Trump’s tariff hits South Africa, ANC coalition falters in response

As South Africa adapts to the new reality of a 30 percent tariff imposed on a range of goods by the administration of United States President Donald Trump, questions have emerged about whether Pretoria has taken all necessary steps to safeguard its economy against this challenge. The coalition government, led by the African National Congress (ANC), has begun exploring alternative markets, with a particular focus on Asia, Africa and the Middle East, in an effort to mitigate the tariff’s negative impact on its exports.

The prospect of finding alternative markets for South African goods seems unlikely to materialize quickly enough to counteract the effects of the U.S. levy on the nation’s economy. Roughly 9 percent of South African exports are destined for the U.S. each year.  In 2024, the country’s total exports reached $110 billion, with China, the U.S. and Germany as its top markets.

The blame game has already begun, with policymakers seeking to exonerate themselves for failing to convince Washington to ease its stance on imposing duties. Since the Trump administration announced the tariff, the ANC-led coalition government has stumbled from one misstep to another.

Pretoria has also failed to seize this moment of crisis to reevaluate its approach to attracting investment. If there ever was a moment that called for a reassessment of South Africa’s laws regarding investment and trade relationships, it would certainly be the crisis sparked by the U.S. tariff increase. Despite significant shifts in the global economic landscape, the government has largely ignored the situation, adopting a business-as-usual approach to extraordinary times.

Negotiating from the back foot

President Trump’s tariff hike caught South Africa at an unfortunate time, as the nation was already grappling with an economy weakened by insufficient foreign direct investment (FDI) and declining competitiveness. The country has struggled to achieve more than 1 percent growth in gross domestic product (GDP) for two consecutive years. According to the Swiss Institute for Management Development’s global economic competitiveness rankings, South Africa has dropped from 37th to 64th place over the past two years. Numerous issues, including unreliable electricity supply and deteriorating infrastructure, have contributed to this decline.

The uncertainty surrounding the global trade environment, exacerbated by the Trump administration’s policies, presents a significant challenge to an already struggling economy. According to estimates from the South African Reserve Bank, a worst-case scenario suggests that the country’s GDP could decline by 0.69 percent this year. This projection also accounts for a potential 15 percent depreciation of the rand against the dollar.

This situation complicates the ability of Africa’s largest economy to manage the repercussions effectively, particularly with regard to anticipated job losses in export-dependent sectors like agriculture and automotive assembly. These industries had previously been resilient amid the overall economic decline.

The country already has one of the world’s highest unemployment rates. From April to June, the official unemployment rate stood at 33.2 percent. The tariff, which took effect on August 8, has put an estimated 30,000 jobs at immediate risk. It is difficult to envision how South Africa will navigate the sudden fallout from a crucial trade partnership with the U.S.

These are dire conditions that should have set the tone for South African policymakers as they negotiated with the Trump administration. In this environment, it is untenable for Pretoria to approach negotiations with rigid preconditions.

Is the BEE policy a barrier to trade and investment?

The country’s complex challenges are not insurmountable. What is truly concerning is the apparent lack of willingness to address the crisis and the failure to respond effectively. One of the coalition government’s significant shortcomings since taking office after the May 2024 elections, in which the ANC lost its outright majority for the first time since the restoration of democracy in 1994, has been its inability to negotiate a favorable resolution to the U.S. tariff increase imposed on South Africa.

One key area that the coalition government could have reconsidered is the ANC’s broad-based Black Economic Empowerment (BEE) policy, which requires foreign investors to allocate a portion of their stake to local Black, colored or Indian partners. Introduced to address economic disparities from the apartheid era, BEE aims to promote Black ownership in key industries. However, its rigid requirements are deterring FDI and undermining South Africa’s global competitiveness. This approach ultimately discourages the inflow of foreign investment.

The Trump administration points to BEE as one of the reasons for implementing the 30 percent tariff. During President Cyril Ramaphosa’s visit to Washington in March, he and his team faced questions about whether his administration was open to reconsidering or modifying BEE policies. Such reforms could enable companies like Starlink, the satellite internet service operated by Elon Musk’s SpaceX, to offer affordable internet access to South Africa’s largely underserved rural communities, which remain on the fringes of the information and communication technology infrastructure.

Starlink’s inability to enter the South African market stems from BEE regulations, which require communications service providers to have at least 30 percent ownership by historically disadvantaged groups to obtain an operating license. Mr. Musk’s refusal to comply has sparked debate about striking a balance between the ANC’s transformation agenda and the country’s economic realities.

As Pretoria’s trade diplomats negotiated with Washington over the tariff, the ANC firmly asserted that Black economic empowerment laws would not be included in the discussions.

While it is difficult to pinpoint a single reason for the failure to secure a favorable outcome, the coalition government’s insistence on maintaining its current policy certainly did not foster a cooperative negotiating atmosphere with the Trump administration. The U.S. has been keenly focused on the ANC’s unchecked influence over policy in South Africa, particularly after the party lost its outright majority in government. Its lackluster efforts to negotiate with the U.S. reveal a deeper issue of domestic politics that is struggling to adapt to the shifting dynamics of the global geopolitical environment.

The ANC-led coalition government’s policy disconnect

President Ramaphosa leads a coalition government that clearly struggles to unite around essential policy decisions. Central to the coalition’s unsuccessful attempts to tackle tariff issues is the broader issue of the country’s deteriorating political landscape.

BEE has primarily benefited a small elite within the Black community, while limiting economic growth and undermining the social stability it was intended to support. Having benefited from BEE policies that helped him establish his business, President Ramaphosa has built strong relationships with the private sector over the years. Many expected him to embrace pragmatism when circumstances demanded it. However, the president has chosen to cater to hardliners within the ANC, disregarding advice from coalition partners such as the Democratic Alliance, and the private sector to rethink BEE policies and their effect on FDI flows.

Throughout his leadership, President Ramaphosa has had to keep a wary eye on potential dissenters within his party, aware that they could seek to unseat him if he chooses to advocate for bold policies, like Black economic empowerment. This reality underscores his focus on political survival. It has contributed to a steady decline in his party’s standing among many impoverished voters who could be disadvantaged by crucial policy decisions made to maintain stability within the ANC.

This is why the wider South African electorate is not experiencing the benefits of a coalition government. Instead, they are subjected to an unwavering adherence to the ANC’s agenda, even with a coalition arrangement in place.