US election: impact of the winner on emerging markets and SA

As the US votes for a new president today, South Africans are wondering what a win for either candidate might mean for South Africa and other emerging markets.

Donald Trump and Kamala Harris hold opposing policies that could impact the US economy and global markets, meaning the effects will vary depending on who wins.

Each candidate has distinct views on trade, monetary policy, foreign relations and climate initiatives, with implications extending beyond US borders to emerging markets like South Africa, where trade relations and capital flows may be significantly affected.

Joe Klopper, a portfolio manager at Independent Securities, explores six core areas where the two candidates’ differing policy positions will affect emerging markets and South Africa against a backdrop of global monetary easing, a weakening US dollar and waning US growth compared to the rest of the world.

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US election: Harris vs Trump for SA

“A Trump victory could offer short-term gains for South Africa if low US interest rates drive capital flows to higher-yielding markets. However, Trump’s protectionist trade policies and the potential for a stronger dollar may pose challenges, adding to currency volatility and complicating trade relationships.

“South Africa’s reliance on raw materials and its alignment with Brics might also make it susceptible to the influences of Trump’s foreign policy stances, which could strain global trade networks.”

He says on the other hand, Harris’s multilateral approach may provide long-term benefits for South Africa.

“By fostering international cooperation and supporting sustainable growth, Harris could create a more stable environment that attracts investment and encourages development.

“South Africa’s strategic position as a key player in Africa could make it a valuable partner for Harris’s international policies, which focus on global economic integration and environmental sustainability.”

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Trade, tariffs and multilateral relations

Trump and Harris have starkly different approaches to trade. Trump has traditionally pursued a protectionist trade policy, focusing on protecting US industries, while Harris is expected to prioritise multilateral trade relations, work within international organisations and foster stability.

Trump confirmed that if he is re-elected, he would reinstate and increase tariffs on imports, reducing demand for exports from South Africa and other emerging markets. His push to reduce US reliance on foreign manufacturing could further weaken demand for South African goods, affecting industries that rely on access to US markets.

Harris would focus on strengthening ties with organisations like the World Trade Organisation, International Monetary Fund and the African Union. This would create a more stable trade environment for emerging markets, including South Africa, where exporters may gain better access to the US market without the looming threat of tariffs.

She might also expand programmes like the African Growth and Opportunity Act (AGOA), which offers African countries duty-free access to US markets. With South Africa as a significant AGOA beneficiary, extending this program would provide opportunities to increase exports and strengthen its trade balance, which could lead to a stronger Rand.

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Monetary policy, interest rates and capital flows

Monetary policy shapes capital flows to emerging markets, specifically US interest rates, Klopper says. Trump’s gesture that he would welcome presidential influence on the Federal Reserve and Harris’s approach to an independent Fed could affect South Africa’s financial stability and capital inflows.

Trump has previously pressured the Federal Reserve to lower interest rates to stimulate the US economy. This strategy could channel capital flows to higher-yielding emerging markets like South Africa.

“However, his other policies may result in a stronger US dollar, which could pressure the South African Rand. A strengthened dollar typically makes it more costly for emerging markets to service dollar-denominated debt and increases inflationary pressures. If Trump’s policies lead to dollar strength, it could drive up South Africa’s import costs and lead to a more volatile currency.”

On the other hand, he points out that Harris would not directly control Federal Reserve policy.

“Her administration is expected to support a stable and independent Fed, prioritising long-term financial stability over short-term economic stimulus.

“This could benefit emerging markets by maintaining steady interest rate policies, enabling economies like South Africa to plan for capital flows with less volatility. Harris’s approach might also avoid aggressive fiscal policies that could overly strengthen the dollar, helping to stabilise the Rand and reducing inflationary pressures on imports and dollar-denominated debt.

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Foreign policy and sanctions

Foreign policy plays a vital role in shaping emerging markets, with Trump and Harris likely to pursue vastly different international strategies, Klopper says. Trump’s assertive foreign policies may raise global trade tensions, while Harris is expected to take a more diplomatic approach.

“Trump is known for his hawkish stance on foreign relations. His policies could heighten tensions with major global players like China. Given South Africa’s Brics membership and trade relationships with China, such geopolitical pressures may create indirect challenges. If Trump intensifies sanctions on crucial South African partners, this could disrupt trade networks, especially if China or other BRICS nations face more U.S. restrictions.

“Harris’s foreign policy approach is expected to be diplomatic, avoiding outright trade wars and fostering cooperation. This would benefit South Africa by creating a more stable environment for its exports to the U… and China. An increased US focus on Africa could further enhance South Africa’s strategic position, with Harris potentially advocating for increased development aid and stronger partnerships focused on infrastructure, technology and human capital development.”

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Commodities and resource exports

South Africa’s economy is deeply rooted in its natural resources, including gold, platinum, coal, iron ore and chrome, making global commodity demand a critical factor. Klopper says both candidates’ policies will affect commodities, although Harris’s focus on green energy diverges significantly from Trump’s more traditional energy stance.

“Trump’s emphasis on US energy independence and support for fossil fuels could maintain lower global oil prices, indirectly benefiting South Africa by reducing import costs. However, Trump’s trade tensions with China might also affect demand for key South African exports like iron ore and other minerals. As South Africa depends on commodity exports, especially to large markets like China, reduced demand could hit these sectors hard.”

Harris’ climate-focused policies may accelerate the transition to renewable energy, leaving South Africa vulnerable to reduced demand for metals such as platinum, traditionally used in ‘dirty’ industries and technologies such as internal combustion engines in motor vehicles, he warns.

“Furthermore, South Africa’s reliance on coal-powered electricity generation and poor environmental protection record could result in US sanctions and restrictions. However, Harris’s green initiatives might also reduce global fossil fuel dependency, which could help stabilise oil prices, benefitting South Africa by reducing the cost of imports and improving its trade balance.”

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Investment flows and investor sentiment after US election

Klopper says investor sentiment and capital flows are critical for emerging markets, which often depend on foreign direct investment to support economic growth. The stability of US policy and market conditions can significantly influence investor sentiment toward emerging markets like South Africa.

“Trump’s policies could heighten global market volatility, making emerging markets appear riskier to investors. Increased market uncertainty often leads investors to retreat from high-risk investments, potentially curtailing capital inflows to South Africa and other emerging markets. Reduced foreign investment could affect South Africa’s growth, particularly in sectors like infrastructure and manufacturing that rely on foreign investment.”

He points out that Harris is known for her more predictable policy approach.

“Harris’ focus on stability could make emerging markets like South Africa appear less risky to global investors. Her emphasis on green initiatives and international cooperation might attract foreign investments, bolstering South Africa’s manufacturing, mining and renewable energy sectors.

“Harris’s policies could stimulate sustainable growth in South Africa’s critical industries by reducing volatility and improving global confidence in emerging markets.”