The South African Revenue Service (SARS) announced that it will impose a 45% import tax on goods that cost R500 or less, imported from China through online retailers such as Shein and Temu. Unions and businesses praise this as a ‘levelling of the playing field’, but for the consumer it simply translates to higher prices.
SARS decided to stop the abuse of the de minimis rule. In international trade this rule refers to a threshold below which certain goods are exempt from customs duties, taxes, or other import restrictions. In South Africa, this threshold is/was R500, and it resulted in South Africans being able to purchase clothing items at lower prices.
The 45% import tax is the same rate paid by retailers. South African stakeholders in the textile industry argue that companies like Shein and Temu should also pay this rate on imports with a Rand value below the de minimis threshold. One might wonder why they do not advocate for lower taxes to create a level playing field, instead of advocating for a high tax rate that would result in higher prices for South Africans.
To appreciate the injustice of policy decisions like the one SARS is implementing, one must understand the nature of trade and why seeking to protect local industries by increasing taxes on imports – which is the essence of protectionism – is misguided.
The beauty of commerce lies in its foundation of voluntary associations between individuals. The essence of all trade is the willingness of two or more parties to engage with each other to exchange goods. The voluntary nature of trade dictates that all trades, regardless of how they may appear to a third party, are fair and beneficial to all parties involved. Understanding this is crucial for recognising the injustice of attempting to dictate whom one should or shouldn’t trade with, or under which conditions.
An example helps illustrate this point. Person A and B engage in a trade of items C and D. Both parties desire this trade because if one felt unfairly treated, the trade would not occur. The fact that the trade takes place indicates mutual benefit. Thus, it is fallacious to view trade as a competition with winners or losers. Trade is inherently mutually beneficial; if a party does not see value in trading, the exchange will not happen.
Therefore, a third party labelling a trade as exploitative or unfair and imposing conditions is committing an injustice by interfering with the voluntary actions of individuals. States often commit this injustice under the guise of promoting domestic trade or supporting specific industries.
South Africans who opt to buy products from international websites such as Shein and Temu show their preference for engaging in transactions with these companies. Competitors of these companies, whether in South Africa or elsewhere, do not have a divine right to South African consumers’ patronage.
The underlying principle of the global trade regime, centred around the World Trade Organization, is that states, governed by individuals and not angels, can engage in trade by imposing taxes such as customs or import duties. Higher taxes on certain products increase their cost to consumers in the importing country, making local alternatives more attractive; this is the rationale behind protectionist policies.
Despite substantial theoretical and empirical evidence against protectionism, it is still frequently utilised by the state; either as a means to raise more revenue or to achieve some form of political victory by “supporting” local industries, as has been the case among politicians, even in the largest economy in the world, the United States of America.
Protectionist policies are often justified in terms of collective benefit, with the argument being that cheap imports harm the country. However, it is essential to question who is truly harmed by access to affordable goods, especially in a country like South Africa with ongoing poverty issues. The state, through its revenue collection entity, has decided on behalf of South Africans that inexpensive items and clothing are harmful.
This decision by the state to increase the prices of goods is made against the backdrop of high inflation and high unemployment in South Africa. If the state prioritised the interests of the collective of South Africans over the interests of local industries losing market share to cheap imports, it would strive to make goods more affordable for its citizens.
According to the World Bank, since 1990 global trade has increased incomes by 24 percent worldwide. Most importantly, it has increased incomes by 50 percent for the poorest 40 percent of the population. Contrary to the narrative that free trade only benefits wealthy capitalists, it also significantly benefits the poor in society by increasing their incomes and lifting them out of poverty.
The evidence supporting the role of free trade in prosperity is substantial. The temptation of protectionism should be resisted because trade is inherently mutually beneficial, regardless of external perceptions.
South Africa cannot afford to entertain protectionism given its dire economic situation. Embracing free trade by reforming labour and other regulations domestically whilst avoiding high import taxes internationally is crucial to prevent self-inflicted economic harm.
The government should refrain from intentionally increasing the prices of goods for South Africans, as the protectionist motives driving policy decisions like the one made by the South African Revenue Service will inevitably steer us towards a state of serfdom.
Zakhele Mthembu BA Law LLB (Wits) is a Policy Officer at the Free Market Foundation.
Article first appeared in the Business Brief.
Photo by Bernd Dittrich via Unsplash.