A new trade reality

4 August 2025 — Why is South Africa facing one of the world’s harshest US tariffs? Can Pretoria renegotiate the 30% tariff? Or has it already lost the game? Is SA’s stance on Taiwan and China adding fuel to Washington’s ire? Small businesses buckling under pressure. What do they want from government? Will the repo rate cut help, or is 1% growth all SA can hope for? Is the US economy losing steam? And how will markets and interest rates respond?

A new trade reality

It’s official: the United States (US) will subject South Africa to a 30% tariff on goods brought into the US from 7 August 2025. That puts South Africa at double the average US tariff level levied on the rest of the world, which the Peterson Institute for International Economics assesses at 14.5%. A year ago, average US tariffs were just 2.4%. The global trade order is being recalibrated.

For reference, South Africa finds itself at the fifth-highest tariff rate, grouped with Algeria, Bosnia and Herzegovina, and Libya. Of the 69 countries on the US tariff list published on 1 August, 40 are being subjected to just half South Africa’s rate, 15%. Among them are the Democratic Republic of Congo, Venezuela, and Zimbabwe.

The lowest tariff level is 10%, which is being applied to the Falkland Islands and the United Kingdom. The highest tariff level listed is 41%, which is being applied to Syria. Switzerland is being hit with 39%, the third-highest tariff, despite intense negotiations and considerable concessions. This could be related to US pressure on Switzerland over pharmaceutical prices.

China does not appear on the list and is subject to a separate regime, currently at 54.9%, according to the Peterson Institute, while Brazil is erroneously listed at 10% while actually being at 50%. Most African countries face lower tariffs than their Asian counterparts, indicating the US push to delink manufacturing in South-East Asia away from China and towards greater integration with US supply chains.

South Africa’s response

Much uncertainty still surrounds the tariff regime, and the new rates are not set in stone. They represent the next round in a dealmaking game through which the Trump administration is reshaping the global order.

There is scope for South Africa, which should read its anomalously high tariff as a sign of US censure, to renegotiate. US President Donald Trump reportedly told journalists aboard Air Force One: “I think maybe I’ll send somebody else [to the G20 summit in Johannesburg] because I’ve had a lot of problems with SA. They have some very bad policies.”

In his executive order on the tariffs, Mr Trump highlighted “the continued lack of reciprocity in our bilateral trade relationships and the impact of foreign trading partners’ disparate tariff rates and non-tariff barriers on US exports, the domestic manufacturing base, critical supply chains, and the defense industrial base”.

In South Africa’s tariff renegotiation planning, it should pay particular attention to non-tariff barriers. They include issues such as threats to property rights, localisation master plans, a high crime rate, and race-based laws. Several of these issues have explicitly been highlighted by the US.

The initial South African response to the 30% tariffs has been timid. Thus far the government has shown no urgency in addressing the areas of substantive policy disagreement.

President Cyril Ramaphosa said, “We remain engaged with the US in trade negotiations and Government will be providing support to companies affected by current tariffs. Our approach to these negotiations is one of mutual respect and benefit”. The trade, industry and competition department announced the launch of an “export support desk”, while the government said it was preparing a support package for companies vulnerable to the tariffs.

Such stopgap measures will prove inadequate to take South African manufacturing and exporters through this moment of global trade upheaval.

Taiwan pushes back

In a further sign of how trade is being leveraged as an adjunct to diplomacy, Taiwan is reportedly considering imposing restrictions on semiconductor chip exports to South Africa.

This comes after South Africa announced in the Government Gazette that it would no longer recognise Taiwan’s liaison offices in Pretoria and Cape Town, which provide consular services. Both offices would be renamed “commercial offices”, a status downgrade.

South Africa pursues close diplomatic ties with China, which does not recognise Taiwanese sovereignty and seeks to isolate and delegitimise Taiwan where possible. The South African government is assisting it in those efforts, a further reason for US displeasure.

Taiwan is the world’s leading producer of advanced semiconductors, responsible for around 90% of global production. Although chips form an essential part of the modern economy, export restrictions would have limited impact on South Africa because supplies could be rerouted via other nations.

Small businesses in distress

A survey of 1,601 small and medium enterprises with up to 50 employees, conducted in April and May, found that many were experiencing high levels of stress.

The findings were published as part of the first Small Business Growth Index, produced jointly by the SME business unit at Absa Bank, the South African Chamber of Commerce and Industry (SACCI), and the Bureau of Market Research at the University of South Africa.

The survey findings apply to a company category that includes an estimated 2.7 million businesses, of which one-third operate formally and two-thirds informally. Collectively, they provide an estimated 11.4 million jobs and make up 91% of all formal businesses by number. They are estimated to provide around 60% of all the jobs in the country and generate 34% of national GDP.

Significant shares of the businesses surveyed expressed great concern regarding their future. Almost 53% said that they were expecting to contract, while 55% expected they would have to close within the next year if cost pressures did not abate. It must be noted that because this was the first survey, it is too soon to assess whether those numbers are unusually high or not.

The top 3 government interventions the survey participants said they would welcome were easier access to finance and grants; less bureaucracy and red tape; and a VAT cut. Also notable was a desire for more equitable procurement processes, removing political bias and BEE constraints, and the demand that government contracts and tenders should be based on merit.

The survey shows that small businesses are hamstrung by many of the same policy impediments as larger companies but have fewer resources to deal with them. Such obstacles pose an existential threat to many of these businesses, and this in turn represents a considerable risk to South Africa’s ailing economy.

SA rates cut, growth revised down

The South African Reserve Bank (SARB) last week revised its earlier forecast of 1.2% GDP growth in 2025 down to 1%. This brings it in line with CRA forecasts from the beginning of the year. The SARB also cut the repo rate by 25 basis points to 7%, the lowest since 2022. This will be welcomed by indebted consumers and businesses eager to take loans for investment. But rate cuts alone are not enough to spur meaningful fixed capital investment and real growth.

For reference, the International Monetary Fund (IMF) has revised its forecasts of global GDP growth upwards, from 2.8% to 3% for 2025 and from 3% to 3.1% for 2026. Emerging markets and developing economies are expected to grow even more strongly, with expansion of 4.1% forecast for 2025 and 4.0% for 2026. These rates are far ahead of the 1% and 1.3% the IMF projects for South Africa.

US growth sputters

The US economy is showing signs of turbulence amidst rapid regulatory and trade shifts. GDP expanded by a better-than-expected annualised 3% in the second quarter, rebounding from a 0.5% contraction in the first quarter.

However, fixed investment growth slowed to 0.4% from 7.6%, while the ISM Manufacturing Purchasing Managers’ Index dropped to 48 in July from 49 in June, the fifth consecutive month of readings below 50 that mark contraction in the manufacturing sector.

The job market underperformed expectations in July, with just 73,000 jobs added and the job creation figures for May and June being revised down by over 250,000 combined. Healthcare and social assistance accounted for about 94% of the July job growth, and unemployment ticked up from 4% to 4.1%. Commentators are talking of a cooling job market as companies remain cautious in their hiring.

US stocks dropped on Friday on the jobs news and amidst the Trump tariff announcements. The S&P 500 and Nasdaq fell 1.6% and 2.2%, while the yield on the 10-year Treasury note fell by nearly 20 basis points to 4.25%. The probability of a rates cut by the Federal Reserve in September rose above 80%.