The Economic Cost of US Trade Exclusion for South Africa and Rwanda

The United States’ decision to move towards terminating South Africa and Rwanda from the African Growth and Opportunity Act (AGOA) has placed two African economies at risk of losing an important trade advantage in one of the world’s largest consumer markets.

Announced on November 2, 2026, the proposed termination is scheduled to take effect on January 1, 2027. Washington says the two governments have failed to meet aspects of AGOA’s eligibility requirements, citing concerns ranging from trade and investment barriers to national security and foreign policy.

For South Africa, the stakes are particularly significant because of its extensive manufacturing and agricultural export base. Rwanda faces a different challenge: protecting a smaller export sector while trying to attract investment, expand manufacturing and increase its participation in international trade.

The decision does not mean that either country will lose the ability to trade with the United States. Instead, qualifying products that previously benefited from AGOA preferences could face higher import tariffs, making them less competitive against products from countries retaining preferential access.

The central economic question is how much additional cost exporters will face, whether American buyers will continue purchasing their products, and what the consequences could be for employment and investment.

South Africa faces pressure on export competitiveness

South Africa has been one of the most significant beneficiaries of AGOA since the program was established in 2000.

Its access to the American market supports a range of industries, including automotive manufacturing, agricultural production, food processing and other manufactured goods.

In 2025, South Africa exported approximately $1.7 billion in goods to the United States under AGOA, according to figures reported by South African trade officials. These exports represented an important commercial relationship, although AGOA-dependent trade accounted for only a small share of the country's total global exports.

This distinction matters. The proposed termination does not threaten the entirety of South Africa’s American trade. Much of that trade already takes place under ordinary tariff arrangements.

However, for products that rely on AGOA preferences, the loss of duty-free access could change the economics of exporting.

Consider an automotive component manufactured in South Africa and sold to an American buyer. If the product currently qualifies for preferential treatment, removing that advantage could increase the landed cost of the component, depending on the applicable tariff and any other trade measures.

The American buyer could respond by accepting a lower profit margin, negotiating a lower purchase price, switching suppliers or passing some of the additional cost to customers.

Each response has different consequences for South African producers.

Exporters that operate on narrow margins could find it difficult to absorb additional costs. Others might remain competitive because of product quality, established supply relationships, production efficiency or the absence of readily available alternatives.

Agricultural exporters could also face pressure. Producers of qualifying citrus, wine and other agricultural goods may need to reassess pricing, distribution arrangements and the profitability of serving the American market.

The overall impact will depend on which products lose preferential treatment, their applicable tariff rates and the ability of exporters to adjust.

Jobs could come under pressure

The potential employment consequences are among the most important aspects of the proposed termination.

Export industries support more than the workers directly employed in factories and farms. They also generate demand for transport operators, packaging suppliers, logistics companies, maintenance contractors, warehouses and other businesses involved in getting products to international markets.

If exporters lose orders because their products become more expensive, the impact can spread through these supply chains.

For South Africa, the automotive industry deserves particular attention because manufacturing depends on established relationships between vehicle producers, component suppliers and international buyers.

A decline in export competitiveness could place pressure on production volumes, overtime, recruitment and future investment decisions. Agricultural producers could similarly face reduced demand if buyers switch to alternative suppliers.

However, the loss of AGOA preferences does not automatically translate into factory closures or a specific number of jobs lost.

The outcome will depend on the scale of additional tariffs, demand conditions, companies’ ability to absorb costs and the availability of alternative markets.

For policymakers, the immediate priority should be to identify the industries and businesses most exposed to the change, quantify their dependence on AGOA and develop targeted support for viable exporters.

Broad subsidies would be expensive and could protect inefficient operations indefinitely. More effective measures would focus on export-market development, productivity improvements, logistics efficiency and assistance in meeting the requirements of alternative markets.

Rwanda faces a different export challenge

Rwanda's position differs from South Africa's in both scale and industrial structure.

The country has pursued an export-led development strategy aimed at expanding manufacturing, strengthening agricultural value chains and attracting investment into productive sectors.

Its exports include coffee, tea, minerals and other agricultural products. The country has also sought to develop its apparel industry as part of a broader effort to create jobs and increase the value of domestic production.

Rwanda has previously experienced a restriction under AGOA. In 2018, the United States suspended preferential treatment for Rwandan apparel following a dispute over tariffs on imported second-hand clothing and footwear.

That earlier measure was limited to apparel. Rwanda retained AGOA benefits for other eligible products.

The proposed termination would be broader, potentially affecting qualifying exports across multiple sectors.

Nevertheless, the economic exposure should be assessed carefully. Rwanda's total exports to the United States and the value of products exported under AGOA are not the same. The full effect will depend on the products concerned, the preferences currently used and the alternative tariff treatment available.

For a smaller exporter, the loss of preferential access can have consequences beyond the immediate value of trade.

A manufacturer considering whether to establish or expand a production facility may place considerable weight on predictable access to a major market. If that access becomes uncertain, investors may delay projects, reduce planned capacity or direct capital towards countries offering more favorable conditions.

This risk is especially relevant when a country is trying to build an export industry from a relatively small base.

Rwanda therefore needs to consider not only the immediate effect on existing exporters but also the potential loss of future investment opportunities.

The investment question: Will companies reconsider Africa?

Trade preferences influence where companies produce goods, how they organize supply chains and which markets they target.

They are not the only considerations. Investors also assess labour productivity, infrastructure, electricity costs, political and regulatory stability, access to finance, transport networks and the availability of skilled workers.

Nevertheless, preferential market access can make a meaningful difference when a company is choosing between competing production locations.

The proposed AGOA termination introduces an additional source of uncertainty for businesses in South Africa and Rwanda that depend on the American market.

For existing investors, the question is whether their operations can remain profitable under the new tariff conditions. For prospective investors, it is whether the expected return justifies the risks associated with changing trade arrangements.

South Africa has a relatively diversified industrial base and established international supply chains. That gives many of its businesses options that may not be available to smaller producers.

Rwanda, meanwhile, must continue building the scale, infrastructure and commercial relationships needed to attract export-oriented manufacturing investment.

Both countries can reduce their exposure by diversifying export destinations and improving domestic competitiveness. However, neither strategy can eliminate the immediate effects of losing a tariff advantage if alternative buyers are unavailable or more expensive to reach.

The broader lesson is that market access can influence investment, but it cannot replace the fundamentals of a competitive economy.

Can alternative markets absorb the exports?

One possible response is to accelerate diversification towards other markets.

For South Africa, the European Union, China, other Asian economies, the Middle East and African trading partners provide potential destinations for products that become less competitive in the United States.

The European market is particularly relevant to South African agricultural and manufactured exports, while regional markets offer opportunities to expand trade within southern Africa and across the continent.

However, alternative markets are not interchangeable.

A citrus exporter cannot necessarily redirect an entire shipment to another destination without considering seasonal demand, phytosanitary requirements, shipping costs, established distribution networks and the prices available.

Automotive producers face an even more complex adjustment because vehicles and components are manufactured within integrated supply chains. Replacing an American customer may require new commercial agreements, product adjustments and substantial time.

Rwanda also has opportunities to expand exports to regional African markets, Europe, the Middle East and Asia. Stronger regional trade could help local producers reach more customers and reduce dependence on a single destination.

The African Continental Free Trade Area offers a framework for expanding intra-African commerce. Yet the practical benefits depend on progress in reducing non-tariff barriers, improving transport infrastructure, simplifying customs procedures and making cross-border payments more efficient.

For both countries, diversification should therefore be treated as a long-term competitiveness strategy rather than an immediate substitute for American demand.

Africa's trade policy faces a wider test

The proposed termination raises questions about the reliability of preferential trade arrangements as a foundation for African industrial development.

AGOA was designed to expand trade between the United States and eligible sub-Saharan African economies. Its eligibility requirements also connect market access to governance, economic policy, workers' rights and other considerations.

This makes the program both a commercial opportunity and an instrument of American policy.

From Washington's perspective, eligibility conditions are part of the mechanism intended to encourage compliance with the program's objectives. From the perspective of affected exporters, however, changes in eligibility can introduce uncertainty into commercial decisions that may involve long investment horizons.

The economic consequences can extend beyond the two countries directly affected.

Other African governments and investors may reassess the risks of relying on preferential access to external markets. Some could increase efforts to diversify trade, while others may prioritize domestic reforms and closer engagement with the United States to protect their existing arrangements.

Neither response is necessarily sufficient on its own.

Africa needs international markets, investment and access to technology. It also needs stronger domestic and regional production systems capable of generating value even when external trade preferences change.

The continent's long-term economic resilience will depend partly on whether African countries can turn trade access into productive capacity, competitive industries and diversified sources of demand.

What should South Africa and Rwanda do next?

The immediate priority is to establish the precise commercial exposure.

Governments should identify the products that currently enter the United States under AGOA, calculate the tariff changes that would apply following termination and estimate how those changes could affect prices, orders, production and employment.

This analysis should distinguish between firms that can remain competitive without preferences and those for which the loss of duty-free treatment could fundamentally change their business models.

Both governments should also continue diplomatic engagement with Washington. The proposed termination is scheduled for January 2027, leaving a limited period in which negotiations could influence the outcome.

At the same time, businesses should not assume that negotiations will necessarily restore their previous market access.

Exporters should review their customer concentration, assess alternative destinations, strengthen distribution partnerships and identify opportunities to improve productivity. Governments can support these efforts through trade promotion, export finance, infrastructure investment and the reduction of domestic barriers that raise production costs.

South Africa should focus on preserving commercially valuable industrial and agricultural supply chains while expanding access to other markets.

Rwanda should concentrate on protecting existing exporters, sustaining investor confidence and developing the production capacity required to compete across a broader range of destinations.

For both countries, the objective should be to reduce vulnerability without abandoning commercially valuable relationships with the United States.

The cost of dependence

The proposed removal of South Africa and Rwanda from AGOA illustrates how changes in trade policy can affect far more than the value of goods crossing a border.

Higher tariffs on affected products could weaken export competitiveness, reduce orders and place pressure on employment. They could also influence where companies invest, how manufacturers organize their supply chains and whether new export-oriented projects proceed.

Yet the scale of the impact is not predetermined. Much will depend on the products affected, the applicable tariffs, companies' ability to adjust and the outcome of diplomatic negotiations.

For South Africa, the challenge is to protect established export industries while reducing dependence on preferential treatment. For Rwanda, it is to sustain an export-development strategy in the face of uncertainty over access to a major international market.

For Africa more broadly, the episode reinforces a central economic lesson: preferential access can accelerate trade, but lasting competitiveness must rest on productive capacity, efficient infrastructure, diversified markets and predictable commercial conditions.

The objective should not be to choose between the American market and alternative partners. It should be to build African economies that can compete in both.