The war with Trump’s tariffs is simply too big for South Africa to fight back with tariffs, making finding other markets a better option.
Economists all over the world are trying to make sense of Trump’s tariffs, how they were determined, and what the effect will be globally and in specific countries. However, two economists from South Africa say they simply do not make economic sense.
Dr Neva Makgetla and Nokwanda Maseko, senior economists at Trade & Industrial Policy Strategies (TIPS) say the new 31% tariff on South African exports to the US makes no economic sense. “Far from being reciprocal, it is six times as high as the weighted average tariff that South Africa imposes on US imports.
“Furthermore, it exempts platinum, titanium and other raw materials that account for a third of South African exports to the US. However, these minerals exports are responsible for the trade surplus with the US.
“The tariffs will instead fall heavily on manufactured goods, especially auto, metals and other exports, that have a higher value added. In other words, they are effectively designed to block countries in the global south, including South Africa, from exporting manufactures as part of a pathway to industrialisation.”
ALSO READ: Trump’s tariffs: Bloodbath for markets and rand worse than during pandemic – economists
Trump’s tariff of 31% for South Africa is both unfair and unfounded
Makgetla and Maseko say that while the 31% tariff is both unfair and unfounded, South Africa has virtually no capacity to respond in kind because it accounts for only around a quarter of a percent of all US trade.
“The only realistic short-term response is to step up collaborative efforts to enable South African exporters or manufacturers to find alternative markets. The South African government, industry associations, oversight committees for the master plans and other institutions with relevant capacity should urgently come together to develop programmes to assist the affected companies to identify and access new markets.
“An intergovernmental task team should prioritise the agreements and protocols needed to facilitate new market development. South African trade missions must support the affected firms with finding new customers and where necessary, establish new supply chains.”
Makgetla and Maseko say the US government periodically dangles the chance to renegotiate tariffs based on unspecified concessions but as South Africa already has only very low or no tariffs on most imports from the US, it has very little scope to meet these demands.
ALSO READ: Automotive Business Council concerned about Trump’s tariffs
Renegotiating Trump’s tariffs will take too long
In any case, they say, renegotiating the tariffs will likely take months or years unless there is a strong backlash within the US against the entire programme. “Even if the US government were genuinely prepared to negotiate the exorbitant tariffs it has imposed on South Africa, it does not have the capacity to engage with all the countries it penalised. South Africa is unlikely to be high on its priority list for the negotiations process.”
A third option is to impose tariffs on US imports in a tit-for-tat move, Makgetla and Maseko say. “Due to the fact that many of the products South African firms import from the US are intermediate goods used in local production, imposing tariffs on them would only harm the South African economy further. Ultimately, the solution lies in market diversification and finding willing partners to trade with.”
ALSO READ: Trump’s tariffs will override Agoa, hitting automotive sector hardest
Comparing Trump’s tariffs with trade data
Makgetla and Maseko also looked at what the trade data shows. South Africa sends 7% of its exports to the US, accounting for 0.25% of all US imports. About 75% of South African exports to the US consists of mining products, including steel and catalytic converters using platinum.
Automotive products only make up a seventh of South Africa’s exports to the US as the graph below shows. Platinum group metals, titanium and some ferro alloys are exempt from the tariffs. As a result, around 37% of all South African exports to the US are not covered by the tariffs.
Iron and steel are exempt from the specific tariffs on South Africa but face a 25% tariff on all US iron and steel imports.
They say that while the industries affected by the US tariffs are not major employers, they are important sources of export revenues for South Africa. In addition, the auto industry is South Africa’s only major exporter of manufactured products.
“In 2024, the US bought around a quarter of South African exports of autos and unwrought aluminium and almost 90% of South African exports of gold and jewellery. It also imported around a quarter of South African exports of platinum group metals and titanium. In contrast, it accounted for under a tenth of South Africa’s exports of ferro alloys.”
ALSO READ: The right gets it wrong on Trump’s tariffs
SA imports wide range of products from US
On the other hand, South African imports from the US are spread across a wide range of products and include mainly petrol, cars, aircraft and aircraft components, computers and other machinery and equipment as illustrated in this graph:
The US supplies half of South Africa’s imports of aircraft and components, a fifth of precision equipment, a seventh of chemical products and a tenth each of pharmaceuticals and machinery and equipment, which includes computers.
It supplies less than 10% of South Africa’s imports of ICT, autos and petroleum products. Printed material is also reported as a major import and comprises primarily paper money and stamps, which appear to be mostly re-exported.
ALSO READ: South Africa will pay the price for Trump’s tariffs
The tariff balance
Makgetla and Maseko say data from the World Development Indicators show a downward trend in South Africa’s weighted mean tariff between 2005 and 2022, from just below 6% to less than 5%. Only auto equipment faces a nominal 20% tariff.
In practice, they point out, almost all auto imports enjoy a complete rebate from tariffs under the Automotive Production Development Programme. The other ten products are not tariffed at all. In fact, of South Africa’s top ten imports that face a duty, which include refrigerators and air conditioners, China is the top import source and not the US.
ALSO READ: Will Trump’s tariffs have major negative effect on South Africa’s economy?
How did Trump calculate his 31% tariff then?
Makgetla and Maseko say the US arrived at the 31% figure without any investigation into South Africa’s actual trade policies. “Instead, according to the office of the US Trade Representative (USTR), it designed the tariffs on each US trade partner, including South Africa, by calculating the US deficit in goods trade with the country as a percentage of the country’s goods exports to the US.
“It then set the tariff at half of the resulting percentage, apparently because the tariffs implied by its actual methodology would in many cases exceed 50%. For South Africa, the figure would be 62%.”
The US justified this peculiar methodology, which it applied to all of its trading partners, primarily by making three unrealistic assumptions:
- Firstly, it argued that if any trade deficit between two countries must result from tariffs or non-tariff barriers. In the real world, countries run surpluses and deficits with different countries based on their market demand and their ability to supply particular goods, not due to trade barriers. South Africa has a surplus with the US and most southern African countries, but a deficit with China, the EU and various petroleum exporting countries.
US demand for minerals accounts for most of South Africa’s deficit with the US. Makgetla and Maseko say if the raw materials exempted from the new tariffs are excluded from South African trade with the US, its surplus with the US would shrink by a third. That means the USTR formula would suggest a tariff of around 20%.
Similarly, they say, most lower income countries in southern Africa run deficits with the US because they export raw materials or low-cost manufactures but cannot afford many US products. That is why the USTR formula imposes even higher tariffs on Lesotho and Madagascar, which rank respectively as the 22nd and fourth-poorest countries in the world (measured by GDP per person according to the World Bank).
- Secondly, the USTR formula assumes that the percentage increase in tariffs will translate precisely into the resulting percentage decline in US imports. Makgetla and Maseko point out that the US provides no evidence at all to support this assumption. Instead, it derives its formula from very broad and entirely unsubstantiated estimates for the price elasticity of demand for imports in the US and the share of the tariff passed on to US consumers.
- Finally, the USTR simply ignores services, looking only at the goods trade. South Africa has a deficit on services trade with the US. If services were included in the USTR formula, the tariff on South Africa would come to 21%.
