South Africa’s Automotive and Agricultural Sectors Will Be Tested Amid Trump’s Additional Tariffs
Bottom Line: Taking into account that the 31% U.S. additional tariffs on South African goods could still come into effect despite a 90-day reprieve from the U.S. president Trump, the threat is still alive as South African economy will be negatively impacted by tariffs partly nullifying the African Growth and Opportunity Act (AGOA). We foresee South Africa’s motor vehicles, metals, and agricultural sectors remain the most vulnerable ones to the additional tariffs. There is still a risk of currency volatility as export revenues will likely decline, and inflationary spillovers from higher input costs are also probable which could hurt South Africa’s manufacturing, if previously announced tariffs will proceed after the pause. We think South Africa’s ability to negotiate favourable trade deals with the U.S. is constrained by its relatively small share of U.S. imports coupled with the recent political tension between the U.S. and South Africa. South Africa is unlikely to be high on its priority list for the negotiations process under current circumstances. Despite this, we believe South Africa’s can place itself in a favourable position if the country will enhance its trade ties particularly with the EU and China and accelerate efforts to diversify its export markets.
The impacts of U.S. additional tariffs will likely have multifaceted impacts over South Africa, if previously announced tariffs will proceed after Trump’s 90 days’ pause. First, the imposition of a 31% tariff on South Africa-origin goods by the U.S. could mark a critical juncture in South Africa’s economic trajectory. Tariffs potentially could shave up a substantial amount off GDP growth. (Note: The central bank of South Africa (SARB) previously modelled several scenarios related to South Africa's access to U.S. markets, with the impacts over the GDP growth ranging from under 0.1ppt to 0.7ppt depending on the severity of the trade barriers and how badly financial market sentiment is affected).
Second, the tariffs will trim South Africa’s exports to the U.S. as the U.S. is South Africa's second-largest bilateral trading partner after China. According to Trade and Investment Strategies (TIPS) based in Pretoria, South Africa sends 7% of its exports to the U.S., accounting for 0.25% of all U.S. imports. Some three quarters of South African exports to the U.S. comprise mining products, including steel and catalytic converters using platinum. Interestingly, the additional U.S. tariffs exempts platinum, titanium and other raw materials while these minerals exports are responsible for the trade surplus with the U.S. (Note: Iron and steel are exempt from the specific tariffs on South Africa, but faces a 25% tariff on all U.S. iron and steel imports).
Taking trade figures into account, we think South Africa has a low capacity to respond in kind against the tariffs because it accounts for only around a 0.25% of all U.S. trade. It appears South Africa has no immediate plans to retaliate and will instead seek to negotiate exemptions and quota agreements, while country’s ability to negotiate favourable trade deals with the U.S. is constrained by its relatively small share of U.S. imports coupled with the recent political tension between the U.S. and South Africa. South Africa is unlikely to be high on its priority list for the negotiations process under current circumstances. As an alternative, South Africa could consider imposing tariffs on U.S. imports in a tit-for-tat move, but this could likely harm domestic economy considering that many of the U.S. origin products are intermediate goods used in local production.
In addition to adverse impacts over GDP growth and South Africa’s exports, we feel weaker business confidence and postponed business investment decisions may delay South Africa’s capex cycle, too. Any investment delays on electricity infrastructure would be critical considering power cuts (loadshedding) is back at country’s agenda late February. Currency volatility could also increase as export revenues will likely decline, and inflationary spillovers from higher input costs are also probable which could hurt manufacturing.
Should the tariffs proceed, we envisage two major sectors, which will get the hardest hit, are agricultural and automotive sectors.
Despite AGOA has for years provided local agricultural exporters, from citrus and avocados to wine and nuts, with duty-free access to the U.S. market, the possibility of a 31% additional import taxes is currently threatening the agricultural sector since smallholder farmers and rural economies will likely lose an important market igniting the risk of losing jobs.
On vehicles front, after Trump decided to impose a 25% worldwide tariff on automobiles produced outside the USA, this will negatively affect South Africa’s exports as auto industry is the engine of the economy accounting for 60% of the nation’s manufactured goods exports. According to TIPS, the U.S. was the destination of 6.5% of vehicles exported from South Africa in 2024, a 22% increase from the previous year, making it the fastest-growing region for vehicle exports. (Note: South African vehicle exports to the U.S. previously benefited from the AGOA, which allowed duty-free access to the U.S. market).
Speaking about the U.S. tariffs, South African trade minister Parks Tau underscored in April the need for South Africa to accelerate efforts to diversify its export markets, mentioning markets in Asia and the Middle East as potential opportunities. In the meantime, the minister said the government would seek to support industries most affected by the tariffs, including car manufacturing, agriculture, processed foods and metals.
As minister Tau highlighted, one solution to the tariff challenges could be stepping up collaborative efforts to enable exporters to diversify their trade relationships and explore new markets. We think South Africa can use this as an opportunity enhancing trade ties with the EU. Strengthening trade relationship with emerging economies like China and India could also benefit domestic producers and exporters. We think fragile financial position could get hurt if the government would seek to support industries most affected by the tariffs, including car manufacturing, agriculture, and metals.