Minister’s strategy for United States tariffs easier said than done

Minister of Trade, Industry and Competition, Parks Tau, says South Africa is looking towards the markets of India, Japan, and Vietnam to mitigate the impact of the United States’ tariffs.

However, it will be very difficult to replace the United States as a lucrative export market for South African products.

In a recent statement, Tau said the 30% unilateral tariff by the United States on South African exports is a significant policy shift that necessitates a clear and decisive response.

“South Africa has accelerated its diversification efforts in export markets and enhanced competitiveness to mitigate the economic impact of losing preferential trade access,” he said.

“The diversification is a strategic imperative to ensure better resilience of our economy to economic shocks.”

He pointed to strengthening relationships with African and European markets that unlock sustainable growth and development, and entrench South Africa in new supply chains.

“We are looking at Asia, including Japan, Vietnam and Thailand, the Middle East and India,” he said.

“We are pursuing these markets because we see growing demand, existing negotiations and a positive reception to South African products.”

“This is not just about trade numbers. It is directly linked to job protection. Diversification is about protecting rural livelihoods and sustainable agricultural growth for our people.”

These words sound good on paper or in a speech. However, in reality, it is very difficult for South African companies and industries to replace the United States as an export market.

Apart from South Africa enjoying a large trade surplus with the United States, it has other benefits as an export market.

It is easy to do business with American companies, as they are ethical, pay on time, and stick to agreements. This is not the case with many other countries.

Margins on South African products exported to the United States, which is a rich country, are also far higher than in most other markets.

The size of the United States market is also much larger than any other economy for most South African exports.

The reality is that South Africa’s automotive, agriculture, and wine sectors are deeply integrated with U.S. markets. Losing access to the US threatens jobs and value chains.

The United States market is vital for South Africa because it provides premium access to strategic minerals and value-added goods.

Expert opinions on US tariffs

Business Leadership SA CEO Busisiwe Mavuso said South Africa’s relationship with the United States is economically vital.

The US is a significant export market, source of foreign investment, and a provider of employment opportunities for South Africans.

Roughly 600 American companies operate in South Africa, many using it as a base for broader regional operations.

The US is South Africa’s second-largest export destination after China and the fourth-largest import partner after China, India, and Germany.

In 2023, exports to the US contributed approximately 2.2% to South Africa’s GDP, supporting around 426,000 jobs.

According to a poll among members of Business Leadership South Africa (BLSA), 92.9% believed that restoring ties with the US is crucial for growth.

Dr. Iraj Abedian, the chief economist at Pan-African Investments Research Services, warned that the tariffs would inflict a dire impact on South Africa’s automotive and citrus industries.

“We’re looking at an initial loss of around 100,000 jobs, especially in motor manufacturing, which feeds into a broader supply chain of tire, component, and leather producers,” he said.

Wandile Sihlobo, chief economist at the Agricultural Business Chamber of South Africa, also warned of dire consequences due to the tariffs.

He said they threaten the fabric of South Africa’s manufacturing sector, particularly those producing vehicles tailored for the United States market.

“When factories close due to these tariffs, they don’t reopen easily, even years later,” Sihlobo told the Sunday Independent newspaper.

“The investment required to establish a foothold in the US market is extensive, and once lost, it’s nearly impossible to regain.”