US President Donald Trump, who recently halted a near-total freeze on US foreign aid, also announced this week that the primary agency for US soft power worldwide – USAid – has all but ended its work, with all “non-essential” personnel being recalled.
His presidency’s broader foreign policy appears to have taken a narrower gaze towards South Africa, with casual speculation on the influence of Elon Musk and his South African heritage, as well as Trump’s spat with the country being caused by South Africa’s case against US ally Israel at the ICJ, rather than merely the Expropriation Act.
Irrespective of cause, Agoa, which governed preferential trade benefits which facilitated $14-billion in exports from South Africa, is now at risk, with next year’s renewal in the US of the Act no longer a safe bet.
Industry leaders and economists are concerned, but some commentators and researchers have made it clear that Agoa isn’t the be-all and end-all of bilateral trade with the United States. Yet its non-renewal might be an indicator of considerably worse things to come.
As economist Dawie Roodt told Daily Maverick, “Maybe it goes to this being only the first step. I’m afraid there could be more, to come.”
What is – and now perhaps was – Agoa?
Enacted in 2000 under President Bill Clinton, Agoa was conceived as a political and economic tool that enhanced US soft power by providing economic benefits to sub-Saharan countries. More than 1,800 products – particularly textiles, agricultural goods and, in South Africa’s case, the automotive sector – were granted duty-free access to the US market.
In so doing, Agoa assisted in bringing many developing countries into global economic trade while serving as a method for Washington to remind nations how much money might be left on the table should they stray from a particular diplomatic and political line.
Now entering its 25th year, Agoa has never been a guarantee – but it’s also never been threatened with the level of force witnessed currently. There have always been mechanisms and even legitimate reasons for non-renewal that existed long before the current diplomatic kerfuffle.
Article 105 of Agoa states that to be a beneficiary, a country must meet eligibility criteria that include progress toward establishing a market-based economy, the elimination of barriers to US trade and investment and the implementation of poverty reduction and economic policies, among other benchmarks – standards on which South Africa could potentially falter.
Moreover, Agoa specifically grants the US president discretionary powers to determine which countries are eligible, making it not only a clear soft power tool, but one that is wielded by presidential discretion – in this case, by President Trump.
“We know that there are some industries that benefit more from Agoa than others, like specifically the Western Cape agricultural exports and, of course, the motor industry as well,” says Roodt.
Bilateral relationships under strain
Bilateral relationships between the US and South Africa have always faced challenges, particularly when it comes to foreign policy. These challenges are not unique to a Trump presidency. Under President Biden, for instance, there were already issues on the table that raised concerns over Agoa’s non-renewal.
An economist who regularly meets the United States diplomatic corps commented that even as President Biden was leaving office, his representatives remarked that they “don’t like the way that South Africa is doing business”.
Economist David Silke weighed in on the matter with similar concerns: “From a South African export perspective, it’s certainly agricultural products that have been the biggest beneficiary. This is a big market for South African exports in citrus, in nuts, clearly also in the wine industry, and I certainly think the export of automobiles has benefited greatly.”
This will result in knock-on effects that hurt the most economically vulnerable in South Africa, as Silke notes, but those interviewed for this article concur that the non-renewal of Agoa is not the dark curtain it appears to be – painful yes, but not a death blow.
Should the US decide to impose tariffs on South African exports – a move that many fear would follow Agoa’s non-renewal – the impact would be far more brutal than the loss of duty-free access alone. Tariffs would force industries to recalculate their export strategies, and as a consequence, many sectors, notably agriculture and automotive, might find exporting to the US no longer economically viable. This, in turn, would trigger a bloodletting of jobs among the most vulnerable in South Africa.
Foreign investors also play a significant role in South Africa’s economic framework, holding a substantial portion of the nation’s sovereign bonds. With US investors being the single largest purchaser of these bonds, any signal of punitive measures from Washington could exacerbate the situation.
Sentiment is crucial, adds Silke: “The real effect of being removed from the Agoa benefits is the negativity it creates about South Africa. It will put broader US investment potential into question.” This negativity – once seeded in boardrooms and echoed by foreign investors – could snowball into a severe downturn in investor confidence, further destabilising an already fragile economy.
Placate or compromise?
President Trump has shown his hand with the deportation of migrants from Colombia, the imposition – and subsequent stay – on tariffs with Canada and Mexico; that he’s willing to slow down if he gets his way.
This manner of statecraft is not new, but a level of heavy-handedness from the United States perhaps not seen since President Richard Nixon was in the White House. To avoid the negative impact on South Africans, it might be best to placate Trump, suggests Roodt.
However, some of this placation might end up involving South Africa losing, as Silke notes, its diplomatic consistency and integrity on some positions – such as its stance on Palestine and the Expropriation Act.
So far, President Ramaphosa has taken a cautious approach in engaging with Washington. He has stated his willingness to clarify issues around the Expropriation Act and has even been seen speaking with Elon Musk – a figure who, given his South African heritage, appears to be exerting considerable influence in the Trump presidency. Yet, with Secretary of State Marco Rubio’s recent comments adding fuel to the fire, it is unclear whether these efforts will be sufficient to convince Washington to maintain the status quo.
Brick by BRICS
As diplomatic and economic pressures mount, some have speculated that South Africa might look to alternative alliances to mitigate the fallout from Agoa’s potential non-renewal. A pivot towards BRICS – Brazil, Russia, India, China, and South Africa – is being floated as a strategic move to diversify economic partnerships away from an increasingly unpredictable US.
However, such a shift is not without its risks. While aligning with BRICS might cushion some of the immediate blows, it could also further alienate US investors and exacerbate negative sentiment, which would dampen broader investment prospects and not resolve the risk of tariffs or the sale of sovereign bonds.
As Roodt bluntly summarised, “If Donald Trump decides and he tells Americans to stop buying our bonds, that’s going to be seriously painful.”
No roads lead to Agoa?
While the country is likely to weather the loss of Agoa itself, it’s clear too that a Trump presidency is unlikely to view non-compliance lightly and end measures there – and despite Pretoria’s proud but realistically reconciliatory stance, it seems unlikely that President Ramaphosa will be able to save the relationship with a round of golf.
As policymakers deliberate behind closed doors, the everyday impact on the lives of South Africans – from job losses in key industries to a decline in foreign direct investment – remains the ultimate measure of this geopolitical gamble.
In the end, Agoa’s fate is more than just a trade issue; it is a litmus test for South Africa’s ability to adapt and survive in a rapidly shifting global order. DM
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