industries gain, the broader economy suffers from reduced GDP, higher costs for downstream industries, and lower productivity. The author criticizes recent government industrial policies for relying on interventionist tools and 'picking winners,' suggesting instead a shift toward unilateral liberalisation, a rule-based tariff structure using the Swiss formula, and the opening of service markets.

• Trade protection in South Africa is not a zero-sum game; the net effect of these measures on the country's own social welfare is negative, as gains for protected industries are outweighed by costs to other sectors.
• Import protection acts as a form of export taxation through the exchange rate channel, where reduced demand for foreign exchange causes the rand to appreciate, making exports more expensive and threatening jobs in export sectors.
• The input demand channel increases costs for downstream industries and exporters because imported inputs and their domestic competitors become more expensive, reducing price competitiveness.
• The purchasing power channel reduces the quantity of goods and services sold in South Africa because tariffs on low-price elasticity goods, such as food and textiles, leave less disposable income for other products.
• A simulation using the Global Trade Analysis Project (GTAP) model suggests that a 5% uniform tariff reduction combined with decreases in trade costs for imports (3%) and exports (1%) could increase South Africa's overall GDP by approximately 1.7%.
• South Africa's tariff structure is heavily skewed toward low-tech goods; the most protected groups include textiles, clothing, and footwear, with average applied tariffs exceeding 20%.
• Non-tariff barriers in network industries, specifically the electricity monopoly (Eskom) and telecommunications, result in high prices and poor quality, creating competitive disadvantages for all domestic firms.
• Administrative burdens and 'hidden' barriers significantly hinder trade; South Africa ranked 148th in 2009 for 'Trading across borders,' with imports requiring an average of nine documents and 35 days to process.
• The author argues that the 'developmental state' approach of picking winners is flawed because governments lack the necessary decentralized knowledge to identify future successful industries and are often driven by political rationality and lobbying.
• Recent government initiatives, such as the Industrial Policy Action Plan (IPAP) and the Trade Policy and Strategy Framework (TPSF), are criticized for relying on old interventionist tools and maintaining a discretionary tariff approach that invites rent-seeking by lobby groups.

APA

Freytag, A. (2011). Cumulative Costs of Trade Protection in the South African Economy. South African Institute of International Affairs. https://saiia.org.za/wp-content/uploads/2011/03/Occasional-Paper-80.pdf

Chicago

Freytag, Andreas. Cumulative Costs of Trade Protection in the South African Economy. South African Institute of International Affairs, 2011. https://saiia.org.za/wp-content/uploads/2011/03/Occasional-Paper-80.pdf.

Wikipedia

{{cite report |last1=Freytag |first1=Andreas |title=Cumulative Costs of Trade Protection in the South African Economy |publisher=South African Institute of International Affairs |date=March 2011 |url=https://saiia.org.za/wp-content/uploads/2011/03/Occasional-Paper-80.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{freytag2011cumulative, author = {Freytag, Andreas}, title = {{Cumulative Costs of Trade Protection in the South African Economy}}, institution = {South African Institute of International Affairs}, year = {2011}, month = mar, url = {https://saiia.org.za/wp-content/uploads/2011/03/Occasional-Paper-80.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }