What impact will Trump's tariff threats and policies have on SA's economy?

Sanisha Packirisamy

Investor confidence is likely to remain rattled in the context of ongoing market volatility in response to US President Donald Trump’s policy announcements and tariff threats.

The US imposed a 25% tariff on imports from Canada and Mexico, alongside a 10% tariff on Chinese goods. Canadian energy products faced a reduced tariff of 10%. Although the tariffs on Canada and Mexico are on hold, these steps from Trump’s administration marks the initial step in what could possibly escalate into a broader global trade conflict, says Sanisha Packirisamy, chief economist at Momentum Investments. 

Within the next few months, imports from the European Union are expected to be targeted, with the possibility for a universal tariff thereafter. Given that exports to the US constitute roughly a fifth of Canada’s and Mexico’s GDP, these tariffs could push both economies into recession later this year. Furthermore, the resulting inflation jump in the US is projected to be faster and more significant than anticipated, reducing the Federal Reserve's window for cutting interest rates further. 

Trump's statements regarding land expropriation in South Africa can also negatively affect U.S.-South Africa relations and future investment opportunities in the region. 

However, there are some positives emerging in the local economy, which are encouraging for investment, says Packirisamy. These include a brighter outlook for economic growth in 2024, in part due to a reduction in loadshedding relative to prior years; ongoing reforms in energy, logistics and water; a low inflation environment (low exchange rate pass-through); and the possibility of one more interest rate cut. 

The possible removal of SA from the Financial Action Task Force greylist in October 2025, as well as a possible upgrade in SA’s sovereign rating by the end of the year following an outlook shift to positive by Standard and Poor’s in November 2024, is also positive for the country’s economic outlook. 

Business confidence has also improved in SA in the past quarters and manufacturers are rating the political climate as less of a constraint than in the past decade, according to Packirisamy. 

However, this needs to translate into higher growth in fixed investment. Growth in renewables has buoyed growth in fixed investment, but this needs to broaden into other economic areas. Ongoing reform, allowing for increased economic participation of the private sector, should enable this going forward. 

Packirisamy says Trump’s America-first/protectionist/nationalistic approach is a threat to multilateralism. Small, open emerging economies such as SA have to ensure good relations with both economic giants, namely the US and China, to protect trade and the contribution it makes to SA’s economic growth. SA’s role as President of the G20 this year will place SA on the global political map and create an opportunity to foster healthier international relations with key strategic and economic partners, globally. 

We see two key (direct) risks to SA with Trump’s policies and threats to cut off aid, says Packirisamy. The first is via SA’s favourable tariff arrangements under AGOA. While revoking SA’s trade benefits under this arrangement would not entirely devastate SA’s export industry (our exports to the US make up roughly 7% of the total – other markets include China (c.12%) and Germany (7%), amongst others), it could be damaging to specific industries such as the agricultural sector (particularly in the Cape) or vehicle manufacturing. Overall, the trade that goes through AGOA accounts for less than 2% of our total trade – i.e. not all of our trade with the US falls under the AGOA arrangement. 

A second key risk is the socio-economic effect of the loss of funding for SA’s HIV/AIDS programme through PEPFAR. In the last US fiscal year, the US funded 18% of this programme (c.US$450 million), with the SA government funding the rest (Source: SBG Securities). 

According to Packirisamy, the Trump administration's decision to suspend US aid presents significant challenges for numerous economies embroiled in conflicts, such as Syria and Ukraine, along with various regions in Sub-Saharan Africa. However, this move is not expected to have a substantial impact on the overall economic landscape of most emerging markets. The more critical consequences may emerge over the long term and in terms of geopolitical dynamics. Should this action signal a trend toward reduced funding for multilateral organisations by the US, it could create considerable difficulties for many emerging markets. Additionally, it might provide an opportunity for China to increase its financial involvement, thereby enhancing its influence on the global stage.