How will the 25% US import tariff affect SA’s auto industry?

A better understanding about the impact on South Africa’s automotive industry of the new US 25% import tariff on all automotive imports is expected later this week.

National Association of Automotive Component and Allied Manufacturers (Naacam) CEO Renai Moothilal said on Monday Naacam is obviously very concerned because preferential trade into the US market has been a bedrock of component production and adding scale to domestic component production for a number of years.

Moothilal said that as long as the Africa Growth and Opportunity Act (Agoa) has been in force, there has been an increasing rate of penetration into the US market.

South Africa benefits from duty-free access to the US market under Agoa, which remains vitally important to the South African automotive industry.

In 2023, the US was South Africa’s second-biggest automotive trading partner after Germany, with total trade between the two countries valued at R56.75 billion.

This comprised R27.94 billion in exports from South Africa to the US and R28.8 billion in imports from the US.

Moothilal said it is important to note that the US tariffs are tariffs imposed under Section 232 of the US Trade Expansion Act of 1962, which means effectively that they will override the Agoa agreement.

“What we are still waiting for is a final list of whether it’s all components or what components will be covered by this Section 232.

“The initial indication is that from 3 April 2025 that will be open for comment for a month so we should have better clarity later this week.

“But the impact overall is still very significant,” he said.

“We do think that given that it applies to all countries across the world, in the short term South African components will still be accepted into the US market because, even if companies wanted to respond immediately, it does take time to invest and build up components that have been exported into a market over a long term.”

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Naamsa

Automotive business council Naamsa also highlighted the uncertainty created by US President Donald Trump’s import tariff proclamation.

Naamsa said it is actively assessing the potential impact of the 25% tariff imposed on imported automobiles and certain automobile parts into the US and is currently engaging with its members and other key stakeholders, including government authorities and trade partners, to determine whether Agoa preferences remain unaffected by the latest proclamation.

It said the South African automotive industry has built a strong export relationship with the US, particularly in the supply of light vehicles and automotive components, and any potential disruption to trade flows will require close collaboration between industry and government to ensure the continued competitiveness of South Africa as a global automotive manufacturing hub.

“Naamsa remains committed to supporting open, fair, and mutually beneficial trade policies and will continue monitoring developments while engaging with relevant US and South African trade authorities. We will provide further updates as more clarity emerges in the coming days.”

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Motor manufacturers

The Ford Motor Company of Southern Africa, Toyota South Africa Motors (TSAM), Volkswagen Group Africa (VWGA) and Isuzu Motors South Africa all confirmed to Moneyweb they did not export any vehicles to the US and would therefore not be affected by the proposed US tariff increase.

Nissan South Africa has not yet responded to Moneyweb’s query.

Mercedes-Benz South Africa (MBSA) and BMW South Africa both have exposure to the US market in terms of fully built-up vehicle exports into that market.

Both were coy in their responses to a query about the impact of the proposed new US import tariffs on their operations and how they plan to mitigate their impact.

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Mercedes-Benz

MBSA general manager of corporate affairs Thato Mntambo said the company does not disclose its vehicle sales volumes and is unable to comment on this aspect of Moneyweb’s query.

Mntambo referred to a Mercedes-Benz statement on the announced US tariffs on vehicle imports from the European Union (EU), which indicated it is currently assessing the impact of the recently announced US tariff lines.

Mercedes-Benz said it maintains 24 locations across 13 US states, where the company primarily produces passenger cars and vans, and it has several research and development locations as well as Mercedes-Benz Financial Services.

It said group companies directly employ about 11 100 people in the US while its 384 dealerships employ a further 28 000 people, which secures an additional 51 000 jobs in total.

“All-in-all we safeguard more than 163 000 local [US] jobs,” according to the Mercedes-Benz statement.

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BMW

BMW Group South Africa head of business communications Angela Konert said the group is currently evaluating the announcements in detail.

She pointed out that tariffs hinder free trade, slow down innovation and set a negative spiral in motion.

“In the end, they are detrimental to customers, making products more expensive and less innovative.

“That is why we should generally always be talking about fewer trade barriers rather than more,” she said.

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Agoa ‘not a one-way economic relationship’

The 2024 Automotive Trade Manual said the same “high end” models by BMW and Mercedes-Benz are being manufactured in both South Africa and the US and “are therefore no longer exported in large volumes from South Africa to the US”.

The manual further stated that the renewal of Agoa for a period longer than 10 years will provide predictability to the more than 450 000 American workers, 150 000 from American exports and 300 000 tied to US imports, whose jobs are linked to US-African trade.

But it stressed that South Africa’s continued eligibility in terms of Agoa is crucial because it supports the continued growth and development of the automotive industry in South Africa and Africa.

“South Africa also provides the US with 25% of all its imports of nine critical minerals, including manganese and platinum,” it added.

“Therefore, Agoa is not only a one-way economic relationship where African countries, including South Africa, can access the US market, but also one where the US is able to rely on for its sourcing requirements.”

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Investment decisions

Naacam’s Moothilal agreed the new US import tariffs could negatively impact automotive foreign investment decisions in South Africa but this depends on how Agoa imports are treated relative to the new import tariffs.

“I expect current contracts will run out given that they are already in production and I don’t think they can be replaced very quickly,” he said.

Moothilal said the impact of the new import tariffs will be felt beyond the borders of South Africa.

“If the long term business case for export into the US doesn’t continue, I do think it will end [up] harming the component supplier base,” he said.

Moothilal said components that come out of South Africa into the US are used in their consumer replacement aftermarket and also in the production of vehicles in the US and are often safety critical components.

“So you are looking at a 12 to 18 month period where you have got to find investment in the US and effectively tool up and get your plant ready for production if you are going to immediately substitute auto products that are coming out of the South African or African export market.

“What does that mean in the short term? All that happens is that you introduce price inflation into the US manufacturing economy and again somebody will pay the price for that in the US, in all likelihood the consumer,” he said.

“As you can expect, when you have a 25% increase in manufacturing costs, I do expect there will be some level of job losses in the US in the short term.”

This article was republished from Moneyweb. Read the original here.