‘We’re going to have to live with tariffs’: PMI

A seemingly cemented plan for country-specific tariffs could lead to a more stable and predictable industry in the year ahead, according to the Institute for Supply Management.

Tariffs remain an ongoing concern as contraction in the manufacturing industry accelerated in July with declines in supplier deliveries and employment indexes, according to the Institute for Supply Management’s July Purchasing Managers’ Index.

ISM’s index registered 48% in July, down one percentage point compared with June. A PMI index below 50% indicates an industry in contraction.

Production rose 1.1 percentage points to 51.4% from June’s figures, though the increase suggests the industry is moving toward raising more prices due to ongoing tariff concerns.

“Tariffs have companies questioning their sourcing strategies, questioning the opportunities for reshoring or nearshoring in some cases,” - ISM CEO Thomas Derry said on Friday’s call.

Companies are also considering passing on higher costs to their own end customers due to the duties, Derry added.

“We haven’t seen a lot of that to date, but it’s now something that’s being actively mentioned,” Derry said.

Suppliers overall made faster deliveries in July than in June. In July, the supplier deliveries index read 49.3% compared with 54.2% in June, implying better supply chain performance amid continued sluggish demand. A reading above 50% indicates slower deliveries, which typically occurs as the economy improves and customer demand increases.

The employment index registered at 43.4%, down 1.6 percentage points from June’s 45% as companies remained cautious in hiring despite an increase in production.

The manufacturing sector’s gross domestic product contracted in July to a rate of 79%, from 46% in June. Derry said that it is the highest level the industry has seen since December 2024, which was “quite concerning.”

However, new and backlog orders increased by 47.1% and 46.8%, respectively, “positive indications for the future,” Derry said, as customers stocked up to get ahead of the tariffs. Now that inventories have been worked off, there’s indications that people will go back to their supply base to rebuild those inventories.

“That would be considered a potential positive indicator for the future in terms of manufacturing here in the United States,” Derry said.

Additionally, U.S. manufacturers will interpret the number of trade deals made by the Trump administration as leading to more stable and predictable conditions in the future.

“Which is only a good thing for manufacturing. We’re going to have to live with tariffs now, but to a large degree, we understand where they’re going to be.” - Thomas Derry

In the South African context, South Africa has a diverse range of trade agreements, both bilateral and multilateral, with countries and regions around the world. These agreements aim to facilitate trade by reducing or eliminating tariffs and other trade barriers.

For further context and information, here's a summary of some of South Africa's key trade agreements:

Regional Agreements:

• Southern African Customs Union (SACU):

A customs union with Botswana, Eswatini, Lesotho, and Namibia, providing for duty-free trade among its members and a common external tariff.

• Southern African Development Community (SADC):

A free trade agreement (FTA) with 13 of the 16 SADC member states, aiming to reduce trade barriers and promote regional integration.

• African Continental Free Trade Area (AfCFTA):

A continental FTA that aims to create a single market for goods and services among all 54 African Union member states.

Other Agreements:

• European Union-South Africa Trade and Development Cooperation Agreement (TDCA): An agreement with the EU that provides for preferential trade terms.

• EFTA-SACU Free Trade Agreement (FTA): An FTA between the SACU countries and the European Free Trade Association (EFTA).

• SACU-UK Economic Partnership Agreement (EPA): An agreement with the UK, including SACU members and Mozambique.

• SADC-EU Economic Partnership Agreement (EPA): An FTA between the EU and SACU members.

• Zimbabwe/South Africa bilateral trade agreement: A long-standing bilateral agreement with Zimbabwe.

• Preferential Trade Agreements (PTAs): South Africa also participates in various other preferential trade agreements.

Other Considerations:

• African Growth and Opportunity Act (AGOA):

A non-reciprocal trade preference program that provides duty-free access to the US market for eligible sub-Saharan African countries, including South Africa.

• Generalised System of Preferences (GSP):

South Africa benefits from GSP schemes offered by various developed countries, providing preferential market access.

Source: Supply Chain Dive

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