During 2024, South Africa's largest primary steel producer, ArcelorMittal SA, used their industry power in an attempt to pressure the SA government to impose a 9% “protectionist” import duty on all steel imports into RSA. Based on this initiative, ITAC SA undertook an investigation into anti-dumping practices originating from China, Japan and Taiwan.
The ITAC investigation found that dumping is/was taking place; however, it found no threat of material injury to the Applicant. They recommended that no measures be imposed.
But what are the negatives of imposing a “protectionist” import duty, and who are the winners and losers?
Well, the duty is imposed by SA Customs and Excise, who collect — let's say — 10% based on the landed cost of the material. These tariffs are essentially a tax income for the country's fiscus. The funds are not used to improve the steel industry as a whole or assist downstream steel companies. The tariffs are also not paid across to the likes of AMSA or any other producers. The government is the only direct beneficiary of import duties.
So, essentially, protectionist tariffs can be viewed as an indirect tax by the government to protect local production. In this particular case, the government is the direct beneficiary from the tariffs and the likes of AMSA, as the primary producer, benefits indirectly.
How does the primary steel producer benefit?
The Applicant — in this case, ArcelorMittal — is then able to raise its domestic steel prices by a similar margin to the duty, which results in increased sales revenue and essentially greater profitability.
Who feels the impact of the protectionist tariff?
The brunt of the impact of the protectionist tariff is initially borne by the downstream stockist/processor who is forced to pay more for the material. Initially, the stockist/processor may endeavour to absorb the cost; however with time, this cost has to be carried over to the customer or end users.
Simple maths shows that the tariffs increase the cost of the landed steel, meaning that the downstream stockist/processor is now unable to afford the same volume of product. They then either increase prices (if the market is able to accept an increase) or have no option but to reduce costs — such as labour costs.
Where to from here, and where will this all end?
Realistically, whatever decisions are made with regards to protectionist tariffs, they need to balance the interests of both the primary producers as well as the downstream industry sectors.
One suggestion was to provide tariff relaxations on steel products not manufactured locally by the likes of AMSA, or where proof can be found of shortages in supply. An alternative option is for substantial volume rebates provided by the primary steel supplier to incentivise large purchasers to replace imports.
This then begs the question of whether AMSA are able to meet the full demands from steel stockists and downstream processors. If the primary steel supplier is unable to at least meet the required demand and deliver their products on time, then the above initiative becomes nil.
The implementation of protectionist tariffs is intended to strengthen or increase local steel production by the primary steel producer. However, history has shown that in many cases these tariffs have had the opposite effect. The tariffs served as a buffer for AMSA to raise their pricing to marginally over the imported steel prices — rather than reduce domestic market pricing.
South Africa's downstream value-add steel industry directly employs nearly 200,000 workers compared to 9,250 employees at AMSA. Lack of competitiveness on the part of the domestic primary steel producer has resulted in South Africa importing more than 31% of its primary steel demand since 2021.
Steel manufacturing has an enormous economic multiplier effect of 5–6 times, but our industry has not enjoyed these benefits as the country's steel usage has dropped by 25%.
Therefore, the deduction is that “protectionist” import tariffs imposed by the South African government primarily serve to fill the coffers of SA Revenue Services, contribute towards massive steel industry inflation, and are essentially destructive for the downstream steel manufacturing sector.
