Page 5 - 19 Cotton SA September 2019

TEXTILE SCENE

FREE TRADE
c

TARIFFS c

OUTLOOK ON

TEXTILES

by Helena Claassens, Cotton SA

TARIFFS – GOOD OR BAD? industry have no need to innovate. Often the
The USA is threatening China and Mexico with local product will decline in quality and will
tariffs. The question one could ask is whether be more expensive than foreign imported
tariffs are good or bad for trade and/or the goods.
economy of a country. The moving away from tariff protection
The definition of tariff protection: “A duty had a negative impact on the South African
imposed on imports to raise their prices, textile and clothing sectors. For a long time
making them less attractive for consumers textiles and clothing were protected from
and thus protecting domestic industries from imports. During that time the industry grew
foreign competition.” in terms of investments, employment, and
There are various opinions regarding tariff production. The tariff phase-down for textiles
protection; some in favour, but most against and clothing started in 1995 and in 2005
such measures. The convictions among some tariffs were further reduced from relatively
politicians and economists are that lower tariffs high levels to a much lower ad valorem
spur growth and reduce prices generally. percentage duty.
Many development policy analysts argue that In 2005, China also became part of the
it is sometimes necessary to implement import World Trade Organization (WTO) and
tariffs to protect infant industries from foreign imports from China into South Africa flooded
competition. In the short term it works but is the market at very low prices. For example,
very destructive in the long term. It makes the in many instances the finished garments were
country and its industries less competitive in imported at the same price level as locally
international trade. produced yarn. Since then the value chain
If a country is trying to grow strong in a collapsed and there was a decline in local
new industry, tariffs will protect it from foreign production and employment and the resultant
competition. That gives the new industry time closure of many companies.
to develop its own competitive advantages. Whether tariff protection is ultimately good
Protection also temporarily creates jobs for or bad, is open to debate, but it would be
domestic workers. However, in the long interesting to see what effects the proposed
term, trade protection weakens the industry. USA tariffs may have on the countries in
Without competition, companies within the question, as well as the rest of the world.

Volume 21 No 3 September 2019 | 5