South Africans will wake up tomorrow to details of US President Donald Trump’s tariffs on imports into that country as he seeks to “Make America Great Again,” which could cut as much as 0.3 percentage points from already stagnant economic growth.
Trump’s proposed tariffs, which will affect countries ranging from China to Mexico and Canada, will have a spillover effect on South Africa’s economy, potentially pushing growth down and affecting job creation.
In a White House statement earlier this year, the Trump administration said “Access to the American market is a privilege. The United States has one of the most open economies in the world and the lowest average tariff rates in the world.”
Get your news on the go, click here to join the IOL News WhatsApp channel.
Old Mutual chief economist, Johann Els, said that today marks “Liberation Day” in the US.
“There is growing speculation that Trump could announce sweeping tariffs of 20% to 25% on all US imports – not just on the 15 countries the US runs the biggest trade deficits with”.
The Center for Economic and Policy Research argues that Trump is “confused” as his bid to raise $6 trillion over the next decade in tariff revenue does not necessarily make sense. The Center states that this would require tariffs of almost 20% on all imported goods.
So far, Trump has made various announcements, some of which have seemingly contradicted themselves. Among these are import taxes on automative parts, as well as a 25% tariff on imports from Canada and Mexico and a 10% additional tariff on imports from China. Energy resources from Canada are set to have a lower 10% tariff.
Some of these import taxes, such as those on steel, aluminium and car parts, have reportedly already been implemented. Clarity on exactly what will happen will be announced later today in the US, which will likely be in the early hours of the morning for South Africans.
Els said that his survey of news reports suggests that these tariffs could take effect immediately, covering $3.3 trillion in imports, which would far exceed the less than $400 billion targeted in his first term.
“If implemented, this would be a seismic economic shock, driving my US recession probability from just over 40% to 70 to 80%. The spillover effects would force a downward revision to South Africa’s growth outlook as well,” said Els.
Markets are playing a wait-and-see game. Andre Cilliers, currency strategist at TreasuryONE, said “markets are keeping within very tight ranges with low trading volumes as everyone awaits Trump's tariff announcement tonight”.
Bianca Botes, director at Citadel Global, noted that markets are bracing for Trump’s announcement of new tariffs.
Casey Sprake, an economist at Anchor Capital, said that – while losing privileges under the African Growth and Opportunity Act would have a “moderate” effect on the economy – if the US were to impose a blanket 25% tariff on all imports from South Africa, the latest International Monetary Fund modelling suggests that this could cut economic growth by between 0.2 and 0.3 percentage points.
South Africa’s economy grew 0.6% last year and 25% tariffs would adversely affect the South African Reserve Bank’s prediction of 1.7% growth in gross domestic product this year.
Sprake noted that, beyond trade, US financial flows into South Africa play a critical role in shaping the country’s economic stability, capital markets, and investor sentiment.
“This deep financial entanglement means that any deterioration in diplomatic relations, especially if accompanied by punitive trade measures, could have significant spillover effects on South African financial markets,” she said.
As Els put it: “Brace yourselves – this would be the worst-case scenario.”
IOL