Picture: 123RF/lightwise
Picture: 123RF/lightwise

After imposing tariffs on steel and aluminium, US president Donald Trump is now going for the big kahuna: cars.

And if the pattern is repeated, SA has a big problem. SA’s exports of cars and automotive products to the US have exploded since the advent of the African Growth & Opportunity Act (Agoa) in 2000.

SA’s exports to the US were R3.2bn in 2005 and rose to R22.6bn in 2016, a 606% increase.

Imports from the US have also increased, but at a lower rate, so now there is a yawning gap, which is precisely what the act intended; the whole idea was to foster African industrialisation.

But it has led to a material trade mismatch: in 2005, US exports to SA were about the same as imports; in 2016, they were about R11.5bn.

Donald Trump. Picture: 123RF/Erkan Atay
Donald Trump. Picture: 123RF/Erkan Atay

This is minuscule in terms of US car imports in total; the EU exported cars worth about US$43bn to the US last year, about 7% of total US sales.

But still there remains a roughly two-to-one imbalance, and given that SA was politically hostile to the US even before Trump’s election, the chances that it will not get caught up in the global fray are slim.

SA applied to be excluded from the global steel and aluminium tariffs, partly on the basis that it was a small part of global trade and a developing country, but the SA delegation were apparently shown all the anti-US votes taken by SA at the UN and the request was refused.

Though small from the US point of view, SA’s export of cars and automotive products is significant in itself, but also a big chunk of total trade with the US. SA exported about R3.5bn in steel and R5.5bn in aluminium, which will now be covered by the "section 232 duties". Total exports to the US are about R89bn.

Section 232 is a portion of the US’s Trade Expansion Act of 1962, which gives the executive branch of the US government the ability to conduct investigations to "determine the effects on the national security of imports".

The US’s global trading partners have been outraged by the use of this clause, as the notion that the US’s national security is at risk by virtue of its car imports is absurd.

The EU has begun preparing to hit back at Trump’s threat to hit car imports with punitive tariffs of its own, which are likely to affect about $300bn worth of US products.

On Sunday Trump said the EU was "as bad" as China when it came to the way European countries traded with the US, and in an interview with Fox News rejected the idea that the US should work with the EU to tackle Chinese trade.

"The European Union is possibly as bad as China, just smaller ... It is terrible what they do to us," Trump said.

Trump does have one argument in his favour: he has pointed out that cars made in the EU face a 2.5% tariff when they are exported to the US, while cars made in the US face a 10% tariff when they are exported to the EU.

But the EU argues that the US applies a 25% tariff to foreign-made SUVs and light trucks, the most profitable section of the US market, while the EU charges only 10% — perhaps because the huge thumpers sold in the US aren’t that popular in the EU.

So, the EU is not all sweetness and light itself: welcome to trade negotiations, where hypocrisy abounds and doublespeak is everywhere.

According to Nico Vermeulen, director of the National Association of Automobile Manufacturers of SA, SA’s trade imbalance in cars and automotive is declining anyway.

The most important reason is that BMW was the biggest exporter to the US when the local plant in Rosslyn, Tshwane, was making the 3-Series. But since the factory is now focusing on the X3, the smallest of the X-series of SUVs, and exports of these cars are going to Europe, that will be a big reduction, he says.

One of the reasons SA’s exports have jumped is that the C-Class Mercedes-Benz factory in the US couldn’t keep up with demand, so the SA company was asked to make up volumes.

But this is not a permanent feature of SA/US car trade.

"In the broader scheme of this, exports to the US will decline," Vermeulen says.

But he also notes that the increase has had benefits for the US industry. "He [Trump] seems to miss the key point," Vermeulen says.

This criticism has been echoed all over the world, including in the US itself.

Car manufacturers worldwide have over the years gradually tried to focus individual factories on producing a single type of car, and sometimes a single make.

The resulting specialisation benefits consumers because cars become cheaper. There are estimates in the US that the proposed tariffs will result in cars becoming about $6,000 more expensive on average.

How should SA respond? Notwithstanding some tough talk by trade & industry minister Rob Davies, SA is just not in a position to retaliate, says Donald MacKay, director of trade advisory service XA. "I think this ends poorly."

SA needs US trade and one of SA’s problems is that when Agoa was renewed in 2015, it allowed the US to "quite surgically" suspend benefits for any country that benefits from the act.

The better option would be to try to take advantage of the trade imbroglio.

"We have some competitive manufacturers and they should be supported to rapidly step into the gaps which open up."

If trade between the US and the EU decreases, demand for the products remains, and with quick action it’s possible to become the substitute supplier.

"Getting into a trading mind-set may be a challenge which many companies will struggle to rise to, but it’s inconceivable that no-one would step up. Government needs to get behind these brave companies and help them to get a toehold in the space left behind that is the chaos of these trade wars," MacKay says.

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