South Africa heading for serious trouble

South Africa is unlikely to negotiate a more favourable trade dispensation with the United States during the 90-day pause on higher reciprocal tariffs on goods imported into the world’s largest economy.

This will result in South Africa losing some of its exports to the United States, as they will become uncompetitive due to elevated tariffs. 

However, this should be manageable if the country can play its cards well, Allan Grey’s Sandy McGregor explained in a recent research note. 

On 2 April 2025, US President Donald Trump took the market by surprise with the size and extent of the tariffs on US imports he implemented via a presidential order. 

Global share markets sold off massively, with investors being concerned by what many regard as a totally irrational policy initiative, McGregor said. 

Tariffs act, in part, as a stealth tax to help the government raise more revenue without imposing politically unpopular tax hikes. 

Tariffs are paid by the importer, who then recovers this cost through higher prices paid by the ultimate consumer.

While this stealth tax will be imposed on American consumers, South Africa will not be immune to the consequences of Trump’s trade policies. 

The combination of these policies will likely increase the costs of goods and services, or lower corporate margins, potentially leading to economic stagnation or slowdown worldwide and increasing the risks of a global recession.

This remains a likely outcome, even after Trump imposed a 90-day delay in implementing the additional, higher reciprocal tariffs he unveiled on 2 April 2025, as the 10% across-the-board tariff remains in effect. 

For South Africa, this effectively nullifies any benefit from the African Growth and Opportunity Act (AGOA), with potentially severe consequences for the agricultural and automotive sectors. 

More crucially, the chances of South Africa negotiating its way out of the higher reciprocal tariffs of 30% on its goods are very slim. 

McGregor explained that the country has long conducted its foreign policy in ways that the US disapproves of and has few bargaining chips. 

As the African National Congress is unlikely to change its foreign policy to address American concerns, it will be difficult to negotiate a more favourable trade dispensation.

The concessions provided by AGOA are unlikely to survive, with South Africa likely to be removed from the Act. This will deal another blow to the country’s low investor confidence. 

Hidden threat

Fortunately for South Africa, the current tariff plan offers exemptions for critical mineral imports into the United States, and these goods are not subject to AGOA. 

This means that the majority of South African exports to the United States have escaped relatively unscathed so far. 

However, in recent weeks, the Trump administration has made references to the potential removal of these exemptions on critical mineral imports. 

Furthermore, if South Africa cannot negotiate a more favourable trading arrangement with the United States, it risks its exports becoming uncompetitive. 

Currently, most of South Africa’s export competitors have also been hit with tariffs, meaning that the relative impact on the country’s exports is likely to be minimal. 

If those countries can negotiate their way out of higher reciprocal tariffs, then South Africa’s exports will be made uncompetitive, impacting local companies and jobs. 

In particular, McGregor warned that South Africa’s fruit exports will be hit hard as local producers have very little room to reduce costs. 

A major threat to South Africa comes from the tariffs imposed on its other major trading partners, not on goods it exports to the United States. 

Tariffs on China, South Africa’s largest trading partner, pose a particular threat to the local economy as they are likely to be a drag on the Asian country’s economic growth. 

China accounts for over 20% of South Africa’s exports, equivalent to around 5% of the country’s GDP. Any decline in its demand for South African goods will have severe consequences. 

At the time of writing, US tariffs on China had been increased to 245%, which is very likely to significantly strain the Chinese economy. 

This will result in slower economic growth and declining demand for imports, particularly commodities, from countries such as South Africa. 

As a result, US tariffs on China are likely to significantly negatively impact South African exports to the world’s second-largest economy. 

The European Union consumes 20% of South Africa’s exports and is also vulnerable to Trump’s tariffs, potentially compounding the impact of trade restrictions on China. 

Though it was included in the group that saw its tariff reduced to 10% for 90 days, the EU is still very likely to face tariffs on its exports to the US, particularly its vital automotive sector.