South Africa in serious trouble

The United States’ proposed tariffs on South Africa will hit the country hard, with the automotive sector particularly at risk.

NWU Business School Professor Raymond Parsons recently commented on the announcement of US President Trump’s ‘Liberation Day’.

In this announcement, Trump announced wide-ranging tariffs on the world economy, including South Africa.

Trump’s tariffs were more wide-ranging than initially expected and more severe in specific cases, with South Africa being hit with 30% tariffs on local goods exported to the US. 

Late on Wednesday, 2 April 2025, Trump announced a global 10% tariff on all imports and higher rates for the ‘worst offenders’, including South Africa.

Trump said this is all part of his plan to balance trade and put America first, claiming that countries were exploiting trade with the United States.

Parsons explained that the scale of these tariff hikes will not only drive a wedge into the world’s multilateral trading system but also be bad news for the South African economy. 

“The international impact of much higher US tariffs will now be disruptive of global value chains, invite retaliation, ignite inflation, dampen world economic growth and prompt repricing of risks in financial markets,” he said. 

“The world’s trading system is at a fork in the road, and global reaction has understandably been highly negative.” The professor explained that so-called ‘tariff wars’ have a bad history. 

He said whatever advantages the US may gain from this, ‘beggar-my-neighbour’ policies have never been good news for the world economy. 

‘Beggar-my-neighbour policies’ are economic measures a country implements to benefit its own economy, even if they worsen other countries’ economic situation.

“The collateral economic damage is usually high,” he warned. “All the economic evidence suggests there will be many more losers rather than winners as a result.”

“Some economies may potentially be brought to the brink of recession, with accompanying job losses and even social dislocation.”

Parsons said South Africa will not be immune, and higher tariffs of 30% on South Africa exports to the United States are a serious headwind for the country. 

He added that the automotive sector will take a particularly hard hit, as Trump also announced a 25% tariff on all automotive exports to the United States.

Tariff troubles

PSG Wealth’s chief investment officer, Adriaan Pask, explained that tariffs have a very direct impact on pricing. 

“The majority of the reporting has been focusing on potentially higher tax revenues for the US, but the really important issue is how global demand and supply dynamics will be affected as costs to consumers change,” he said.

“Seen in isolation, higher tariffs will be inflationary as prices increase when the inherent tax component increases.”

However, he said the reduction in demand for these products needs to be taken into account as well.

For example, if consumers find new pricing to be unpalatable, this can materially affect spending and growth, leading to bigger worries. 

There are also second- and third-round effects to consider, which will impact the labour force and broader economic and market sentiment. 

“Amid all the uncertainty, there is one thing we know for sure, and that is that US demand for foreign products will decline,” he warned. 

“Whether that translates into higher demand for domestic US products is a more complicated question, as many countries look to introduce tariffs of their own.” 

Pask added that the tariffs are negative for South Africa. However, he said there are also some very tough lessons to learn from this.

“Our foreign relations and diplomatic efforts did not function well and likely worsened the situation on tariffs for us, which is exactly the opposite of what diplomatic efforts are designed to achieve,” he said.

Parsons explained that the additional United States tariffs come at a growing cost, and their unpredictability will only heighten the pain. 

“Even after the latest watershed announcement by President Trump, the US retains the right to swiftly and occasionally retract or reinstate tariffs,” he warned.

“This uncertain environment created by the constant change in the ‘rules of the game’ makes trade and investment decisions by businesses very problematic.” 

“Tariff uncertainty can be as economically damaging as tariffs themselves.”

Where to go from here

Parsons said that, in seeking to manage higher United States trade tariffs, South Africa must mobilise the necessary economic diplomacy to try to offset the economic damage and stabilise the situation.

“Given President Trump’s reciprocal approach to tariffs, South Africa must see what trade adjustments might be made to win concessions to ameliorate the situation,” he said.

He explained that South Africa needs a calm and pragmatic approach based on evidence-based homework. 

The country must also use this opportunity to begin to identify alternative markets as the United States withdraws behind protectionist barriers. 

“The isolationist direction of US trade policy is now abundantly clear and is the ‘new normal’,” he said.

However, there is still hope for South Africa, particularly with the African Continental Free Trade Agreement (ACFTA).

Parsons explained that the ACFTA is one ready mechanism that seeks to reduce existing barriers to intra-Africa trade. 

“African economies, including South Africa, will need to steadily integrate as the US pulls back,” he said. “ACFTA must be given a much higher priority.”

“Then, as the world economy is now likely to be less supportive of domestic growth, it becomes all the necessary for South Africa to demonstrate a strong strategic pivot in growth policy to offset the negative consequences of external shocks.” 

He emphasised that the need to accelerate internal structural reforms is even more urgent. 

Parsons explained that both government policy and business strategies will need to adapt to a new range of risks, as well as explore new or alternative economic opportunities. 

“To do so, South Africa must draw on the best advice possible to expedite and implement the necessary solutions,” he said.