Socioeconomic crisis looms as US tariffs hit Eastern Cape's vital automotive industry hard

Daily Maverick

15-07-2025

The Automotive Business Council says it is hopeful that a proposal for 40,000 tariff-free vehicles for export to the US will find favour, as the impact of tariffs in their current form will be catastrophic for both the manufacturing industry and the Eastern Cape.
'This is not just a trade issue, it's a socioeconomic crisis in the making,' CEO of the Automotive Business Council (Naamsa) Mikel Mabasa said on Tuesday.
The organisation, like many others in the Eastern Cape, is grappling to come to terms with the devastating impact of export tariffs imposed by the United States.
Mabasa said the export tariffs threatened thousands of jobs in the automotive sector, disrupted hard-won industrial capabilities, and risked devastating communities such as East London, where the automotive sector formed the economic heartbeat of the town. He said Naamsa was, however, encouraged by South Africa's early proposals for a quota of 40,000 duty-free vehicle units per annum, 'which would allow us to retain our footprint in this key market'.
He said that if the country could not retain export markets such as the US, 'we risk turning vibrant industrial hubs into ghost towns'.
Ripple effects through the value chain
He said the ripple effects of production loss due to disappearing export markets would be felt throughout the automotive value chain – from component manufacturers to logistics providers, and across the thousands of workers and families who depended on the sector for their livelihoods.
'Export diversification and finding new markets is not something that can be achieved overnight. Our global competitors are already redirecting their exports into markets we traditionally serve. This intensifies the pressure on our original equipment manufacturers (OEMs), who must now absorb rising costs, reduce production, and reconsider future investments,' he said.
Urgent diplomacy needed
'We have also taken note of President Cyril Ramaphosa's formal response on the same day, which confirmed South Africa's diplomatic and strategic approach to this matter.
He said South Africa's automotive sector was particularly vulnerable to the 25% sectoral tariff imposed under Section 232 of the US Trade Expansion Act of 1962, which specifically targeted automotive exports. This escalation in trade tensions poses a serious threat to one of South Africa's most globally integrated and export-oriented industries.
He said the United States had consistently been South Africa's second-largest trading partner and key export destination for South African manufactured vehicles.
Agoa at risk – billions in trade and thousands of vehicles
'Since the inception of the African Growth and Opportunity Act (Agoa), the automotive industry has benefited from substantial two-way trade and investment. In 2024, the auto sector accounted for 64% of all Agoa trade between South Africa and the US, generating R28.6-billion in export revenue, with 24,681 vehicles exported to the US under Agoa,' Mabasa said.
He said the effect of just the anticipation of the high export tariffs, however, had been devastating to the industry and had an immediate effect on trade performance.
He said that even before the formal effect of the tariffs, vehicle exports to the US dropped by 73% in the first four months of 2025, followed by a further decline of 80% and 85% in April and May, respectively.
'This represents a risk of a direct loss of vehicle and component export volumes, and annual export earnings, which would be difficult to recover in the short term,' he said.
OEMs under pressure
But the news is even worse, he said, as tariff disruptions placed major pressure on [OEMs], who had made long-standing industrial commitments to South Africa and invested significantly in local manufacturing, skills development and export infrastructure.
The SA automotive industry contributes 22.6% of the country's total domestic manufacturing output and directly supports 110,000 formal sector jobs.
Mabasa said Naamsa welcomed the SA government's continued diplomatic engagement with the US, including discussions held on the sidelines of the US-Africa Summit in Luanda on 23 June 2025, and the submission of SA's Framework Deal on 20 May 2025 to address the concerns raised by the US government.
'We urge both governments to accelerate negotiations toward a balanced, rules-based trade agreement. We are encouraged by early proposals for a quota of 40,000 duty-free vehicle units per annum, which would allow us to retain our footprint in this key market. It's vital that we use this opportunity to preserve the business case for continued investment', he said.
Mabasa, however, emphasised the need to prepare for a more uncertain and competitive global landscape.
Behind every statistic are people and communities
'Naamsa is equally concerned about the livelihood impact of these developments. Behind every tariff statistic are real people – auto workers, supply chain technicians, logistics operators and their families. Nowhere is this more visible than in East London, a community that has grown and thrived on the back of automotive exports.
'The erosion of this trade threatens to unravel decades of socioeconomic progress. We urge all parties involved in the diplomatic negotiations to recognise the strategic and social importance of safeguarding mutually beneficial trade frameworks like Agoa, and to avoid short-term decisions that carry long-term consequences for vulnerable regions,' Mabasa said.
CEO of the Nelson Mandela Bay Business Chamber Denise van Huyssteen, said it was clear that the US trade tariffs, planned for implementation on 1 August, would have a disproportionate impact on the Eastern Cape economy given its high reliance on the automotive sector.
'The initial most vulnerable automotive and components manufacturers will be those who directly export products to the United States. The tariffs will put them in a very uncompetitive position, making it difficult to continue to do trade with the US, which could lead to export orders drying up.
This, in turn, will have a knock-on impact on direct and indirect suppliers located in East London and Nelson Mandela Bay, and the overall supporting ecosystem around these manufacturers, who may or may not be able to withstand the loss in volume.
'Additionally, as the volumes, especially of [OEMs], potentially decline, economies of scale are diminished, potentially putting some components manufacturers in a position where they are unable to continue a viable supply to their other OEM customers located elsewhere in the country,' she said.
Competitiveness crisis
She said the tariff structure also meant that manufacturers who exported products to other parts of the world may now be competing with other countries that had significant cost advantages over South Africa, as they faced lower tariffs or could absorb the tariffs.
'Essentially, the global trade order has been upended, and this is likely to affect global manufacturing footprints and where the best locations will be to produce products in the future,' Van Huyssteen said.
She said that switching markets was not a quick solution as these measures took time to implement, and neither would 'replace' current OEMs with new ones.
'On this score, and in order to retain employment, it is vital that any potential incoming OEM investors commit to utilising local components for their manufacturing operations,' she said.
Unemployment warning for Nelson Mandela Bay
She said the chamber also remained deeply concerned about the devastating impact these 'tariff wars' might have on Nelson Mandela Bay's economy and the thousands of jobs supported directly and indirectly through the automotive industry and its supply chain.
'This, in turn, will add to the already unacceptably high unemployment and poverty levels in Nelson Mandela Bay and the Eastern Cape. It must be remembered that Nelson Mandela Bay is home to the greatest number of automotive component suppliers in the country. Furthermore, 41% of the country's automotive manufacturing employment is based in the Bay,' she said.
Call for government urgency
'Given how small SA's economy is, the country's response should not be to retaliate, but rather to look internally and consider deploying incentives to support local manufacturers, rather than to keep others out by way of tariffs. This should also incorporate policy support and assistance in establishing new markets for SA-produced goods.' She called for urgency on the side of the government.
'The government needs to move fast and take action in addressing barriers such as excessive red tape and complex policies associated with doing business in the country. Absolute urgency is required to improve the country's competitiveness versus other emerging locations, which have, over the years, become much more attractive investment destinations.
'These even include some countries on this continent who have surpassed South Africa in some key performance areas. Priority focus must be placed on ensuring that the basic enablers are in place, such as well-maintained infrastructure, efficient logistics and the delivery of basic services at a local municipal level, to help improve the competitiveness of local manufacturers and to sustain their continued operations in the Bay.'
MEC warns Mercedes-Benz may exit
Speaking at the Finance Committee in the Council of Provinces last week, Eastern Cape MEC for Finance Mlungisi Mvoko said they had held discussions with the Department of Trade, Industry and Competition (DTIC), as the matter significantly affected the Eastern Cape.
He highlighted that Mercedes-Benz, currently exporting 90% of the vehicles it manufactures in East London to the United States, was facing the most risk. Mvoko warned that the company might consider withdrawing from South Africa due to the tariff changes.
Mvoko said that if Mercedes-Benz were to leave, it would have devastating consequences for the East London Special Economic Zone (SEZ), where many companies existed solely to supply the vehicle maker.
He also made it clear that thousands of families in East London and Qonce were reliant on Mercedes-Benz operations. DM