Possible Impact of US Tariffs on Eastern Cape Auto Industry

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Interview commences at the 1:22 mark

JEREMY MAGGS: The Nelson Mandela Bay Business Chamber has voiced serious concerns regarding the potential impacts of the proposed 25% increase in US tariffs on South Africa’s automotive exports. A warning has been issued today indicating that these tariffs could rapidly result in the loss of numerous vital direct jobs within the Eastern Cape’s automotive industry.

To provide a comprehensive perspective on this matter, I’m joined by Denise van Huyssteen, the chief executive officer of the chamber. Denise, welcome, and could you start by sharing some figures on how crucial the US market is for Eastern Cape’s automotive export sector?

DENISE VAN HUYSSTEEN: Primarily, it’s not merely about the US market; it affects a larger global marketplace. The implications here are extensive. The US ranks as the second largest trading partner for our automotive sector in terms of exports.

However, to understand the impact, we must analyze it carefully—it’s not just the manufacturers sending vehicles or components directly to the US; others in the supply chain will also feel the effects due to global decisions made by various countries in reaction to US policies.

Read: Trump’s 25% US auto import tariff takes effect, increasing costs

We are facing the potential risk of shifts in manufacturing locations globally, as countries fortify their own industries. Boardrooms worldwide are making strategic decisions about optimal manufacturing locations. With South Africa representing only 0.6% of the global vehicle manufacturing industry, our positioning is precarious.

JEREMY MAGGS: Have you quantified the potential impact on the local economy and employment yet?

DENISE VAN HUYSSTEEN: We are currently conducting an assessment and delving into the entire ecosystem. It’s crucial to understand that automotive manufacturing in our country is a privilege due to the vast ecosystem surrounding it.

Beyond vehicle manufacturers, there are components like brake pads, tires, catalytic converters, etc., produced for these vehicles, which also influences numerous service sectors.

Read: How will the 25% US import tariff impact South Africa’s automotive sector?

We’re actively working on this assessment as we are particularly concerned about the disproportionate effects on Nelson Mandela Bay, where nearly half of the nation’s automotive manufacturing is situated and where 41% of job opportunities in this industry exist. This places us in a highly risky situation.

JEREMY MAGGS: And this is further complicated by the fact that the region and city are already experiencing significant economic distress prior to the announcement of these tariffs.

DENISE VAN HUYSSTEEN: Indeed, and it’s vital to consider the situation just before COVID-19, where the auto industry levels had not yet rebounded to previous highs. Additionally, we have seen an influx of vehicle imports flooding the market, putting further strain on local manufacturers, whose domestic sales volumes have diminished. To maintain their business models, they require a balance between exports and local sales.

The industry has faced numerous challenges, including ongoing logistics issues surrounding ports and rail, compounded by the severe impact of the energy crisis on our manufacturing sector.

These past few years have been particularly challenging. While the sector has shown some resilience, we are unfortunately witnessing an increase in closures and job losses.

JEREMY MAGGS: Is it too soon to begin discussing strategies for local businesses to counteract the effects of these proposed tariffs?

DENISE VAN HUYSSTEEN: Absolutely not; we must act swiftly. There’s an urgent need to focus on mitigation initiatives. When we examine the tariffs imposed, and compare our situation to other African nations like Morocco and Egypt, which only face a 10% tariff due to their proximity to markets, our position becomes disadvantageous.

Read: Volkswagen plans price increases following Trump’s auto tariffs

Furthermore, concerning the African Continental Free Trade Agreement, it remains unutilized from the automotive industry’s perspective, as the rules of origin have yet to be finalized, coupled with grey imports overwhelming the markets. Until these matters are resolved, the new vehicle market in these countries will suffer.

We are at risk of losing our competitive edge against other African markets, potentially forcing manufacturers to choose to operate in Egypt or Morocco, where conditions are more favorable. Hence, we face substantial risks and must promptly seek mitigation.

For instance, although there is discussion about diversifying into the Brics markets (Brazil, Russia, India, China, and South Africa), we currently lack free trade agreements with these markets, making this a priority.

Our relationships with Southeast Asian countries and the European Union are also vital, and we need to bolster these connections now. These are just a few actions we should pursue, yet the pace of change is alarming. I fear many may not fully comprehend how rapidly these events are unfolding, emphasizing the necessity for swift action to preserve our manufacturing capabilities.

Read: Diversifying South Africa’s trade relations with other nations is crucial

JEREMY MAGGS: Denise, is there a prevailing sense of pessimism among your members? You’ve mentioned the sector’s resilience in the past, but this situation poses a significant threat.

DENISE VAN HUYSSTEEN: We share a deep concern, but we are also uniting together. The strength of our business community lies in our unity. A couple of years ago, we established a Local Economy Reinvention Think Tank, recognizing that the local manufacturing sector must evolve to endure.

We have been advancing several projects through this think tank and will intensify our efforts, but we require collaboration from various stakeholders. I believe creating an enabling environment is critical, with essential services that work.

To maintain manufacturing in our country, we need reliable power, effective service delivery, and efficient logistics, given our distance from the global markets.

JEREMY MAGGS: As we wrap up, what does the chamber urge from provincial and national governments regarding this issue?

DENISE VAN HUYSSTEEN: We seek immediate action to tackle the implications for the province and city. We need their partnership in deploying mitigation strategies. There’s an urgent need to advocate for a ban on grey imports across the continent.

We also need to enhance efforts toward engaging with other markets and focus on re-establishing strong ties with the US as a trading partner. We must exhaust every option to retain our markets.

JEREMY MAGGS: Thank you for your insights. Denise van Huyssteen, chief executive officer of the Nelson Mandela Bay Chamber of Commerce, we appreciate your time.

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