Trump’s tariff threats will affect SA’s economy — experts

US President Donald Trump’s tariffs and trade war will affect South Africa’s economy, with a significant possibility that the country’s favourable tariff arrangements under the African Growth and Opportunity Act (Agoa) may be revoked.

The US imposed a 25% tariff on imports from Canada and Mexico, alongside a 10% tariff on Chinese goods, while Canadian energy products face a reduced tariff of 10%.

Sanisha Packirisamy, chief economist at Momentum Investments, says that although the tariffs on Canada and Mexico are on hold, Trump’s administration has made the initial step in what could possibly escalate into a broader global trade conflict.

She expects that imports from the European Union will also be targeted in the next few months, with the possibility for a universal tariff thereafter. “Given that exports to the US constitute roughly a fifth of Canada’s and Mexico’s gross domestic product (GDP), these tariffs could push both economies into recession later this year.

“In addition, 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.”

Packirisamy says Trump’s statements regarding land expropriation in South Africa can also negatively affect South Africa’s relations and future investment opportunities in the region.

ALSO READ: Is Trump weaponising dollar against South Africa?

Some positives in SA’s economy despite Trump’s tariff threat

However, she says, some positives are emerging in the local economy that encourage investment. These include a brighter outlook for economic growth in 2024, in part due to a reduction in load shedding compared to previous years, ongoing reforms in energy, logistics, and water, a low inflation environment, and the possibility of one more interest rate cut.

“The possible removal of South Africa from the Financial Action Task Force (FATF) greylist in October 2025, as well as a possible upgrade in the country’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.”

Packirisamy adds that business confidence has also improved recently, while manufacturers rate the political climate as less of a constraint than in the past decade. However, she points out, this must translate into higher growth in fixed investment.

She warns that Trump’s America-first/protectionist/nationalistic approach threatens multilateralism. “Small, open emerging economies such as South Africa must ensure good relations with both economic giants, the US and China, to protect trade and the contribution it makes to our economic growth.

ALSO READ: SA’s economic outlook much better than a year ago despite ‘year of Trump risk’

Two key risks for SA due to Trump’s tariff threats

“We see two direct key risks to South Africa with Trump’s policies and threats to cut off aid. The first is South Africa’s favourable tariff arrangements under the African Growth and Opportunity Act.

“While revoking our trade benefits under this arrangement would not entirely devastate our export industry (our exports to the US make up roughly 7% of the total, with other markets including China (12%) and Germany (7%), 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. All of our trade with the US do not fall under the Agoa arrangement.

“A second key risk is the socio-economic effect of the loss of funding for our HIV/AIDS programme through PEPFAR [US President’s Emergency Plan for AIDS Relief]. In the last US fiscal year, the US funded 18% of this programme (US$450 million), with the South African government funding the rest.”

Packirisamy says 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. Still, 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 US funding for multilateral organisations, 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.”

ALSO READ: South African education programmes hit hard as USAID shuts down

Effect of Trump’s tariff threats on markets

George Brown, senior US economist and David Rees, head of global economics at Schroders point out that global shares fell on Monday while the dollar rose after news that the US planned to apply tariffs to goods from Mexico, Canada and China.

Later the same day, news emerged that the tariffs on Mexico and Canada would be paused for one month, leading to some reversal of the market reaction. China hit back with 10-15% tariffs on a range of US goods and an antitrust probe into Google.

Brown and Rees say the market reaction shows the difficulty for investors in assessing policies such as tariffs. “Financial markets are not waiting to discover all the details before pricing possible impacts, and this is leading to increased volatility across asset classes.”

Are tariffs just a negotiating tactic? The White House said the tariffs are aimed at putting pressure on the three countries to combat illegal immigration and the flow of drugs into the US. So far, this appears to have been effective with Mexico and Canada agreeing to tighten up border security in exchange for a delay to tariffs coming into force, Rees and Brown say.

ALSO READ: New US president Donald Trump: trump card or trade war?

Trump’s tariff bullying started with Colombia

“We saw a similar scenario play out in January when Colombia refused entry to US military flights carrying deported migrants. The US threatened Colombia with trade tariffs, and Colombia subsequently permitted entry for the aircraft and avoided the imposition of tariffs.

“However, the tariffs on Mexico and Canada have been paused, not scrapped. Trump has been using his platform, including social media, to explain the tariffs. He appears willing to accept the potential economic pain that they may cause in terms of stock market falls and higher prices for US consumers. From that perspective, investors cannot assume that tariff threats are purely a negotiating tactic.”

They point out that China was the main focus of tariffs during Trump’s first term. “China avoided a lot of the tariffs by re-routing goods through third-party countries, including Mexico. Obviously, re-routing goods would be much harder for Mexico and Canada, given that the goods travel over land.

“What this means is that the impact of these tariffs, if levied, is likely to be greater this time around than in Trump’s first term.”