• U.S. Aid Cuts and Economic Impact: Proposal to cut approximately $400 million in annual U.S. aid to South Africa in response to the Expropriation Bill could severely strain public health resources and disrupt critical initiatives
• Trade Relations at Risk: The potential for U.S. tariffs ranging from 10% to 25% on South African goods threatens to destabilize the economy, particularly affecting the automotive sector
• Long-Term Economic Challenges: The imposition of tariffs could exacerbate existing issues such as high unemployment and inequality, leading to a potential recession

Harare- President Donald Trump has indicated that he is considering cutting U.S. aid to South Africa, one of the leading economies in Sub-Saharan Africa, in response to the country’s recently enacted Land Appropriation Law. To contextualize this development, it is essential to first examine the specifics of this legislation before analysing the potential economic ramifications of U.S. retaliation, particularly for South Africa as a less economically developed country (LEDC) in contrast to the U.S. as a more economically developed country (MEDC).

It is worth noting that U.S.-South Africa relations have been under strain since early 2023, when South Africa participated in the Mosi II joint naval drill with Russia and China, coinciding with the one-year anniversary of the Ukrainian invasion. This prompted U.S. policymakers to introduce House Resolution 145, calling for a comprehensive review of bilateral relations. Tensions escalated further in May 2023 when the U.S. ambassador to South Africa accused the country of covertly supplying weapons to Russia for use in the Ukraine conflict.

On January 24, 2025, President Cyril Ramaphosa signed the Expropriation Bill into law, replacing the pre-democratic Expropriation Act of 1975. This legislation outlines the legal framework for the government to expropriate land and other properties for public interest or public purposes. The law is a response to persistent economic disparities in South Africa, where the majority Black population remains economically marginalized three decades after the end of apartheid. Despite being the most developed economy in Africa with one of the highest GDPs on the continent, South Africa is also the world’s most unequal country, with the means of production largely concentrated in the hands of the minority white population. This economic inequality has fueled political shifts, including the African National Congress (ANC) losing its outright majority in the latest election and being forced into a Government of National Unity (GNU). The rise of political entities like the Economic Freedom Fighters (EFF), which advocates for economic redress favouring the Black majority reflects the growing demand for transformative policies.

The Expropriation Bill allows for land expropriation with nil compensation under specific conditions, such as when land is abandoned or held for speculative purposes. However, it emphasizes a just and equitable process, with compensation typically required unless certain criteria for nil compensation are met. The legislation defines public interest broadly, encompassing land reform, equitable access to natural resources, and redress for historical racial discrimination. It also provides legal recourse for property owners through mediation or court proceedings. Unlike Zimbabwe’s Fast Track Land Reform under Robert Mugabe, which often involved uncompensated seizures and led to widespread violence, South Africa’s approach is grounded in its post-apartheid constitution, which balances property rights with the need for land reform.

President Trump, however, has criticized the law as undemocratic, alleging that it constitutes “confiscating land” and mistreats “certain classes of people.” During his first term (2016–2020), Trump repeatedly made discredited claims about large-scale killings of white farmers in South Africa, a narrative echoed by his ally Elon Musk, who has propagated right-wing claims of a “white genocide.” In a Truth Social post, Trump stated, “South Africa is confiscating land, and treating certain classes of people VERY BADLY,” adding, “The United States won't stand for it, we will act. Also, I will be cutting off all future funding to South Africa until a full investigation of this situation has been completed!”

In response, Trump has proposed cutting USAID to South Africa, which amounts to approximately $400 million annually, primarily directed toward health initiatives. In 2023, the U.S. obligated nearly $440 million in assistance to South Africa, with a significant portion allocated to combating HIV/AIDS through programs like the President’s Emergency Plan for AIDS Relief (PEPFAR). These funds support antiretroviral treatment, prevention programs, and health system strengthening.

While South Africa allocates a substantial budget to its health sector $16 billion (272 billion Rand) in the 2024–2025 fiscal year, with $2.35 billion dedicated to HIV/AIDS—the loss of U.S. aid could strain public health resources and disrupt critical programs.

Though the AID might seem little, fear is that the broader implications of U.S. retaliation might extend beyond aid cuts to trade and investment, just like it is doing on Mexico, China and Canada if they do not comply with his demands. If the same 10% to 25% tariffs are enacted, SA’s economy will be in Jeopardy.  The U.S. currently runs an annual trade deficit of around ZAR 3 billion with South Africa.

In 2022, U.S. exports to South Africa totaled $6.11 billion, growing at an annualized rate of 3.15% over the past five years. Conversely, South Africa exported $10.9 billion worth of goods to the U.S. in the same year, with key exports including platinum ($3.97 billion), cars ($1 billion), and gold ($497 million). South Africa’s exports to the U.S. have grown at an annualized rate of 9.3% over the past five years, reflecting the country’s reliance on the U.S. market. Approximately 600 American businesses operate in South Africa, many using the country as a regional headquarters, underscoring the depth of economic ties between the two nations. A 25% tariff would significantly increase the cost of South African goods in the U.S. market, making them less competitive compared to products from other countries. This would likely lead to a sharp decline in exports, particularly in sectors like automotive and manufacturing, which rely heavily on cost competitiveness.

A critical area of concern is the potential revocation of South Africa’s benefits under the African Growth and Opportunity Act (AGOA), a U.S. trade program that provides duty-free access to the U.S. market for eligible sub-Saharan African countries. The automotive sector, which has seen exponential growth under AGOA, would be particularly hard hit. South Africa has been one of the largest beneficiaries of AGOA, leveraging it to export a wide range of goods, particularly in the automotive, agricultural, and manufacturing sectors. AGOA accounts for approximately 20% of South Africa’s exports to the U.S., or 2% of its global shipments.

The automotive sector, in particular, has seen exponential growth under AGOA, with vehicle exports to the U.S. increasing by 1,643.6% in the program’s first year. In 2023, South Africa exported 19,590 vehicles to the U.S., contributing significantly to the R25.2 billion in total exports to the U.S. market. Major U.S. automotive manufacturers, such as Ford, have invested heavily in South Africa, with Ford alone committing R15.8 billion to its operations in the country. The loss of AGOA benefits could render some production lines unviable, leading to plant closures, job losses, and a decline in industrial output. A 25% tariff could render some production lines unviable, leading to plant closures, job losses, and a decline in industrial output. This would not only impact South African companies but also international manufacturers with operations in the country, potentially triggering a broader economic downturn.

Foreign direct investment (FDI) is another area at risk. U.S. firms contribute an average of $4 billion annually in FDI to South Africa. A reduction in FDI, particularly if mirrored by EU countries, would have a cascading effect on the economy, impacting sectors such as manufacturing, mining, and technology. The loss of FDI would not only reduce capital inflows but also hinder technology transfer and job creation, further constraining economic growth. South Africa’s GDP, estimated at $405.8 billion in 2022, and its population of 60.6 million, make it a significant player in the region. However, the country’s economic stability is heavily reliant on foreign investment and trade, making it vulnerable to external shocks.

Broader Economic Implications

The imposition of tariffs would also have a ripple effect across South Africa’s economy. The country’s GDP, estimated at $405.8 billion in 2022, is heavily reliant on foreign trade and investment. A decline in exports to the U.S. would reduce foreign exchange earnings, putting pressure on the South African rand and increasing the cost of imports. This could lead to higher inflation and reduced consumer spending, further constraining economic growth.

The loss of export revenue would also impact government finances, reducing the funds available for public services and infrastructure development. This would exacerbate existing challenges such as high unemployment and inequality, potentially leading to social unrest. The South African government would face difficult choices in terms of fiscal policy, potentially having to cut spending or increase borrowing to mitigate the economic impact of the tariffs.

Long-Term Structural Challenges

The imposition of tariffs would also exacerbate long-term structural challenges in the South African economy. The country is already grappling with high levels of inequality, unemployment, and slow economic growth. A decline in exports and investment would further constrain economic activity, potentially leading to a recession. The automotive sector, which is a major employer and contributor to GDP, would be particularly hard hit, with ripple effects across the supply chain and related industries.

South Africa’s ability to navigate these challenges will depend on its capacity to diversify its trade relationships, attract alternative sources of investment, and implement policies that promote inclusive economic growth. However, the imposition of tariffs by the U.S. would make this task significantly more difficult, as it would reduce the country’s access to one of its largest export markets and undermine its attractiveness as an investment destination.

The stakes are high, and the need for diplomatic engagement to avert these outcomes is critical.

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