International markets are in turmoil as US President Donald Trump’s tariffs
Image: White House
International markets are in turmoil as US President Donald Trump’s tariffs – which have been revised upwards for many countries – came into effect at midnight with a negative spillover effect anticipated for South Africa as the rand flirts with historic lows.
Old Mutual chief economist, Johann Els, has also downgraded his South African growth forecast marginally, down from 2.2% to 1.7% in response to expected softness in US-linked exports but does not foresee a local recession. The South African Reserve Bank’s most recent estimate was 1.9% for 2025.
“China and the Euro Area, South Africa’s primary trading partners, are expected to adopt accommodative policy stances, which should help offset lost momentum,” said Els.
Yet, as Donald MacKay, founder and CE of XA Global Trade Advisors, told IOL from a trade perspective: “It’s a f*** up, to use a technical economics term.”
The local currency has already been pushed close to a historic low as investors seek a safe haven away from the high risk, high return, environment of volatile emerging market currencies. The rand is at its lowest level in a month, having dropped 8.2% against the greenback to trade at R19.64 around midday on Wednesday and slumping as low as R19.82 on the day.
Over five years, it has declined 9.38%, with recent drops being the result of uncertainty around local politics given speculation that the DA may leave the Government of National Unity (GNU) as well as the 30% imposition of tariffs on South African goods being exported to the US.
The lowest point the local currency has ever reached against the dollar was R19.91 in June 2023. The rand had rallied last year on the back of the formation of the new administration, which was seen as business and investor-friendly.
In the current environment, Els sees the central bank as potentially having scope to start cutting rates from the middle of the year. He said that interest rate cuts and lower inflation would enable the local currency to stabilise, although this requires a softer US dollar and increased political certainty under the GNU.
Bianca Botes, director at Citadel Global, said that markets faced yet another round of carnage on Tuesday after a brief reprieve. In addition to the excise duties already announced, Trump slapped China with additional tariffs raising US tariffs on Chinese goods to 104%. Other countries, including those in the European Union, Japan, Vietnam, South Korea, and Taiwan face tariffs of up to 46%.
While Trump justified these measures as necessary to address “unfair trading practices”, markets are experiencing increased volatility, with stocks declining and investors seeking safer assets, said Botes.
“There are growing fears that these tariffs could lead to a [US] recession in 2025, prompting expectations that the Federal Reserve may need to cut interest rates to mitigate the effects on the US economy,” she added.
Johann Els, Old Mutual chief economist, said that his baseline scenario is now a recession in the US. “This move constitutes one of the most aggressive tax increases in modern US history and is expected to have profound implications for economic sentiment, consumer spending, and global trade dynamics,” he said.
MacKay said that Trump’s “Liberation Day” will affect 1.3% of the value of South Africa’s gross domestic product (GDP). Calling the effects of Trump’s tariff impositions on the country a “Liberation Day hangover,” he said eight percent of South Africa’s exports go to the US during webinar on the topic. “The US is important in our lives.”
“Vehicles and aluminium exports are the hardest hit by the tariffs,” MacKay’s presentation indicated.
Els, however, said direct trade exposure to the US is relatively limited. “While US data indicates a $9 billion trade deficit, equivalent to 2% of South Africa’s GDP, local figures suggest a more modest $2 billion gap.”
Items such as precious metals, base metals, and vehicles comprise the bulk of South African exports to the US, with precious and some base metals exempt from the new 31% tariff rate, said Els.
“As a result, the macroeconomic impact on South Africa will likely be felt more acutely in specific industries such as agriculture and vehicle manufacturing, rather than across the broader economy,” Els said.
In addition to Trump’s external pressure on South Africa, Els said that the GNU needs to stabilise.
“The uncertainty around the GNU and the DA continues participation is also cause for concern for confidence and investor sentiment. After the formation of GNU mid-year in 2024, there were improving confidence on the ability of government to implement the right policies to make sure the economy runs stronger. But I think they would be cooler heads there to make sure the DA stays in the GNU”.
IOL