South Africa’s biggest industries under siege

Despite a temporary pause, Trump’s tariff war, which is rooted in flawed logic, threatens global trade and will disproportionately harm developing nations like South Africa, and risks devastating some of its biggest sectors.

Dr Gustav Brink, an international trade law expert and extraordinary lecturer at the University of Pretoria, explained this to Daily Investor.

Recently, United States President Donald Trump announced a 90-day pause on tariffs, but the tariff threat is still looming large worldwide.

Just hours after levies against 56 of America’s trading partners were imposed, Trump changed his tune, saying he was authorising a universal “lowered reciprocal tariff of 10%” as negotiations continued.

However, at the same time, Trump escalated the trade war with China, increasing tariffs on imported goods to 125%, and later to 145%.

The outcome of this 90-day pause will significantly impact the global economy, including some of South Africa’s biggest industries, which face particularly hard blows.

While the fate of the trade war still hangs over the world, Brink explained that Trump’s tariffs were inherently flawed to begin with.

Trump’s so-called “reciprocal tariffs” were based on trade deficits, rather than tariffs imposed on the United States.

“All this means is that Trump was looking for an easy way to fix the US’ trade deficit. The US has run a massive trade deficit for years, and it actually grew at its strongest rate under the previous Trump presidency.”

“The formula, which simply looks at the difference between the value of goods exported by the US to a country and the value of imports into the US from that same country, divided by the value of US exports, is completely irrational.”

Brink explained that a country’s balance of payments depends not only on trade in goods, but also on trade in services, intellectual property and more.

“For an advanced economy such as the United States, the value of trade in services actually outstrips the value of trade in goods, which means, at the very least, Trump should have considered the total trade between countries and not only trade in goods.”

Tariffs penalise countries that have benefited from the African Growth and Opportunity Act

Brink explained these tariffs also penalise countries that have benefited from the African Growth and Opportunity Act (AGOA), which provides eligible sub-Saharan African countries with duty-free access to the United States market.

“This gave African countries anything from a 2% to 10% preference against many other countries – other than those with which the United States has a free trade agreement – and made African products more competitive.”

“Take Lesotho (the country Trump says nobody has ever heard of). Lesotho set up new textile and apparel factories to take advantage of the improved access under AGOA, and their exports soared.”

“But these increased imports still represent well under 0.1% of total imports into the United States, so it makes no sense to take out Lesotho and sentence thousands of people to a slow death in the process, as they all lose their jobs.”

However, Brink pointed out that the United States runs a nearly $1 trillion deficit with China.

“So clearly, action against China would mean much more than action against Lesotho.”

“This is problematic, as there are systemic problems in the United States. The United States is no longer a manufacturing giant. It is a service-oriented industry.”

“With the best will in the world, the United States will never be able to produce to the same level of efficiency as China.”

For one, Brink said that their labour rates are simply too high. “Their labour standards are too high. Their environmental standards are too high,” he said.

“Most people are not interested in doing such manual, and menial, labour – most such work in the United States is currently done by Mexicans and other immigrants, whom Trump does not want in the United States.”

He stressed that most manufacturing will not move back to the United States, regardless of how high the duties are.

“While the 125% duty rate now imposed on China will keep out most Chinese products, the United States might soon realise that it actually needs many of those products and it will start making exemptions upon exemptions on which products can be imported at lower rates.”

“Already, products such as mining and pharmaceutical products are exempt. Pharmaceutical products are high-value products, steel is not.”

“It would have made more sense to impose high duties on pharmaceuticals if you were really interested in bringing (high-tech) manufacturing back to the United States.”

South African industries hit the hardest

According to Brink, depending on the outcome of the 90-day pause, South Africa will be hit very hard. South Africa’s agricultural and automotive industries, in particular, will feel the knock of the tariffs.

“After mining, agriculture is our biggest export product to the US, and we have to compete against the likes of Argentina, Brazil, subsidised products from the EU, etc.”

“Without the trade preference we enjoyed under AGOA, many of our products will no longer have the competitive advantage, and they will have to look for other markets.”

Another “big loser” will be the automotive industry, including US companies like Ford.

The lack of preferential access to the United States market may lead to changed investment decisions by automotive producers, who may choose to no longer invest in South Africa, but rather invest in another country.

“Thus, these tariffs could have a massive impact on employment in South Africa, as well as on our trade balance.”

Although the agricultural and automotive industries are likely to be hit the hardest, other South African industries will also be on the receiving end of the tariff strike.

As the United States closes its doors to China, South African industries may face a lot of import competition from Chinese exporters looking for other markets, and this could close down many of South Africa’s manufacturing industries.