The hefty tariffs imposed by the US President Donald Trump on imports to the world’s largest economy left a trail of turmoil on global financial markets, with the JSE All Share Index plunging 3.4% to 86 083 index points, its worst performance in more than a month.
Trump on Wednesday unveiled a 10% tariff on all imports, with significantly higher rates for countries with trade surpluses - 30% for South Africa, 34% for China, and 20% for Europe, the country’s other large trading partners.
Investec chief economist, Annabel Bishop, said financial markets have had a markedly negative reaction, and further volatility was likely on adjustments, either “up” or “down” causing uncertainty to persist.
“With SA’s 30% tariff, and expected to lose its US legislated Agoa benefits, SA’s vehicle exports are expected to be impacted, along with those of agriculture in particular, and with the uneven tariff impositions demand for SA goods will lose out,” Bishop said.
“There are some heightened risks for US recession, inflation and fewer US interest rate cuts this year. Rand weakness adds to SA inflation, but we expect the rand will pull back further still.”
The new levies heightened concerns over the US economic outlook and reignited fears of a recession. According to RMB Morgan Stanley, the tariffs could imply a contraction in the trade surplus of between 0.2% and 0.3% of gross domestic product (GDP).
There are fears that the indirect impact of tariffs on China could affect its demand for goods from South Africa and could have a knock-on growth and inflation impact, given that South Africa runs a larger trade surplus of nearly $8.5bn with China.
Bastian Teichgreeber, chief investment officer of Prescient Investment Management, said it was without a doubt that there would be an impact on price levels if all imported goods become significantly more expensive but the impact would be "once-off".
“We do think that there's quite a lot of headwinds to inflation from this. So you'll definitely have higher odds of a recession. So yes, once-off price shock, for sure, that will push inflation higher for maybe the next 12 months if you want to but then after that the once-off effect fades," he said.
“But the lingering effects of the deflationary impact of these tariffs will stay. So with that, we are not too worried about the inflation picture here. But we are quite worried about the growth story and the odds of a recession.”
South Africa’s GDP is already forecast to grow closer toward the 2% mark this year, but the proposed increase in the value-added tax (VAT), the uncertainty over the Government of National Unity (GNU), unstable electricity supply, and now the US import tariffs mean that growth will likely not meet the projections.
Sanisha Packirisamy, chief economist at Momentum Investments, said the overall impact of the tariffs were expected to be stagflationary in nature, negative for growth and will raise inflation prospects, making it difficult for the US Federal Reserve to cut interest rates in the near term.
“Medium-term growth-friendly measures such as deregulation and potential tax relief imply that the overall Trump policy package should be more negative for inflation relative to its impact on economic activity,” Packirisamy said.
“A lower growth, higher inflation environment is likely to raise the hurdle for further interest rate easing in SA. The latest bout of rand weakness is also likely owing to uncertainty around the fiscal situation in SA.”
Casey Sprake, economist at Anchor Capital, said South Africa appeared to have been more directly targeted by Trump’s tariffs than most nations.
Sprake said some recent modelling from the IMD suggested that these tariffs will reduce South Africa’s GDP growth by approximately 0.35% this year.
As such, Sprake said Anchor Capital was now expecting GDP growth of just 1.3%, and that was before factoring in the potential economic fallout from a collapse of the Government of National Unity.
“While it is still early days, April is already shaping up to be an unsettling month for investors. South Africa exports approximately $15 billion worth of goods to the US, making it our second-largest trading partner and accounting for about 9% of total exports.
“Some sectors, such as platinum, may experience limited impact, but food and vehicle exports are far more vulnerable. The 30% U.S. import tariff presents a significant obstacle to South Africa’s balance of trade and economic growth, posing serious challenges for numerous businesses and key economic sectors.
“A slowdown in GDP growth will place additional strain on the national budget, which already appears unrealistic even before completing its approval process.”
BUSINESS REPORT