To Investors,
A week ago, President Trump sent a letter to President Ramaphosa informing him that South Africa was going to be faced with 30% import tariffs starting on the 1st of August this year.
Imports on goods brought in from South Africa are part of a broader economic agenda that President Trump is pushing; to reduce trade deficits with all U.S. trade partners, address “unfair” trade policies identified in a particular country, and to reduce U.S. dependencies on foreign goods by reshoring manufacturing capabilities broadly, to the United States.
Double-clicking into which South African exports will be hit with tariffs, according to a summary from Perplexity, the 30% tariff will replace previous preferential access under the African Growth and Opportunity Act (AGOA). This includes manufactured goods, agricultural products, and vehicles, but with notable exceptions for certain raw materials like platinum and titanium.
According to a report by Trade-Knowledge; “South Africa has been one of AGOA’s biggest beneficiaries, with key industries thriving under its framework. For example, the automotive sector has flourished, with major brands like Ford and BMW assembling vehicles in South Africa for export to the US, with exports reaching up to $2.7 billion as of 2023. Also, the mining industry benefited, as essential minerals such as platinum and manganese—critical to US manufacturing—are sourced from South Africa.”
A report from the Trade and Industrial Policy Strategies (TIPS), however, noted that it appears that these tariffs are trying to hurt South Africa’s manufacturing sector as the tariffs exempt minerals produced in South Africa and consumed for American manufacturing. But this isn’t news. Earlier this year I wrote a letter to this group explaining the broader objective of trade tariffs — which I also summarised above.
Economists also cried that the 30% tariffs against South Africa are not economically motivated since South Africa only has a relatively minor trade surplus of ~$1.23 billion against the U.S., so these tariffs rather seem politically motivated. Remember the stern talking-to that Trump had with Ramaphosa and his team in the U.S.?
Well, what if these tariffs are in fact politically motivated? Doesn’t mean they’re incorrect. In Trump’s view, South Africa has unfair ownership laws in reference to BEE policy; the land expropriation bill announced earlier this year directly challenges ownership rights and is obviously worrying when thinking about fundamental property rights; farm killings are still an unclear issue (do they exist systematically, if so are they politically driven, are they being ignored, what’s the real story?).
This is a great moment to test Ramaphosa’s strategic thinking and execution.
The South African president has historically shown characteristics of a person with pride, and a fighter’s mentality. That’s awesome to have as a leader, but remember that saying “pride always comes before the fall”? In this instance I’d suggest a more measured and diplomatic approach.
I have no idea how this will play out, but one option could be for President Ramaphosa to triple-down on the BRICS partnership, and toss up a dismissive hand to the U.S. What could that look like?
A stronger partnership with China, our largest trading partner
A reposition of the automotive industry in South Africa. Because China is flooding global vehicle markets, other manufacturers may find it hard to compete. So, is it possible for Chinese manufacturers to allow some production to happen in South Africa?
But then what happens to the rest of the products that South Africa exports to the U.S. Will those industries survive cutting out the largest economy in the world? So maybe going that route is not a good idea, and Ramaphosa and his team should rather call the Trump administration to hash out a trade deal.
I’m a person of logic, I dislike blindly following the status quo, and I question everything. Those who’ve spent any amount of time with me know that well.
Is it wrong for South Africa to reopen the genesis of BEE policy and do a deep analysis of what’s working and what isn’t with regards to that policy? Is it wrong to explain clearly to the public why there needs to be a land expropriation bill that grants the government the right to seize land? Is it wrong for a President of a country (Trump) to act how he sees fit to protect his own country and its people?
Instead of crying victim, I call on President Ramaphosa to get his business hat on and go to work. Sithuma wena (we’re sending you).
Those with access to Ramaphosa should do the same. Since President Trump started his current term in January this year, every country that’s faced tariffs has approached the Trump administration to try to put together some sort of trade deal to avoid or significantly reduce tariffs. It would behove Ramaphosa to do the same. Less committee formation, more business-focused negotiation.
Anyway, it’s back to work for me. I’m working feverishly on some exciting projects that I can’t wait to share with everyone and hopefully attract more people that I can work with on those projects. It’s still early days so more on that later.
On my journey to becoming a master capital allocator, one lesson down, a billion more to go.
Hope you all have a great day,
-Mansa