Friday is D-Day for South Africa

South Africa is set to be hit with an additional 30% tariff on its exports to the United States on 1 August, as US President Trump has said there will be no extension for the country and an agreement is yet to be signed. 

This is likely to be added to the existing 10% across-the-board tariff from the United States, if an agreement is not reached within the coming days. 

As a result, South Africa’s benefits under the African Growth and Opportunity Act (AGOA) will effectively be nullified and its exports to the United States will be rendered uncompetitive. 

This is particularly true now that major trading partners with the United States, such as the European Union and Japan, have signed deals with the world’s largest economy to reduce their tariffs to 15%. 

South African officials said on 29 July that they are still waiting to hear from the United States about a trade proposal it submitted last month in the hope of avoiding high tariffs.

Chief economist at the Efficient Group, Dawie Roodt, warned that the imposition of elevated tariffs could crush South Africa’s economy as it is hardly growing even with preferential access to the American market. 

Roodt explained that South Africa now finds itself in a completely different world, with investors and businesses being deeply concerned about the country’s deteriorating relationship with the United States. 

“What is important is that the South African economy is growing at a very slow rate. I started the year off thinking it would grow at 1.5% this year, now I have revised it down to 0.8%,” Roodt told the State of the Nation podcast. 

“The important point is that if you have an economy that is hardly growing, a small impact is actually a big deal.”

Roodt explained that if tariffs on South African exports settle at 30% to 40%, it could shave off 0.1 to 0.3 percentage points of economic growth. 

Standard Bank’s economics unit forecasts the impact of tariffs at 0.1 percentage point for every 10% increase in tariffs on South African goods. 

In other words, elevated tariffs could nearly cut South Africa’s economic growth in half and push it close to 0% growth for the year. 

“We are now talking about a significant chunk of the South African economy. So the impact itself is not really that big, but everything adds up eventually,” Roodt said. 

“We started off the year at 2% expected economic growth, now we are down to 0.8% and after tariffs, that could be 0.6%. So yes, it is going to have a huge impact because the economy is growing so slowly.”

The industries impacted

The impact of the tariffs is likely to be felt most by the citrus and automotive industries, which are heavily reliant on US exports for their earnings. 

Roodt drew particular attention to South Africa’s automotive industry, given its importance to the local economy and historical support from the government. 

The industry is one of the few examples of South African industrial policy working to create a globally competitive industry. 

It also has a much wider economic impact than most industries, given the inputs needed to manufacture vehicles at scale and the foreign exchange earnings the exports provide.

Despite these successes, Roodt said the automotive sector is already on the edge, with it being propped up by government subsidies and protections. 

“The motorcar industry has received a huge subsidy for many years and still cannot stand on its own two feet. It cannot really compete internationally without the indirect subsidy,” Roodt said. 

Thus, the collapse of this industry will reflect very poorly on the government and its pursuit of top-down industrial policy. 

However, a bigger threat from the collapse of the sector is the secondary effect it would have on industries that supply it and entire cities in which factories are located. 

“The motorcar industry has factories located in cities in South Africa that are heavily reliant on it for survival. They are located, for example, in Port Elizabeth, and they keep that city and harbour alive,” Roodt said. 

“So, for certain areas and certain industries, these tariffs are going to have a huge impact. We are talking about thousands of jobs lost.” 

The citrus industry is another that could be crushed by US tariffs, with the industry having largely adapted to serve the American market. 

Citrus farmers in particular have built strong export links with the United States since South Africa is in a different growing season to America. 

Instead, South African orange farmers compete with other southern hemisphere growers, notably Chile and Peru. For the time being, they face a 10% tariff, giving them an advantage.