South Africa needs to strengthen diplomatic ties and expand trade partnerships outside of the United States.

The recent increase in import tariffs by US President Donald Trump and his administration is anticipated to decrease global trade volumes and adversely impact the welfare of citizens around the world. The Trump administration has imposed a global 10% import tariff along with targeted reciprocal tariffs on several countries, including South Africa.

The reciprocal tariff on South African exports to the US is set at 30%. Historical data indicates that annual trade between South Africa and the US totals $23 billion, with the US being South Africa’s second-largest trading partner after China.

This significant tariff increase will diminish the competitiveness of South African exports in the American market, resulting in decreased demand for South African goods in the US, leading to lower revenues for businesses, job losses, reduced incomes for households, and ultimately a decline in South Africa’s economic growth.

SA and US Trade

South Africa exports a variety of goods to the US, including platinum, locally assembled vehicles, raw aluminum, ferroalloys, and agricultural products. The repercussions of the US administration’s 30% tariff increase could lead to job losses in sectors such as mining, automotive, agriculture, and beyond.

Moreover, South Africa may face additional income losses in agricultural exports if the African Growth Opportunity Act (AGOA) expires in September 2025, contingent on the US Congress’s decision to renew the agreement. Given South Africa’s low projected economic growth rate of 0.6% in 2024, the US tariff increase will further complicate the country’s sluggish recovery from the Covid-19 pandemic.

Read all our tariff coverage here.

Statistics also reveal that South Africa imports energy products, machinery, vehicles, industrial goods, and other consumer items. The products and services imported from the US are vital for the development and sustainability of local industries.

South Africa could consider sourcing these products from alternative markets, and if this occurs universally among affected economies, the US may face adverse consequences.

It is plausible that countries hit with tariff increases from the US will retaliate with their own tariffs, leading to a reduction in global trade volumes. This diminished trading activity could severely undermine job creation and income generation for both businesses and households, worsening the situation for citizens.

US Current Trade Policy

It is critical to recognize that the Trump administration’s trade policies are based on a ‘mercantilism’ approach, reminiscent of practices from the 16^th to 18^th centuries in Europe. Under this model, the goal is to maintain a trade surplus through government regulation, discouragement of imports (illustrated by US tariff hikes), and promoting domestic industry growth.

Conventional economic wisdom indicates that the protectionist policies pursued by the Trump administration are breeding grounds for trade wars. This creates significant potential for retaliation from trading partners, which would ultimately burden global citizens with higher prices due to increased costs resulting from tariffs.

Additionally, US industries depend on raw materials from other countries. If these raw material suppliers retaliate, it could escalate production costs for US firms, thereby harming the competitiveness of US exports.

The Trump administration is urging companies worldwide to relocate and produce goods within the US to avoid tariff charges. Such actions contradict the principles of free trade and could impede firms’ comparative advantages, as production costs in the US might be higher than in other countries, resulting in lower profit margins if they relocate.

It is essential to understand that unrestricted free trade encourages overall citizen welfare because goods and services can be procured at lower prices. The US government’s restrictive trade measures may hinder economic growth not only for other nations but also for the US economy itself.

Options for the SA Government

In light of these trade challenges, the South African government must take proactive measures rather than remain passive. Notably, authorities have already begun diplomatic and trade negotiations.

These negotiations might focus on tariff reductions, preserving the AGOA, and critically examining the rationale behind the 30% tariff hike.

The diplomatic efforts should aim to improve the perception and clarity of South African policies, such as the Expropriation Act, which has been cited by the US administration as a justification for escalating the trade tariffs.

Listen: Could a recession loom in the wake of the global tariff war?

South Africa needs to reshape its trading patterns and alliances. The total global gross domestic product (GDP) exceeds the cumulative production of goods and services in the US. Thus, it’s crucial for South Africa to enhance its trade relationships with other economies to diversify its trading base.

The current tense trade dynamics between South Africa and the US offer an opportunity to strengthen trade with the EU, Asia, BRICS+, Africa, and any other economies open to trade partnerships. South Africa should investigate markets where its exports still maintain a competitive edge.

To ensure resilience against future trade conflicts, South Africa needs to invest significantly in research and development aimed at adding value to local production, enhancing local manufacturing and technological advancements that can enable economies of scale, thereby boosting the competitiveness of export goods.

Improving energy production efficiency, a crucial component in goods and services production, can further enhance competitiveness.

Developing a robust and skilled workforce can lead to improved labor productivity, further strengthening competitiveness. South Africa’s aging infrastructure—including transportation networks and industry facilities—requires urgent improvement to boost local production, which can lead to job creation and increased household incomes.

Encouraging local economic activity can stimulate domestic consumption as household incomes rise. If the incomes of South African citizens improve, there is potential for increased local consumption.

Goods intended for export markets can eventually be consumed domestically, providing a self-sufficient solution to dwindling export markets. The South African government should consider fostering and supporting new industries capable of competing in both local and global markets. Thus, the trade challenges presented by the unfriendly US administration’s policies could ultimately create opportunities for the South African economy in the long term.

Dr. Calvin Mudzingiri is the Assistant Dean of the Faculty of Economic and Management Sciences at the University of the Free State, Qwaqwa Campus.

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