Here is a cheeky question: is the South African car lobby justified in criticising the Trump administration’s decision to impose 25% tariffs on cars imported into the US, as South Africa has been imposing a 25% tariff on US-made cars imported into this country for decades?
The answer is, sort of.
Swingeing new US tariffs have been a major part of the US administration’s global strategy since President Donald Trump came into office, dividing and infuriating economists and politicians around the world. Today, April 2, is notionally “Liberation Day”, on which Trump has promised to impose “reflective tariffs”, otherwise known as “mirror” tariffs, on countries around the world.
As South Africa has a trade surplus with the US, it’s in the firing line, along with hundreds of other countries.
South Africa is desperately trying to salvage its benefits under the African Growth and Opportunity Act (Agoa), which significantly enhanced the country’s export capabilities to the US by providing duty-free access to a wide range of products. In 2022, approximately 25% of South Africa’s exports to the US benefited from Agoa preferences.
A large proportion of these benefits go to automotive exporters and, by 2022, motor vehicles remained the leading Agoa export category, with exports valued at $1.5bn, almost all of which entered the US duty-free under Agoa. Since Agoa’s inception in 2000, South African automotive exports to the US have exploded, increasing from 853 units in 2000 worth about $150m to $1.9bn last year.
Yet, the answer to the cheeky question at the start is more complicated than it seems because, actually, in terms of South Africa’s automotive production and development programme (APDP), duties imposed by South Africa on US imports are actually seldom paid in full by all car manufacturers.
The reason, according to Donald MacKay, head of XA Global Trade Advisors, is the artful set-off arrangement involved in the APDP, in which imports are set off against exports for the companies that have local manufacturing plants.
The dispensation is, however, open to criticism, particularly by the new raft of Chinese and Indian car exporters which are subject to a 25% tariff imposed by South Africa. South Africa imposes an 18% tariff on EU automotive imports.
Overriding Agoa
For the established industry, the Trump administration’s 25% tariff on all foreign-made vehicles will have a “huge effect”, Mikel Mabasa, CEO of industry body Naamsa, has told various media outlets over the past week. South Africa’s exports to the US are the country’s third biggest by value.
What is more, the tariffs imposed by Trump override the Agoa dispensation, removing one of its largest benefits for South Africa. The reason for this, says MacKay, is because Trump’s tariffs are imposed by invoking a national security provision, which is normally only imposed in the case of wars.
But there is a twist here, MacKay says. The World Trade Organisation (WTO) does understand that countries involved in a conflict might not want to allow each other trade rights, so it is possible in certain circumstances to impose higher tariffs in situations of conflict.
“The problem is that Trump’s tariffs don’t seem to meet that requirement, and what that means is your trading partners are allowed to immediately retaliate,” he says.
There is another issue too. When the WTO was founded in 1995, all countries made a commitment to something called a “bound rate”, which is the maximum tariff level a member country agrees not to exceed for a given product when importing goods.
These bound rates differ more or less according to the level of development of all countries, so developing countries have higher bound rates than developed countries, in order to give them a broad trade advantage.
The US average bound tariff rate is approximately 3.4% across all products. South Africa’s overall “simple average bound rate” is about 19% higher for agricultural products. But, typically, South Africa’s applied tariff rates – the actual rates charged on imports – are often lower than the bound rate, so in 2023, South African average tariff rates were 7.6%.
Even so, South Africa is running a fairly large trade surplus with the US, though it’s trivial by international standards.
That trade imbalance is concentrated in three sectors: precious metals, automotive, and gold and commodity metals, mainly aluminium.
So should South Africa retaliate?
MacKay says though some politicians would like to impose higher export tariffs on platinum going to the US, South Africa is really not in a position to do so, partly because trade is just so much more critical to South Africa’s economy than it is to the US. Any retaliation would probably hurt the local mining industry, which is already reeling.
“It strikes me that we’re in a sort of lose-lose [position] here,” he says. “I’m not inclined to say we should just roll over. But we should in future try to not score ludicrous own goals.”
Top image: Donald Trump (Andrew Harnik/Getty Images) and Rawpixel/Currency.
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