Trump Tariffs: South Africa Should Emphasize Opportunities Over Challenges

South Africa needs to prioritize the possible global consequences of a trade war between the world’s leading economies, the US and China, rather than focusing solely on the immediate impacts of the Trump administration’s tariffs on exports to the US.

This perspective is shared by Matthew Stern, director and head of trade and regional integration at DNA Economics, who spoke during a PSG Think Big webinar on the topic ‘Trump, tariffs and trade’ on Wednesday.

Read/listen:
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Tariffs have effectively nullified Agoa – Tau
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US President Donald Trump caused a global sensation on April 2 when he announced a new tariff strategy aimed at rectifying what he perceives as decades of unfair trading relationships that disadvantage American manufacturers and workers.

This strategy included a 10% tariff on imports from various countries, excluding Canada and Mexico, and additional tariffs on around 60 nations due to perceived unfair trading practices.

A trade war erupted, characterized by:

• The US imposing tariffs of up to 145% on most imports from China;
• China retaliating with tariffs of 125% on US goods.

These high tariffs have effectively resulted in a mutual trade embargo between the two largest economies in the world.

Regionally, Trump has instituted a 31% tariff on goods imported from South Africa, which Minister of Trade, Industry and Competition Parks Tau argues effectively nullifies the African Growth and Opportunity Act (Agoa).

Read: Tariffs have effectively nullified Agoa – Tau

Since its establishment in 2000, South Africa has benefited from Agoa, gaining preferential access to US markets.

Agoa’s relevance is ‘overstated’

Stern contends that Agoa should not be the primary concern; the broader issue is the global economic impact of widespread tariff implementations.

“Agoa’s significance is often overstated. While it has had considerable political weight as a diplomatic tool over the past 20 years, it is not crucial for South Africa’s trade.”

He points out that approximately 25% of South Africa’s exports to the US fall under Agoa.

“Even then, the advantages we gain from Agoa—the reduced tariff rates—aren’t particularly substantial.”

He acknowledges that exports of vehicles and agricultural products are notably vulnerable and may face significant disruptions.

“Losing Agoa would be inconvenient, but it won’t lead to catastrophic economic consequences.”

Stern cautions that the wider effects of a US-China trade war, including disturbances in global supply chains and economic growth, pose a much larger threat to South Africa’s economy.

He referenced the International Monetary Fund’s recent downgrade of South Africa’s growth forecast as evidence for his argument.

Listen/read: SA’s 2025 GDP forecast is ‘well below’ Treasury expectations

“As of this week, the IMF has already revised its growth forecast for South Africa downward from a meager 2% to around 1%. That’s a reduction we can’t afford.”

Vulnerable sectors

Stern points out that South Africa’s motor vehicle and citrus industries are particularly at risk due to the new tariffs.

“Vehicles have benefited from Agoa and would continue to do so if Agoa were eliminated, but the sector will face severe challenges if the 25% tariff continues.”

“In the citrus sector, a significant volume is exported to the US, and redirecting these exports to different markets will be complicated due to intricate supply chains. Therefore, companies heavily invested in the citrus industry will be most affected,” Stern advises.

Read: Volkswagen earnings drop 40% as US tariffs cloud outlook

Limited negotiation power

Stern notes that South Africa’s ability to secure favorable trade agreements with the US is limited given its relatively small share in US imports.

“I don’t believe we will be a significant strategic priority. We represent a small market across all sectors, and political interests seem to dominate.”

He expects that any discussions with the Trump administration will lean more towards political issues than economic ones.

Read:
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“This will complicate achieving consensus through a trade agreement.”

Diversifying partnerships with the EU, China, India, and Brics-plus

In light of the challenges posed by tariffs, Stern urges South Africa to diversify its trade relationships urgently and seek new markets.

The European Union (EU) remains South Africa’s main trading partner, and enhancing this relationship is a good starting point.

“We already share a strong historical connection with the EU. They have proactively reached out to us, changing a previously lukewarm relationship into a much friendlier one,” he mentions.

Read: Tariff hikes necessitate a search for new agricultural markets

Moreover, South Africa should strengthen trade relations with fast-growing economies such as China and India.

“Currently, we only export a few products to these countries, mostly commodities. We need to engage more with new trade partners, especially India, to explore ways to redirect some exports from the US to these rapidly growing markets,” Stern suggests.

There is also significant potential for regional trade. “We now have a developing free trade agreement in place (the African Continental Free Trade Agreement) across Africa. Investing time and effort to overcome trade barriers within the continent is equally important.”

The Brics-plus alliance also offers opportunities for enhanced economic cooperation, although existing trade agreements within Brics are notably limited.

“We currently have no substantial trade agreements with Brics nations. Now might be the perfect time to consider establishing such agreements.”

Amid these difficulties, South Africa must shift its focus from merely evaluating the impacts of Trump’s tariffs to discovering potential opportunities.

“Our analysis should evolve from concentrating solely on the ‘destruction’ to identifying where new openings and prospects may arise from these global shifts.”

Listen/read: US tariffs could severely impact Eastern Cape’s auto sector

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