In its own inimitably erratic fashion, the US administration has declared war on the past 30 years of international trade. SA needs to adapt, and quickly, or risk growing economic and social fallout.
Short-run interventions can help businesses find alternative markets and support the affected workers and their communities through the inevitably rough transition. A thoughtful strategy to deal with the predictable surge in manufactured imports from other countries would also help. In the longer run, the new global realities require a fundamental reconceptualisation of SA’s industrialisation policy.
Actual US tariffs are changing by the day. As of 7am on Monday, SA faces a 25% tariff on its exports to the US of cars, steel and aluminium, plus a 10% tariff on everything else outside of mineral ores. In effect, those tariffs have wiped out the African Growth & Opportunities Act (Agoa), which promised African countries duty-free exports for most products. That’s unfortunate, since for the past 25 years Agoa has influenced SA manufacturers’ decisions on investment and trade.
A third of SA’s exports are mineral ores, which are exempt from the new tariffs. But the auto and aluminium industries will be hard hit. Bolstered by Agoa, SA has long sold about 10% of its auto output in the US. For comparison, 60% of SA auto exports go to Europe. Auto contributes 10% of SA’s total exports; directly provides about 1% of formal private employment, or 100,000 jobs; and enjoys larger tax subsidies than any industry outside of mining.
The aluminium smelters in Richards Bay export about 30% of their output to the US, with the rest divided almost equally between Europe and Asia. They account for less than 1.5% of SA’s total exports and use 5% of SA’s grid electricity but employ only 5,000 people.
The tariffs will affect a range of other products that depend less on US sales but have a broader effect on employment and growth. US companies purchase 7% of SA’s exports of mining equipment, long our only really internationally competitive machinery industry. Still, the bulk of SA’s mining machinery is sold domestically and in the Southern African Development Community (Sadc).
The US also buys 4% of SA’s agricultural exports and 5% of light manufactures such as processed foods and textile furnishings. Again, Sadc remains the main export market for these goods, buying about 60% of SA exports. Finally, 7% of SA’s exports of basic petrochemicals goes to the US, mostly from Sasol.
In the short run, SA’s commitment to negotiating with the US is necessary but unlikely to go far very fast. Trade negotiations are always slow, and the US claims it now has 70 countries on its dance card. More important is to step up marketing to help producers find buyers in other countries.
Meanwhile, practically every other country will also be seeking new export destinations, with Chinese steel and light industry outside of electronics facing particularly sharp pressure. A strategic response has to centre on improving competitiveness and short-term support for vulnerable industries, rather than falling for the temptation to beef up our own tariffs across the board.
The tariffs on auto and aluminium, as well as the likely global economic slowdown, will have a major effect on employment and revenue. Given SA’s deep inequalities, ensuring a more just transition will prove crucial. The experience with the Temporary Employer/Employee Relief Scheme (Ters) during the Covid-19 pandemic could be a model, especially for auto and aluminium workers and their communities. Again, starting to plan now will reduce the fiscal, economic and social costs down the road.
• Makgetla is a senior researcher with Trade & Industrial Policy Strategies.
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