South Africa

South Africa faces a ticking economic time bomb

South Africa’s economy faces a significant risk in the form of trade tariffs from the United States during Donald Trump’s second term, either directly through its association with BRICS or through its major trading partners, particularly China. 

Trump has threatened to place tariffs on multiple countries throughout his presidential campaign and has renewed these threats after taking office on 20 January 2025.

While focusing on China, he also mentioned the possibility of placing tariffs on all BRICS members and even on US allies such as Canada and Mexico. 

Director and chief economist at Econometrix, Dr Azar Jammine, explained that Trump has this freedom because of the USA’s high level of self-sufficiency compared to other nations. 

As it has access to most natural resources, most notably oil, and manufactured goods from within its own territory, Trump can afford to place tariffs on imports. 

The main impact of these threats, so far, has been to introduce high levels of uncertainty into global financial markets. 

This has strengthened the dollar since Trump’s election victory at the expense of emerging market currencies such as the rand. 

Jammine explained to 702 that Trump is trying to reverse the US’ large trade deficit with many of its trading partners and, in particular, with China. 

Threats from the US President have already significantly impacted many trading partners and companies, with some announcing new projects to manufacture goods within the US. 

As such, implementing trade tariffs is unlikely to have much benefit for the US as most of the low-hanging fruit or quick wins have been achieved by merely threatening them.

Jammine also said that the strength of the US dollar undermines any efforts to reduce the country’s trade deficit as a stronger currency makes its exports less competitive globally. 

Despite this, any potential tariffs on a country or even repeated threats would have a significant impact on South Africa and the rand as it is a very open, small economy. 

Not only will it increase uncertainty further, but it will also result in investors flocking to the dollar for safety and a decline in global trade. 

As an open economy heavily reliant on trade, any decline in global trade would have disastrous consequences for South Africa, Jammine said. 

A decline in trade will result in declining demand for South African exports, impacting foreign exchange earnings and economic growth. 

Thus, tariffs on trade are a kind of ticking time bomb for South Africa, and no one knows when it will go off. 

Azar Jammine
Dr Azar Jammine

The threat of tariffs also risks derailing the Reserve Bank’s ongoing cutting cycle, with a stronger dollar greatly increasing the cost of importing goods into South Africa. 

Managing director and economist at ESG Analytics, Sifiso Skenjana, explained that tariffs could create a perfect storm for inflation in South Africa. 

Skenjana said Reserve Bank Governor Lesetja Kganyago has been clear that Trump’s policies will slow down the rate-cutting cycle and global growth. 

Tariffs, generally speaking, increase the cost of importing and exporting goods, and if they are imposed widely enough, they will impact trade across the world. 

If the Reserve Bank’s cutting cycle is slowed down, South Africa’s economic growth will be negatively impacted.

Furthermore, any impact felt by the Reserve Bank is likely to be much more severe for the Federal Reserve, given how integrated the US financial system is with the global economy. 

This may also result in the Fed slowing down rate cuts and potentially even hiking interest rates in the world’s largest economy. 

Skenjana said this would give investors even more reason to take money out of emerging markets and invest in fixed-income assets in the US as they would provide an attractive risk-adjusted return. 

This could continue the trend of most global liquidity being invested in the US and emerging markets being starved of the capital needed to grow their economies. 

Coupled with this would be that many companies are unwilling to invest in the local economy due to elevated uncertainty, partly caused by the fear of tariffs being imposed on trade with the US. 

Even if tariffs are not imposed directly on South Africa, many of these processes will still play out in local financial markets. 

Tariffs imposed on China present a particularly large threat to South Africa as it is the country’s largest trading partner. 

Executive Director at Citadel Global, Bianca Botes, expects a Trump presidency to have a significantly negative impact on the rand with a potential slump in commodity prices as a result of tariffs on China. 

Trump’s protectionism may create ripple effects that will weaken demand for commodities, a major export for South Africa. As global commodity demand fluctuates, so does the rand, which is highly sensitive to shifts in export volumes and prices. 

Botes said a Trump presidency could trigger another round of trade or geopolitical tensions, which generally increases risk aversion in global markets. 

As a result, investors may pull back from emerging market currencies, including the rand, in favour of ‘safer’ assets like the dollar, leading to further rand volatility. 

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