South Africa at risk of entering a vicious cycle

The real threat to South Africa’s economy from the imposition of elevated tariffs is the impact of them on the country’s trading partners and not the direct effect on exports to the United States. 

In particular, a trade war between the United States and China could result in South Africa entering a vicious cycle of declining growth and rising inflation.

As South Africa’s largest trading partner, a slowdown in the Chinese economy would significantly impact exports, economic growth, the strength of the rand, and inflation. 

This is feedback from Standard Bank’s chief economist, Goolam Ballim, who outlined the impact of tariffs on South Africa in an interview with Daily Investor. 

“We have to consider that exports going to the United States from South Africa are going to experience some level of tariffs eventually, and that does present a threat to volumes,” Bllaim said. 

Standard Bank’s economics unit has calculated that for every 10 percentage point increase in the tariff rate, South Africa will lose 0.1% of GDP growth. 

This may not appear significant, but considering the bank only expects South Africa to grow at 1.1% in 2025, a 30% tariff rate could shave off a significant amount of GDP growth. 

However, this is not the main threat to the country’s economy, with indirect impacts likely to have a far greater effect on growth and inflation, Ballim said. 

“We do see the transmission to South Africa as coming from more of an indirect channel, from the decline in global growth due to tariffs and greater uncertainty.”

With South Africa being a small, highly open economy, it is heavily reliant on global growth to drive demand for its commodity exports and its broader economic performance. 

If global growth slows, it is likely that South Africa’s economy will also fail to expand as much as previously anticipated. 

There is some good news in this regard, with the United States unlikely to enter a recession in the second half of 2025, providing some level of support for global growth. 

The European Union (EU) is also likely to experience faster growth due to easing interest rates in the bloc and the improved performance of some of its key economies. 

The real threat comes from China

The real question concerns the performance of the Chinese economy as it is by far the most important trading partner for South Africa, and also an increasingly important source of foreign investment. 

A sudden weakening in the Chinese economy and its demand for commodities could spell significant trouble for South Africa and other African economies, Ballim said. 

This has the potential to push South Africa into a vicious cycle, just as it has the ability to impact the country positively, if things fall into place. 

As the world’s largest consumer of commodities and the driver of commodity prices, any weakness in China will impact South Africa. 

“Lower commodity prices from lower demand in China will result in a balance of payments shock to South Africa and other African economies,” Ballim explained. 

“A reduction in volumes and prices of commodities can result in weaker currencies due to this balance of payment shock. Weaker currencies lead to higher inflation that can trigger higher interest rates.”

“Through that, you get a sense of how low commodity prices and volumes can foster a vicious cycle of reduced exports, a weaker currency, high inflation, tighter monetary policy, weaker consumer spending, weaker investment appetite, and slower growth.”

This can also work in the inverse way, with stronger demand from China driving African currencies higher, resulting in lower inflation and faster economic growth. 

“We think that, for the most part, South Africa has been closer to a vicious cycle in recent months because of the potential trade war and elevated tariffs, resulting in Chinese growth slipping to 4% year-on-year.”

However, Ballim did note that China is showing signs of resilience amid successive economic shocks, which bodes well for commodity demand in the coming years. 

Standard Bank estimates that commodity prices over the next two years could rise by around 20%, with an emphasis on precious metals. 

Thus, it seems some level of support for commodity prices in the near term, which will boost the economic growth of South Africa and other African eocnomies.