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The Citizen
08-07-2025
- Automotive
- The Citizen
Trump's new 30% tariff less about trade and more about power
US president Donald Trump followed through on his April threats and hit South Africa with a 30% tariff. Economists say there is not much new about US President Donald Trump's new 30% tariff, which will be levied on all goods imported into the US from South Africa. It is not so much about trade as it is about power. Trump confirmed the move in an official White House letter to President Cyril Ramaphosa and also hinted that a new trade deal could be reached before August. Dr Neva Makgetla and Nokwanda Maseko, senior economists at Trade & Industrial Policy Strategies (TIPS), say there is nothing different from the previous tariff announced in April/May, which reflects a notoriously flawed methodology that has very little to do with the real world. 'In practice, South Africa, like the rest of the world, has already been hit by 25% tariffs on autos, which affect the largest South African export to the US apart from mining products. 'This is perhaps less about trade and more about a show of power. The argument that South Africa imposes unfair trade restrictions on the US is unfounded. If it were, South Africa might have been excluded from the African Growth and Opportunity Act (Agoa) years ago. 'South Africa accounts for less than half a percentage of total US imports, but accounts for about 7% of total South African exports.' ALSO READ: Trump's tariffs affect just a few SA exporters, but will hurt everyone Automotive Business Council still reviewing Trump's letter When approached for comment on the tariff, Mikel Mabasa, CEO of the Automotive Business Council (naamsa), said naamsa is still reviewing the contents of the letter and talking to its members before he will comment. Just after the first announcement in April, Mabasa said the US is the third-largest destination for South African automotive exports, with approximately R35 billion worth of vehicles shipped in 2024, accounting for 6.5% of total vehicle exports in 2024. ALSO READ: Trump tariffs implemented in same week SA citrus growers pack for US export Looming tariff causing uncertainty The tariff will also affect the citrus industry although South Africa only exports about 5% to 6% of its citrus to the US, as many rural communities in the Western and Northern Cape heavily depend on US exports. Dr Boitshoko Ntshabele, CEO of the Citrus Growers' Association (CGA), says the looming US tariff creates great uncertainty among many South African citrus growers. 'It will make South African citrus uncompetitive in the US. The threat of a punitive US tariff means that many of our growers are unable to plan for the entire season, which will only end in October.' Only citrus from the Western and Northern Cape is exported to the US, but entire rural economies, like that of Citrusdal, are sustained by the US export citrus market. Ntshabele says a 30% tariff would wreak havoc on entire communities. 'Producers from the Western and Northern Cape would have little choice but to increase shipments to other countries, rather than face severely diminished returns from the US. This diversion will add to citrus volumes in those other markets, possibly cause an oversupply, which can substantially reduce returns for all South African citrus producers.' ALSO READ: Trump's tariffs pause good news for some but not for SA Mutually beneficial trade deal still possible He says the CGA believes that a mutually beneficial trade deal between South Africa and the US by 1 August is possible or, at least that an exemption for seasonal fresh produce can be negotiated. 'Seasonal fresh produce is not like a product produced year-round in a factory. SA citrus growers do not threaten US citrus growers or US jobs. 'In fact, because we are counter-seasonal, quite the opposite is true. Our produce sustains interest when local US citrus is out of season, eventually benefitting US growers when we 'hand over' consumers at the end of our season.' Ntshabele says with a massive increase in local citrus production projected for the next few years, the local citrus industry can create no less than 100 000 jobs by 2032, but this cannot be done without improved market access and new markets. ALSO READ: Trump's tariffs will override Agoa, hitting automotive sector hardest US trade negotiations will affect GDP forecast Jee-A van der Linde, senior economist at Oxford Economics Africa, says South Africa's existing supply-side constraints will exacerbate the impact of US tariffs on domestic exporters. 'Given South Africa's frail economy, businesses can also ill afford defiant posturing from the government and retaliatory measures are therefore considered unlikely. 'The disruptive and unpredictable nature of US trade negotiations means that our below consensus economic growth forecasts for South Africa will remain unchanged until there is further clarity on US tariffs.' However, he points out that the rand has steadied since the announcement, as markets seem to expect Trump's on-again, off-again tariffs to remain true to form. 'Naturally, the higher tariffs on South African goods will inflict more economic damage than the current rate of 10%, which is burdensome for domestic businesses who have relied on duty-free access to the US for years.' ALSO READ: Trump tariffs created unprecedented uncertainty — trade expert Trump's letter about tariffs both reassuring and concerning George Herman, chief investment officer at Citadel, believes that the letter from Trump about the tariffs is both reassuring and concerning. 'On the positive side, it is encouraging that the update is no worse than what was outlined on 2 April. The vague language also leaves the door open for further negotiations and the original deadline of 9 July has now been extended to 1 August. 'However, it is difficult to see what bargaining power South Africa holds, especially given US Trump's negatively biased view towards SA. President Cyril Ramaphosa immediately responded by refuting claims of the tariffs that South Africa places on the US and urging local exporters to diversify their customer base beyond the US. While strategically sound, this is not an easy shift to make in the short term.' He says it is evident that no real progress has been made in negotiations with the US over the initial 90-day period and this signals a tougher trade environment with the US in future. Herman warns that this can also affect interest rates. ALSO READ: IMF's bad news about economic growth for SA, thanks to Trump tariffs New tariff will have major impact on economy Bianca Botes, director at Citadel Global, also believes the new tariff will have a major impact on the economy. 'Key sectors such as automotive, steel, agriculture and manufacturing will struggle to compete in the US market, which could lead to lower export volumes and job losses, especially in areas that depend heavily on trade with the US. 'With exports expected to decline, gross domestic product (GDP) growth may slow and both businesses and workers could see reduced incomes. This in turn would likely dampen consumer spending and investment. Higher costs, supply chain disruptions and added inflationary pressure may add to the strain.' ALSO READ: US tariff pause ends on 9 July: Tau says what happens now Potential negative economic impact of tariff should not be underestimated Prof Raymond Parsons, economist at the NWU Business School, says the US tariff decision is not good news for the South African economy and its potential negative economic impact should not be underestimated. 'While not unexpected, it creates a challenging economic headwind for SA. For now, the most difficult areas for SA, such as agriculture and cars, remain badly affected unless last-minute negotiations can still ameliorate the outcomes by 1 August. 'The global reality is that the aggressive US tariff policy is creating a fragmented world trading system that further elevates economic uncertainty. While there is a great deal of fear psychology about just now, South Africa is not without remedies. 'As a small open economy, it remains essential that bilateral negotiations must continue to stabilise and consolidate future US-SA investment and trade relations. Collaboration between government and the private sector to accelerate the identification of alternative markets must continue.'
Daily Maverick
12-06-2025
- Business
- Daily Maverick
Ramaphosa extols green hydrogen as future driver of Africa-wide growth
President Ramaphosa on Thursday championed green hydrogen as Africa's future, but can the continent's ambitious dream overcome the reality of prohibitive costs and a risk-averse international financial regimen? 'Africa is uniquely positioned to become a major player in green hydrogen because it has abundant renewable resources that manifest themselves in high solar irradiation, strong winds and hydropower potential,' said President Cyril Ramaphosa. He was speaking at what was once called the South Africa Green Hydrogen Summit, now positioned as the Africa Green Hydrogen Summit, in Cape Town on Thursday. 'The vast land of our continent lends itself to large-scale renewable energy projects. We are therefore perfectly placed to leverage the global shift towards cleaner energy sources for our collective advantage as the entire continent. 'Green hydrogen is a way to marry our continent's mineral riches with our renewable energy endowments to decarbonise particularly heavy industries, to create jobs, to stimulate investment and to unlock inclusive growth across the various borders,' said Ramaphosa. Green hydrogen is produced by using renewable energy sources such as wind or solar power to split water into hydrogen and oxygen through a process called electrolysis. This hydrogen can then be used as an emission-free energy source and carrier for applications such as fuel cells or industrial processes, and is seen as being key to decarbonising 'hard-to-abate' or 'hard-to-electrify' sectors such as long-haul transport, chemicals, and iron and steel. Green hydrogen is of particular interest in South Africa because of the country's strategic advantages. The independent non-profit economic research institution Trade & Industrial Policy Strategies says that 'South Africa's rich endowment of ideal weather conditions for solar and wind-power generation, technological capabilities around the Fischer-Tropsch process, and access to platinum resources place the country at an advantage for developing the hydrogen value chain and being a key supplier into the global hydrogen market.' Ramaphosa noted that more than 52 large-scale green hydrogen projects had been launched across the continent, including in South Africa. 'To date, South Africa has invested more than R1.5-billion in our Hydrogen South Africa programme,' he said. Yet despite the President's bullishness, the reality of green hydrogen projects in South Africa and beyond paints a more complex picture. Daily Maverick reported in April that Namibia's HyIron Oshivela plant successfully produced green hydrogen for the first time, giving South Africa's neighbour to the northwest the lead in its implementation of its green hydrogen-related plans. South Africa's Hydrogen Society Roadmap, adopted in 2021, outlines an ambitious vision. While the initiative — which includes plans for a Hydrogen Valley industrial cluster and the Boegoebaai project in the Northern Cape — is substantial on paper, its implementation has lagged significantly behind Namibia's. Pilot project A pilot project in Sasolburg is producing green hydrogen for domestic use, and the Koega green ammonia project in the Eastern Cape is 'at an advanced planning stage' for four additional flagship hydrogen projects, said Ramaphosa on Thursday. Beyond suboptimal implementation, there are also complications, which Ramaphosa duly acknowledged. Chief among them: cost. 'We are very much alive to the reality that green hydrogen production faces a number of challenges. There is the cost factor. Capital intensity and the high costs of financing are significant barriers, as is the cost of green hydrogen relative to other energy sources such as natural gas, for instance,' he said. Earlier this year, Daily Maverick was told that the ambitious plan to produce 'green steel' in the Freeport Saldanha industrial zone had been shelved, with Sasol and ArcelorMittal citing high costs and shifting priorities. Globally, the steel industry is responsible for roughly 2.6 billion tonnes of carbon dioxide emissions a year, which is about 8% of global emissions. When the conventional coal-fired blast furnaces are replaced with ones that run on carbon emission-free green hydrogen, the steel that is produced is, accordingly, considered green steel. The difficulties in realising green hydrogen projects are shared internationally. A study published in the journal Nature Energy earlier this year, which tracked 190 projects over three years, found that by 2023 only 7% of the announced green hydrogen production globally had been realised. A large part of the reason is renewable energy and electrolyser costs. Lack of competitiveness A Potsdam Institute for Climate Impact Research researcher and the lead author of that study, Adrian Odenweller, as well as co-author Falko Ueckerdt, said: 'Green hydrogen will continue to have difficulties meeting the high expectations in the future due to a lack of competitiveness.' The Just Energy Transition Project Management Unit in the Presidency and the Industrial Development Corporation of South Africa previously confirmed as much with Daily Maverick, explaining: 'Currently, grey hydrogen (from steam reformation of methane gas) costs $1.50/kg to produce. Green hydrogen produced via electrolysis of water using renewables-generated electricity costs $5 to $6/kg. Approximately 60% of this cost is for electricity, 30% for electrolysers and 10% for transport, storage and other externalities. 'So, a reduction in price depends very much on renewable electricity generating costs falling still further. Additionally, the appropriate pricing of carbon taxes is another factor that will contribute to project viability. 'The costs of green electricity and of electrolysers will reduce, but not overnight. Furthermore, penalties in key global markets on goods produced using non-green technologies are ramping up over the next decade. We can anticipate that the right price point will be reached within the next few years. 'Based on the downward price trajectory of renewable energy and electrolyser costs, it has been projected that South Africa will reach $1.50/kg by 2037.' Speaking at the summit on Thursday, Energy and Electricity Minister Dr Kgosientsho Ramokgopa said, 'Africa's choice is whether to be a passive site of resource extraction or a proactive architect of the green energy economy. 'With the right policy framework, investment enablers and regional coordination, green hydrogen can and must be [the] backbone of a new African industrial era. 'South Africa's approach to green hydrogen is not aspirational, it is deliberate, structured and already under way. As a country, we have a clear choice to develop hydrogen not just as a climate response but as a catalyst for reindustrialisation, economic transformation, regional competitiveness and energy sovereignty,' said Ramokgopa. DM
