Rand in trouble

The threat of United States President Donald Trump’s tariffs could weaken the rand significantly, but the local currency is expected to remain volatile regardless of the tariff announcement.

Investec chief economist Annabel Bishop pointed out that the dollar index lifted last week, causing some mild rand weakness, to R18.43/USD.

This came ahead of the United States’ upcoming ‘Liberation Day’, where the Trump administration will implement tariff increases for countries with trade deficits with the US.

“In particular, markets are set for a slew of protectionist orders emanating from the United States on 2 April, with around fifteen countries having very substantial international US trade deficits noted by US Treasury Secretary, Scott Bessent, as the ‘dirty 15’,” Bishop explained. 

South Africa is not included in these top fifteen, encompassing Canada, Mexico, China, Taiwan, Malaysia, Indonesia, Vietnam, South Korea, Japan, Thailand, India, Ireland, Germany, Italy, and Switzerland. 

Together, these fifteen countries account for more than 75% of all United States imports of goods and the entire deficit.

However, the United States Trade Representative (USTR) recently also invited comments on a country-by-country basis to assist the USTR in reviewing and identifying any unfair trade practices by countries outside the fifteen.

These unfair trade practices may encompass policies, measures, or barriers that undermine or harm United States production or exports or a failure by a country to take action to address a non-market policy or practice in a way which harms the US.

This forms part of Trump’s ‘America First’ trade policy, with the United States President recently insisting that reciprocal action is needed because the world’s biggest economy has been “ripped off by every country in the world”.

Therefore, he promised “Liberation Day” for the United States.

The US has already raised tariffs by 20% on China and by 25% on non-USMCA-compliant trade and aluminium and steel.

The country has also warned of a 25% tariff hike on the imported vehicle sector, the EU and on drugs and electronic chips imports.

Big tariff threats

“Comments from Trump had included threats to extend tariffs without exceptions, but United States officials have signalled they may not be so broad and severe, bringing some easing to the US dollar, which has seen marked volatility,” Bishop said.

Bloomberg recently reported that this week’s increases may be lower than expected, as Trump will attempt to deliver a ‘big bang’ without hammering markets. 

A 14-percentage-point hike in average tariffs would result in a 2% hit to US GDP and a 1.2% boost to core Personal Consumption Expenditures (PCE).

However, Bloomberg also reported that if all the additional trade measures feared are factored in, along with current measures, the shock to the US average tariff rate would be “huge”.

It would lift from just under 2.5% to 35%, with a 4% hit to US GDP and a 2.5% impact on core PCE.

“This means that the benefits of globalisation this century would be largely wiped out, while US interest rate cuts this year would become unlikely, in turn scuppering recent rand strength from January against the US dollar under the reciprocal tariffs,” Bishop said.

Even the lower-than-expected tariff threat is still above the market’s current hopes, “and there is opportunity for rand volatility in either direction, on both a rand and US dollar reaction to the announcements made from the US this week”, Bishop warned.

“The uncertainty is high, and the range of possible outcomes is wide, with the administration considering various factors, including tariff rates, non-tariff measures, and value-added taxes, which could affect the final outcome,” Bloomberg reported.

Bishop explained that the global financial markets prefer certainty. 

“The trade war has been drawn out, and most likely will continue this year, keeping uncertainty for markets notable, with tariff increases being drip fed so far, but now at risk of escalating in speed this week,” she said.

The rand pulled back to R18.12/USD on Friday, 28 March 2025, also gaining as South Africa’s two largest political parties are reported to have become closer to reaching an agreement over the 2025 Budget.

“The rand remains volatile, chiefly determined by international events, with a market reaction expected either way on the US tariff announcements, although, with a negative outcome priced in, there is room for relief on less severity than feared,” Bishop said.