United States Tariffs
There will be wide-ranging implications for the United States and countries around the globe following the US announcement yesterday of tariffs to be imposed on various countries, including a base rate of 30% on South Africa.
A number of countries will now have significant cost advantages over South Africa including countries on this continent, while other countries like Japan and Korea will simply absorb the tariffs. This will put South Africa, which already from a logistics perspective far from other markets, in a very uncompetitive position versus other countries around the globe, and on the African continent.
Additionally, these wide-sweeping tariff announcements will affect global strategies and decisions on where the best manufacturing locations may be.
The United States is South Africa’s second biggest trading partner.
Automotive Sector
We are deeply concerned about the impact which the 25% tariffs which the United States has imposed on foreign-made cars and parts, may have on our local automotive eco-system. It is unclear at this stage how the 30% tariffs base rate imposed on South Africa would relate to the generic 25% tariffs on foreign cars and parts. If it is more than 25% we will be facing an even bigger cost disadvantage versus other countries.
By the far the biggest risk in the short to the medium term is the competition that South Africa will face from non-US manufacturing countries which may have a lower tariff base.
While it is still too soon to comment on the extent these tariffs may have upon our local automotive manufacturing sector, it appears that this new Section 232 tariff will immediately supersede the duty-free benefits which the industry has up until now benefitted from under AGOA.
Our local economy is highly reliant on the automotive industry and employs almost half of the country’s employment in this sector. We are particularly concerned about the potential knock-on impact of reduced vehicle assembly volumes of affected OEMs who export to the US, may have on the automotive components supply chain. It needs to be noted that there are some component manufacturers who export components direct to the US.
Our local manufacturing economy, which has been relatively agile and resilient in responding to energy, logistics and enabling environment challenges in the country, is struggling to be competitive versus other manufacturing operations around the world. Additionally, the local vehicle assemblers are facing increased competition from cheap imports flooding the market, which in turn is reducing their local sales volumes. These factors together with the potential of reduced export volumes to the US, make it even more difficult for the industry to be sustainable. During the course of 2024 over 24 000 vehicles were exported from South Africa to the US. In 2023 automotive exports to the US were valued at R20.1 billion and components were valued at R7.8 billion.
These tariffs will be highly disruptive to the industry around the globe, especially since automotive manufacturing relies on long investment cycles, and will not be able to quickly shift sourcing decisions to avoid the tariffs. This in turn could drive up costs for both consumers and automotive manufacturers. Other potential issues which may arise include other countries potentially reducing their tariffs to appease the US and SA exporters having to also compete with these tariffs; and the dumping of products in our market by other countries which can no longer compete in the US.
Agriculture
The Eastern Cape is the second largest citrus producing province in the country, with the Sunday’s River Valley serving as the country’s largest single production area.
While 9% of South Africa’s citrus exports go to the United States, it is unclear at this stage how the imposition of the tariffs will affect our local citrus industry. It however does appear though that the tariffs announcements of yesterday immediately nullify the benefits South Africa has had up until now under AGOA.
The citrus industry is seasonal and these changes are happening at the start of the new citrus season, which will create a lot of uncertainty.
Requirement for Mitigation
The Eastern Cape as a whole is likely to be disproportionality affected by the tariff announcements versus the rest of the country, given the extent to which our local economy is anchored by the automotive and agriculture sectors.
Speed and a proactive strategic response is required to enable South African based manufacturers to find alternative solutions to navigating the fast changing landscape and implementing mitigation actions.
Government needs to move with absolute urgency to understand the full extent of the ramifications of the tariffs on South Africa. Alongside this work needs to begin among the various stakeholders to unpack the specific impacts the tariffs will have, establish mitigation plans and quickly focus energies on areas of opportunity to reinvent and reposition our manufacturing and other affected sectors.
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