The Trump administration’s 25% tariff on imports of vehicles and light trucks is bad news for South Africa’s auto manufacturing industry.
The measure announced this week is likely to override the tariff protection afforded by the African Growth & Opportunity Act (Agoa) and deal a major blow to the auto sector, which provides 116,000 highly skilled manufacturing jobs and 500,000 other formal jobs in the automotive value chain.
Section 232 of the new tariff regime ushered in by the US Trade Expansion Act “overrides any existing trade agreements, meaning South African-built vehicles will be taxed at the same rate as those from non-Agoa nations”, Paulina Mamogobo, chief economist at the Automotive Business Council (Naamsa), told Business Times on Friday.
If Agoa is terminated or rendered ineffective ... by section 232 tariffs, South Africa’s vehicle and auto part export cost structure would escalate, impacting the industry’s competitiveness.
— Paulina Mamogobo, chief economist at Naamsa
“If Agoa is terminated or rendered ineffective by section 232 tariffs, South Africa’s vehicle and auto part export cost structure would escalate, impacting the industry’s competitiveness,” she said.
“Naamsa is working with policymakers to preserve Agoa benefits and explore alternative trade pathways.”
She said the local industry would need government help to survive the disruption that the dramatic tariff hike would cause.
“The South African automotive industry has built a strong export relationship with the US, particularly in the supply of light vehicles and automotive components. Any potential disruption to trade flows will require close collaboration between industry and government to ensure the continued competitiveness of South Africa as a global automotive manufacturing hub.”
According to Naamsa data, South Africa exported a total of 390,884 vehicles in 2024, 25,553 of them (6.5%) to the US. In 2023, exports of vehicles and auto components to the US were valued at R27bn.
Mamogobo said Naamsa was committed to open, fair and mutually beneficial trade policies and would continue monitoring developments while engaging with relevant US and local trade authorities.
“This tariff redefines trade dynamics, disrupting South Africa’s automotive value chain and existing trade agreements. The US is the third-largest destination for South African automotive exports, behind Germany and Belgium.”
In its Automotive Trade Manual published in 2023, Naamsa pointed to the importance of Agoa.
“Substantial two-way automotive trade has taken place between South Africa and the US since the inception of Agoa,” it said. “South African automotive exports to the US increased by 497.4% between 2001 and 2023, while automobile imports from the US increased by 1,083.2% ... over the same period.
“Agoa’s mutual benefits include enabling exports, encouraging investment in the region, enhancing private sector activity and economic growth and, ultimately, generating demand for US goods and services as the region’s economies develop.”
Agoa has been a significant factor in South Africa’s trade with the US, with exports qualifying for duty-free exclusions amounting to $3.6bn (about R66bn) in 2023, representing about 25% of South Africa’s total exports to the US.
Angela Konert, head of communications at BMW Group South Africa, said free trade and international co-operation were drivers of growth and jobs. She said countries should always engage to seek “fewer trade barriers rather than more”.
“Tariffs, on the other hand, hinder free trade, slow down innovation, and set a negative spiral in motion. In the end, they are detrimental to customers, making products more expensive and less innovative. We cannot overemphasise the importance of policies like Agoa for the continued success of BMW Group South Africa. This relationship is crucial for our ability to continue manufacturing vehicles and providing jobs in South Africa.”
Benedict Weiss, head of corporate affairs at Mercedes-Benz, said the company was assessing the impact of the new US tariffs.
“As a global company, we rely on constructive co-operation and policies that promote mutually beneficial trade across international markets. Mercedes-Benz supports free and fair trade that underpins prosperity, growth and innovation,” he said.
The German carmaker has had representation in the US since 1888, with 24 locations across 13 states, he said.
“Mercedes-Benz companies directly employ about 11,100 people in the US. Our 384 dealerships employ another 28,000 people, which secures an additional 51,000 jobs in total. All in all, we safeguard more than 163,000 local jobs.”
In a conference call with analysts this week, John Elkann, chair of Stellantis — whose brands include Fiat, Peugeot, Citroën, and Opel — expressed concern about the tariffs. He said an auto trade group of which Stellantis is part had issued “a very clear statement about the dialogue ongoing with President Trump’s administration and the importance of the competitiveness of the integrated North American automotive sector”.
“More importantly, the concern on the affordability of our products, our products made in America, and the implications on demand, on what will this uncertainty mean for demand in the US.”
The tariffs will also apply to components that auto manufacturers in the US import from Mexico and Canada, pushing up their costs too.
Prof Raymond Parsons of North-West University Business School said the tariff announcement heightened the possibility that Agoa might be scrapped altogether later this year, or that if it was renewed, South Africa would be excluded.
“We know that the automotive sector and agriculture in particular have the biggest stake in the Agoa duty-free regime,” Parsons said. “Economic diplomacy should, therefore, continue ... to ensure future stability in South Africa’s key trade relations with a major trading partner like the US.”
He said South Africa would be wise to identify new markets in anticipation of the loss of Agoa benefits.
Absa Corporate and Investment Banking economist Peter Worthington said the impact on South Africa of losing Agoa benefits would be “pretty small”, affecting mainly exports of vehicles, manufactured foodstuffs and beverages. “However, the loss of trade facilitation services — for example, help with export promotion and meeting international product quality standards — that are part of Agoa, could be material.
“Furthermore, there could be some negative indirect effects from a loss of Agoa trade privileges due to US unhappiness with South Africa particularly, or just as part of a general US drive to eliminate nonreciprocal trade preferences,” he said.
Worthington said this could impair global and domestic investor sentiment about South Africa.
“US suspension of South Africa in particular could also escalate anti-Western sentiment in South Africa, which could lead to counterproductive policy stances.”
“The two most important export categories benefiting from Agoa preferences ... are the automotive sector ... and the various food and beverages sectors.”
He said a key factor is such a calculation was the World Trade Organisation’s most-favoured nation (MFN) regime. The food and beverages sectors “enjoy a sizeable relative advantage under Agoa compared with MFN”.
With Reuters
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