As trade tensions between the US, China, Canada, and Mexico escalate, Agbiz chief economist Wandile Sihlobo remains confident that South Africa’s agriculture will see little impact. Here’s his take.
Some doubted whether US President Donald Trump would implement all the trade 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 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, 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 into the US and the immigration issues.
Pushback from other countries
There have already been some developments, with Canada intending to retaliate by imposing 25% duties on various products imported from the US. Like China in 2018, Canada also targeted some agricultural exports from the US for the duties it would impose. These include beer, wine, bourbon, fruits, 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 from the headlines. Overnight, Trump incorrectly stated that there is “confiscating” land and that the country is “treating certain classes of people very badly.” This, of course, is not what is happening, as I recently outlined the implications of the Expropriation Act here.
So, 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 partly the US agricultural sector, which Canada is doing right now.
The 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 some Central American countries.
Therefore, it is plausible that if China targets US agricultural exports again, soybean, maize, and pork farmers would be negatively affected. This would add to the Canadian tariffs on fruits, wine, and fruit juices.
Under such a scenario, as observers and agricultural stakeholders in South Africa, we will likely 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, US farmers could also start exploring other export markets where they have not been as present to hedge against China’s risks.
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.
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According to Trade Map data, China spends just over US$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.
Indeed, if one examines China’s agricultural imports, the top products 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 wine, fruit, and fruit 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 grains and oilseed markets. The major risk is when US farmers divert their products from China, depending on the level of Chinese retaliation tariffs, to South Africa’s traditional markets in the Far East. This could further create more competition and downward price pressures. This is something we will have to monitor closely.
Similarly, US fruit, wine, and fruit juice exports could also start looking to widen their export markets to areas similar to 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 wine 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 in future remains to be seen. We live in strange times and cannot 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 like today, 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).
- Wandile Sihlobo is the chief agricultural economist at the Agricultural Business Chamber of South Africa (Agbiz). The views and opinions expressed in this article are those of the author and do not necessarily reflect the views or positions of Food For Mzansi.
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