Risk analysis — SA’s agricultural sector and the global trade disruptions caused by Trump’s tariffs

Some doubted that US President Trump would implement all the tariff plans he promised during his election campaign, especially for Mexico and Canada.

In the case of China, the possibility was high, as it would not be the first time that the Trump administration imposed tariffs on China. We saw such steps in 2018 when the Chinese government retaliated, mainly targeting various agricultural products that the US exported to China.

Well, we were wrong. Over the week, President Trump pushed ahead and imposed 25% tariffs on goods from Canada and Mexico and 10% on China. These duties will be added to the existing tariffs. The Trump administration accuses these countries of allowing the smuggling of fentanyl to the US and immigration issues.

(On Monday, Trump and his Mexican counterpart, Claudia Sheinbaum, announced a one-month “pause” in the threatened US tariffs on Mexico after what Sheinbaum described as a “a good conversation” between them.)

There have been other developments, with Canada intending to retaliate by imposing 25% duties on various products imported from the US. Like China in 2018, Canada targeted some agricultural exports from the US, including beer, wine, bourbon, fruit and fruit juices. China also intends to retaliate and we will learn more about its actions in the coming days.

South Africa was also not spared the headlines. Overnight, Trump incorrectly stated that South Africa was “confiscating” land and “treating certain classes of people very badly”. This, of course, is not what is happening, as I recently outlined in an article about the Expropriation Act.

How should South Africa’s agricultural community view these trade developments?

Our best guide is when Trump first imposed tariffs on China in 2018. China retaliated, targeting the US agricultural sector, which Canada is doing right now.

US soybean, maize and pork farmers were among the most negatively affected by China’s retaliation policies in 2018. The switch in orders saw the demand for US agricultural exports to China decline. China started buying more agricultural products from South and Central American countries.

It is plausible that if China targets US agricultural exports again, US soybean, maize and pork farmers would be negatively affected. This would add to the Canadian tariffs on fruits, wine and fruit juices.

Global impact

Under such a scenario, as observers and agricultural stakeholders in South Africa, we will probably see the early impact through global grain and oilseed prices. The US is a significant producer, and when its grain market activity is disrupted, the impact tends to be felt globally.

Moreover, the US farmers could also start exploring other export markets where they have not been as present to hedge against the risks from China.

Still, avoiding China on any global agricultural product will be hard. China is a dominant player in the export and import of agricultural products. In 2023, China was a leading agricultural importer, accounting for 11% of global agricultural imports.

According to Trade Map data, China spends just over $200-billion annually on agricultural product imports. The US is China’s second-largest agricultural supplier after Brazil. Other suppliers include Thailand, Australia, New Zealand, Indonesia, Canada, Vietnam, France, Russia, Argentina, Chile, Ukraine, the Netherlands and Malaysia.

China’s top agricultural imports include oilseeds, meat, grains, fruits and nuts, cotton, beverages and spirits, sugar, wool and vegetables. The US has significant exposure to oilseeds and meat. The same can be said about the wine, fruit and fruit juice exports to Canada.

Implications for South Africa

South Africa is a small player in global grains and has undoubtedly not been a participant in the US grain and oilseed markets. The major risk is to South Africa’s traditional markets in the Far East when US farmers divert their products from China, depending on the level of Chinese retaliation tariffs. This could create more competition and downward price pressures. It is something we will have to monitor closely.

Similarly, US fruit, wine and fruit juice producers could look to widen their export markets to areas served by South Africa, which would present more competition.

And yes, I know some, like the economist Nimrod Zalk, have hinted that South Africa must push ahead and market its wines in Canada and Mexico. This is something I am not particularly opposed to.

Anyway, I remain optimistic that the current US tariffs will have minimal direct impact on South Africa and the confrontation seems far from us.

Whether the US imposes any other import tariffs that could directly affect the South African farming community remains to be seen. We live in strange times and can’t be sure of anything these days.

I want to emphasise that the current trade fragmentation further solidifies my view that South Africa must work to diversify its agricultural export markets. In a fragmented world, an export-oriented sector like South Africa’s agriculture should spend more time and resources on broadening export markets and diversifying risk.

After all, South Africa’s long-term agriculture growth prospects hinge on the country’s success in creating as many export markets as possible and improving the efficiency and quality of its domestic logistics (roads, rail and ports). DM