The Limits of China’s Zero-Tariff Policy: Structural Reforms Needed to Realise South Africa–China Trade Potential

This paper evaluates the impact of China’s zero-tariff policy on South Africa’s exports, focusing on how underlying economic conditions shape the extent to which improved market access translates into trade outcomes. Using a partial equilibrium (SMART) simulation based on 2023 data, the analysis estimates the potential export response and examines the structural factors that determine its scale.

The results indicate that export gains under current conditions are modest. At the central estimate, South Africa’s exports to China increase by approximately $5.3 million annually (0.19% of the relevant trade base), with an upper bound of around $36 million (1.3%) under optimistic assumptions. The majority of this increase (97.1%) reflects trade diversion rather than net new demand, indicating that tariff removal primarily reallocates China’s sourcing across suppliers. This limited response is explained by the composition of South Africa’s export basket, where the dominant commodities already face zero tariffs, and by constraints in sectors where tariff reductions are more meaningful.

The findings suggest that the scale of the export response is determined less by market access than by domestic production conditions. A case study of manganese beneficiation illustrates this dynamic. Despite improved access for processed exports, high electricity costs and narrow processing margins render downstream production unviable. Similar constraints, including limited industrial capacity, high input costs, and barriers to investment, restrict the ability of firms to expand into higher-value exports.

The paper argues that the structure of trade reflects what can be produced competitively under existing conditions, rather than what is technically feasible. While tariff liberalisation provides incremental opportunities, its impact depends on whether firms can respond. Strengthening that response requires targeted interventions to lower input costs, especially energy, enhance industrial capacity, and leverage regional networks through the AfCFTA.

The central implication is that improving trade outcomes depends on shifting the structure of production, not only the terms of market access.