South Africa can benefit from United States tariffs

South Africa’s vehicle exports to America are under extreme pressure from US President Trump’s new tariffs, but there are ways that South Africa can protect itself.

Business Leadership CEO Busisiwe Mavuso said this would entail presenting South Africa’s auto industry as an alternative to China—something the Trump administration may be drawn to.

Mavuso said that South Africa’s automotive industry is the industrial backbone of the country’s economy, accounting for 60% of the nation’s manufactured goods exports.

However, the sector is facing extreme pressure following the introduction of tariffs by US President Trump.

Trump imposed a 25% worldwide tariff on automobiles produced outside the USA earlier this month. More tariffs on components produced outside the USA will go live in May. 

South African vehicle exports to the US previously benefited from the African Growth and Opportunity Act (AGOA), which allowed duty-free access to the US market.

Outside of the 25% tariff on foreign-made vehicles and components, the 30% tariff on South African goods could still come into effect despite a 90-day reprieve from the US president.

The USA was the destination of 6.5% of vehicles exported from South Africa last year, a 22% increase from the previous year, making it the fastest-growing region for vehicle exports.

“The tariffs will have a significant impact on particular models that are exported there, in some cases dealing major blows to the factories and towns where they are produced,” said Mavuso.

“Of course, South Africa is in the same position as many other countries facing US tariffs. But if we are to forestall the impact on our industrial base, we must act.”

Outside of the tariffs, the sector is also facing a series of other challenges, with industry workers demanding a 10% wage hike and a series of other benefits.

What South Africa needs to do

Despite the challenges facing South Africa, Mavuso believes that there are several ways that South Africa can improve its situation.

The first step would be to engage with US leaders to shift course. She noted that US foreign policy has long reflected an understanding of the strategic importance of growing Africa’s economies.

Although South African vehicles only account for 0.1% of all units sold in the US, they offer an opportunity to diversify away from Chinese manufacturing, which is a priority for the US government.

Mavuso added that the US can ensure that it remains a strategic priority for the South African government by ensuring that the US remains an important market for South African products.

“If the US were closed to SA goods, South Africa’s wider geopolitical interests would shift to other strategic relationships, to the cost of US influence,” said Mavuso.

“The Trump administration has said it wants to negotiate. We must take it up and aim to clear trade barriers for the benefit of both our economies.”

She added that the second step is to reassess the South African Automotive Industry Masterplan (SAAM35), which was tabled in 2018.

This provides the industry with a roadmap to 2035 and focuses on building African markets and diversifying into electric vehicles.

“It is time to revisit the plan to assess how it can cope with the US tariff shock and ensure it is geared for the world we now find ourselves in.”

“The plan has ambitious targets, including growing the industry by 60%, increasing local content, and significantly increasing employment.”

The world for which these targets are planned has changed, with Mavuso stressing that the focus should shift to the rest of Africa.

She believes South Africa should focus on ensuring the African Continental Free Trade Agreement includes vehicles.

Africa buys 1.3 million new vehicles annually, which should grow significantly. She believes that the lower-cost mobility solutions are essential for the continent.

In addition to the US tariffs, Europe’s Carbon Border Adjustment Mechanism also creates a massive challenge for South African vehicle exports.

Nevertheless, the EU must also deal with American trade shocks caused by the tariffs, providing additional options for South African exports.

“Business clearly recognises the importance of the vehicle manufacturing sector. It has critical spillover effects into the rest of the economy, supporting industrial capacity that enables many other producers.”

“It is, within a general theme of deindustrialisation over the last three decades, the one exception. It is also a fine example of how business and government can work together to develop industry.”