In the wake of the recent 30% tariff hike imposed by the United States, South Africa’s sugar and automotive industries are bracing for significant upheaval. Economists warn that these tariffs could spell disaster for local businesses, jeopardising exports and leading to alarming job losses.

An economist has warned that losing the market will collapse the industry after President Donald Trump’s 30% tariff hike imposed on goods exported to the country’s second biggest trade partner.

Economist Miyelani Mkhabela shared these sentiments as some local exporters already expressed concern about their future. 

“People have a reason to panic because the tariffs will make it difficult for South African products to appeal to the American market,” said Mkhabela. 

He said small industries are facing the danger of collapsing because although the normal trade deal between South Africa and the US might be restored after the end of Trump’s presidency, “four years is a lot for a company.”

“When the market is closed (through exorbitant tariffs), it means a lot for small businesses that are sending products to the American market would suffer, as their clients would say your products are 30% higher.

“That would collapse the South African manufacturing system because we depend on the US as our second trade partner,” he said.

 He said South Africa cannot easily find a country that could replace the American market, which “is bigger than what we are sending to the whole of Africa”.

However, he said the African economy would recover after four years as it recovered from the global financial crisis and “is still recovering from the global health (Covid-19 pandemic). 

But after Trump, many emerging companies will no longer exist because they will fail to repay bank loans. 

SA Farmers Development Association (SAFDA) Executive Chairman Dr Siyabonga Madlala, who is involved in sugar manufacturing, is concerned that while businesses have no power over politically influenced tariffs, they are the ones bearing the brunt. 

Madlala anticipated a loss of millions of rand, a situation that would result in alarming job losses.

He said the South African Sugar Association (SASA)’s lots of sugar meant for the US might go to waste.

“America, through AGOA (the African Growth and Opportunity Act), has given us a lucrative market for about 24,000 tons of sugar exports, so with the imposition of tariffs, our sugar won’t be attractive to our US consumers as it is now becoming expensive.

“It forces US consumers to look for alternatives rather than buying from us because our sugar becomes 30% more expensive,” said Madlala.

South African competitors in supplying the US with sugar are Mexico, Brazil, Australia, and several Central American and Caribbean nations.

He estimated that, through the tariffs, SASA will lose R168 million from its annual revenue.   

According to Madlala, the US market, which found South African sugar affordable under the AGOA agreement, may look for alternative countries to buy from.

“The reason is that lots of other countries are subsidised, therefore they can afford to still sell sugar than us, as we are not subsidised but working on our own,” said Madlala.

He said reducing production would cause job losses and the shutdown of sugar mills.

“Once you try to lower the production, it means some farms will shut down or diversify. By that, it means that sugar mills will lose sugar cane supply, which is the lifeblood of the sugar mill,” he said.  

He said the tariffs came at the wrong time when the government’s master plan was succeeding in reviving some major sugar mills, including Tongaat Hulett, which in the process was coming out of business rescue.

“While we are appreciating the master plan’s initiative, we are now bombarded with the tariffs,” said Madlala.  

Influential organisations such as FW De Klerk Foundation recently called for the country to expand its trade partners rather than relying on the US. Agriculture Minister John Steenhuisen said the government was also reaching out to other countries. 

However, Madlala said finding an alternative market was not easy to do overnight.

National Association of Automotive Component and Allied Manufacturers (NAACAM) CEO Renai Moothilal told the media that the automotive industry was already feeling the effects, as some companies have started to lose US deals. 

“We are already seeing new contracts, especially for the US, being cancelled or not pursued, putting one of the country’s most critical manufacturing sectors at risk,” Moothilal said. 

Build One SA (BOSA) called on Ramaphosa to engage directly with the US Congress members, who will decide on the fate of AGOA, and tell them that over 500,000 US jobs are linked to trade with South Africa.

Another economist, Khulekani Mathe, commended Ramaphosa for continuing to negotiate with Trump, as he cannot immediately find an alternative market.

He said it was not guaranteed that South Africa/US trade would recover after Trump’s departure. 

“It is dependent on whether we are to negotiate anytime between now and four for more favourable terms.

The economic recovery would depend on whether the country can find an alternative market to send the volume of products that are sent to the US, something that can not materialise in the short term. 

Professor Bonke Dumisa said Trump was miscalculating to think tariffs would benefit his economy because “Economic History shows us that no one wins the tariff wars”. 

“Purportedly, it is said that the USA wants to open space for its businesses to recapture the market space they lost as they focused on moving abroad to produce more competitively priced products. Unfortunately, USA businesses priced themselves out of the markets.

“The South African businesses affected by these Tariffs must look for alternative markets. There is very little that the government can do to help these businesses,” said Dumisa.

bongani.hans@inl.co.za

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