Factory employees walk house in Lesotho © REUTERSWhich state greatest represents the. . . counter-intuitive character of the Trump method for taxes? Lesotho, of training. The small ( and beautiful ) mountain kingdom landlocked by South Africa led the world in attracting a headline tariff of nearly 50 per cent, which has baffled some. But this is how it works. Only the Trump formula could take about$ 230mn in annual exports to the US, less than$ 10mn in imports, and extrude a 97 per cent “tariff”. It’s what is left out that is exciting. Only the solution could dismiss that imports have generally been enabled by a quarter-century of congressionally approved duty-free admittance for African governments — the African Growth and Opportunity Act, aka Agoa. That led to, in Lesotho’s case, a textiles industry that has produced Trump-branded golf shirts in the past. Only the formula could also ignore that the imports reflect that one-third of Lesotho’s population lives on barely$ 2 a day. Basotho produce a lot of Levi’s jeans, but very few can afford a first-hand pair especially after a decade of falling real GDP per capita. Only the formula could ignore that another chunk of Lesotho’s US trade reflects one of those things that makes bilateral trade deficits in at least some goods inevitable, even if they are Trumpworld anathema. Lesotho just makes something the US doesn’t: diamonds. This is also a reason Botswana ( diamonds ) was hit with a more than 30 per cent tariff, along with a 30 per cent tariff for South Africa ( diamonds and iron ore, though many ‘ critical’ metals have been excluded ). And only the formula could ignore that Lesotho, Botswana and South Africa are in the Southern African Customs Union, or SACU, the world’s oldest that’s still in place ( c 1910 ). That means it’s part of a common external tariff that is very much not 97 per cent. This is all a long-winded way of saying that Lesotho shows the ironies in US trade officials ‘ all-consuming focus on bilateral balances, especially as it relates to the developing world. The big irony is that many developing nations listened to lectures from the US and others since the 2000s about” trade not aid” and liberalisation. Now in the 2020s they are being punished for it. Agoa is already close to being a goner. Even if it survives these new tariffs, it will expire in September without congressional renewal. Beyond Lesotho and Agoa, you can also see this with a country such as Jordan, which was slated for a” 40 per cent tariff” — despite having a rare free-trade treaty with the US. Countries that also then listened to US corporate overtures about’ China plus one’ in the 2010s have also been caught out. Take Vietnam, which recently cut its own duties on typical US exports in anticipation of US tariffs, raised them on Chinese steel, and offered deals to the Trump Organization and Starlink. Those gestures clearly meant little to US officials next to the country exporting$ 120bn to$ 130bn to the US a year, including garments ( like Lesotho ), and importing about a tenth of that. Hence Vietnam’s “90 per cent tariff on the US” under the formula. There is a lesson there. Even if in Africa’s case Agoa somehow survives, or if developing countries try to offer up bilateral trade deals with the US to negotiate, it’s possible no one is listening. Meanwhile, Lesotho’s prominence brings another irony for Trump’s tariff fixations. The world’s biggest William McKinley fan sometimes hearkens back to the Gilded Age when tariffs accounted for a significant share of US government revenue, until income tax came along for good in 1913. Trump recently boasted of never hearing of Lesotho but he should really like how the government raises money. To a large extent, it’s tariffs. Going by IMF forecasts for the kingdom, out of expected revenues of 63 per cent of GDP for 2024-2025, about 28 per cent will be SACU transfers to Lesotho from the sharing of customs and excise revenues around the union. It’s based on — would you believe it — a formula. SACU transfers have been unusually high in recent years. It reflects a rebound in growth and demand for imports across southern Africa since the pandemic. ( Helping to diversify a bit, Lesotho also gets royalties from South Africa for water usage. ) Of course, as the IMF often warns about Lesotho, windfalls from tariffs are not a very sustainable way to build up strong public finances. Especially not when Lesotho has one of the highest public wage bills as a share of GDP across the region. The US was technically one of the big emerging markets of its day when McKinley could back a US tariff of nearly 50 per cent on everyone. These days, it’s a lot more complicated.
O dirang, Donald?
