SA must take drastic action to avert US tariffs deadline and unblock investment

Daily Maverick

18 hours ago

South Africa's strategy on striking a trade deal with the US must be based on what South Africa needs to raise economic growth; to develop domestic sectors critical to the world economy and what the US needs for economic growth that the US currently does not have; and unblocking obstacles to foreign investment in South Africa that undermines not only US investments, but other foreign investments as well.
South Africa will have to offer US President Donald Trump's administration concessions that will work for the US broadly, or for Trump specifically, to secure a tariff deal. South Africa must proactively offer the US opportunities. Countries like Vietnam, India and Indonesia proactively did so.
The questions South Africa must ask in its tariff negotiations with the US are what does the US have that South Africa lacks and is critical to South Africa's economic growth; and what does South Africa have that is essential to US economic growth?
South Africa is seeking to fend off a looming 30% US tariff on its products, and the deadline is 1 August. In May, a 25% import tax on car parts came into force in the US. This was on top of a 25% import tax on cars, which came into effect in April. These two automotive tariffs hit South Africa's car manufacturing industry. In June, the US doubled tariffs on foreign steel and aluminium imports to 50%.
Before the BRICS+ Summit two weeks ago, US President Donald Trump said the US would impose an additional 10% tariff on any countries aligning themselves with the 'Anti-American policies' of BRICS+. 'There will be no exceptions to this policy,' Trump said.
South Africa is a member of the 10-nation BRICS+ group. Early this year, Trump threatened a '100% tariff' on 'hostile' BRICS+ countries that support a common currency to rival the US dollar. South Africa is in real danger of being caught in Trump's anti-BRICS+ war.
On Tuesday, US lawmakers advanced a bill that would sanction leaders of the ANC over 'corruption or human rights abuses'. The US House Committee on Foreign Affairs voted 34-16 to send the 'US-South Africa Bilateral Relations Review Act' to the full House of Representatives, where it could be subject to a vote. The measure would need to pass both the House and the Senate before it could be signed into law.
'America abandoned'
The bill was introduced in April by Ronny Jackson, a Republican congressman who said that 'South Africa made its choice when they abandoned America and our allies and sided with communists and terrorists'.
With a 1 August deadline looming for South Africa to strike a trade deal with the US, and the US now targeting ANC leaders with sanctions for their 'anti-American' stances, securing a tariff deal by 1 August appears nigh on impossible. One option is for South Africa to ask for an extension of the deadline.
South Africa urgently needs to establish a task team, like Japan, to conduct a fast-paced negotiation. South Africa's strategy must be to have South African business leaders who trade with the US leading a negotiation task team, supported by government officials. ANC officials must not be part of these negotiations as the US is gunning for many ANC figures.
Trump has made energy a key part of the US negotiations. South Africa has an energy crisis — which is undermining foreign investment, business creation, economic growth and therefore job creation, poverty reduction and inequality reduction.
The US is the world's largest liquefied natural gas (LNG) exporter. South Africa has rightly offered to buy liquefied natural gas from the US over a 10-year period as part of proposals to secure a trade deal.
In President Cyril Ramaphosa's meeting with Trump, the Presidency said that importing 75 to 100 million cubic metres of LNG from the US would 'unlock approximately $900-million to $1.2-billion in trade per annum and $9-billion to $12-billion for 10 years based on applicable price'.
South Africa would import between 75-100 petajoules, roughly 75 to 100 million cubic metres, of LNG per year from the US.
The US production of aluminium has been declining for decades, leaving the country's auto industry reliant on imports. Canada is the largest supplier of primary aluminium to the US, accounting for 75% of the material consumed there, according to the US Aluminum Association.
Aluminium is a lightweight and effective conductor of electricity, making it useful in many transportation and energy systems applications. Aluminium is one of 50 'critical minerals' identified by the US Geological Survey.
In 2021, South Africa produced about 720,000 tons of refined aluminium, becoming the largest aluminium -producing country in Africa, according to Aluminium Federation of South Africa CEO Muzi Manzi, who added that 'a large proportion of the primary metal produced is used in the local market as remelt ingots to produce castings and powders, with the rest of the metal destined for exports'.
Metal of choice
Aluminium is the metal of choice in both internal combustion engines and electric vehicles because of its lightweight properties, which allows vehicles to be fuel efficient, and is a key metal in the green value chain. Aluminium is also used in packaging because it is a more environment -friendly option than many other materials.
Aluminium is also used to make buildings green, and is used in the manufacturing of 'green' window and door frames, because of the material's ability to balance internal climate conditions. It is a key part of renewable energy projects, such as solar or wind power infrastructure and inputs.
Aluminium can be recycled and South Africa needs to develop a local aluminium recycling and processing industry. South Africa can offer the US aluminium — which would serve the interests of the US.
In 2022, South Africa was the 27th largest crude steel producer globally, according to the World Steel Association, but South Africa's steel production has declined in the past few years. State Capture, lack of pragmatic industrial policies, and increased competition from cheap Chinese state-subsidised steel has undermined the industry.
South Africa's steel industry has to a large extent failed to adapt to technological advances — steel producers around the world have moved towards more low-carbon, energy-efficient production, while South Africa's production is still using apartheid-era manufacturing processes, such as old blast furnace technology.
State, infrastructure and policy failure because of corruption, incompetence and ideological policies have undermined South Africa's economic sectors, including aluminium and steel production and exports.
According to a document from the Presidency, South Africa has proposed a duty-free quota of 385 million kilogrammes for steel per year and 132 million kilogrammes of aluminium per year to the US.
The US desperately needs critical minerals and rare earth elements, which are dominated by China. South African can offer the US access to both critical minerals and rare earths.
South Africa's Expropriation Law, which makes provision for expropriation without compensation, must be withdrawn. Contrary to popular arguments that the expropriation without compensation law will not lead to mass expropriation, property rights involve not only land, but also intellectual property, pensions and the shares and bonds of locals and foreigners, including US citizens.
South Africa must also cancel the current Black Economic Empowerment (BEE) model that gives slices of local and foreign companies to politically connected 'political capitalists', and replace BEE with alternative empowerment models, such as the employment of youth, building of public infrastructure, transferring technology and skills, supporting STEM subjects (Science, Technology, Engineering and Maths) at black schools, and giving opportunities to manufacturing SMEs. DM
This is an extract from Professor William Gumede's talk at the recent Inclusive Society Institute webinar on 'Building US-Africa relations under the Trump administration and its nexus with China'.