South Africa remained on knife-edge yesterday as the markets tanked in the aftermath of the US election results, which saw Donald Trump securing his return to the White House as the 47th President of the United States.
Trump’s victory sent shockwaves through local markets, prompting fears of potential economic ramifications stemming from a shift toward protectionism that could adversely affect trade relations between South Africa and its largest trading partner.
North West University Business School economist Professor Raymond Parsons described the election results as a “pivotal and definitive outcome” with profound implications not just for the US economy but for the global economic landscape.
Parsons cautioned that the political rhetoric surrounding Trump's administration could translate into real policy implications, particularly through a proposed general tariff increase of 20% on all imports and potential 60% tariffs on goods from China.
For South Africa, which relies heavily on the multilateral trading system, the implications of such a policy shift could result in significant risks for the country's exports.
This is especially pertinent when considering the potential impact on the African Growth and Opportunity Act (Agoa) — a critical provision that currently provides 1 835 types of goods duty-free access to the US market.
“Policy uncertainty may eventually prevail over political continuity in the current global economic outlook. Political rhetoric will eventually be converted into policy outcomes by the Trump administration next year, such as heightened protectionism,” Parsons said.
“Among the more tangible immediate policy commitments by a Trump presidency are a general US tariffs imposition of 20% on all imports and as much as 60% on Chinese imports.
“As a small open economy, South Africa has a vested interest in the multilateral trading system. Of importance to the SA economy of a Trump victory and the prospect of higher protectionism are therefore the greater risks to SA’s overall exports in general and also whether it will eventually affect the Agoa duty-free benefits in particular.”
Under the previous Trump presidency between 2017 and 2021, higher tariffs in the US and retaliation saw trade wars as countries the US trades with instituted higher tariffs on goods from the US added to inflationary pressures, with deglobalisation and worries over global growth.
The trade relations established under Agoa are under scrutiny, with an anticipated review of South Africa's eligibility for the programme due to alleged shortcomings in alignment with US national security and foreign policy interests.
Trade union Solidarity voiced concerns this week, urging Trump to uphold the strong trade relations built with South Africa. The organisation highlighted that the potential loss of Agoa would have dire consequences for vulnerable communities reliant on trade with the US.
Investec chief economist Annabel Bishop also said previous trade wars under the last Trump presidency negatively impacted investor sentiment, which resulted in higher risk aversion.
“Geopolitical tensions are expected to escalate in the Middle East on increased support for Israel under the incoming Trump presidency, while the Republican win in the Senate is also expected to place pressure on South Africa’s Agoa renewal,” Bishop said.
“Agoa is a piece of US legislation, and not a bilateral treaty, and as such does not have room for negotiation. Instead, strict criteria are applied for membership, with the Republican’s Donald Trump having said to wish to relook support to Africa.”
While US growth is expected to eventually accelerate under Trumps’s Presidency, concerns are for a year or two the economy could falter as it takes a lengthy period for industry to be built up as onshoring gets under way.
Jee-A van der Linde, a senior economist at Oxford Economics Africa, said the main effects of a Donald Trump presidency were anticipated to manifest in South Africa’s currency.
“The economic impact of a Trump presidency is not expected to send the domestic economy into a tailspin. Idiosyncratic factors are likely to be key drivers of South Africa’s demand and cost dynamics as the Government of National Unity (GNU) charts a course to get the economy back on track,” Van der Linde said.
“However, increased trade protectionism would not bode well for South Africa, which benefits greatly from preferential trade with the US.”
BUSINESS REPORT