Cilliers explained that Trump’s tendency towards trade protectionism could destabilise existing trade relations and exacerbate pressures on emerging markets like South Africa. REUTERS/Jonathan Ernst
Nicola Mawson
As America braces for the conclusion of its electoral process, the implications of a second Donald Trump presidency ripple far beyond the shores of the United States, particularly affecting nations like South Africa.
With around two-thirds of voters already participating in early voting, local markets remain on pause as uncertainty looms over the potential outcomes.
The JSE All Share Index and the rand exhibited little movement yesterday on the eve of the US election, reflecting a cautious sentiment among investors.
The rand remained range-bound between R17.50 and R17.60 to the US dollar, significantly retreating from its recent high against the greenback, while the All Share Index remaining virtually unchanged at 86 047 index points by 4pm.
“The rand is still dulled by uncertainty over the US election and risk aversion,” stated Annabel Bishop, chief economist at Investec, underscoring how global events can dramatically affect local currency and stock performance.
Bishop pointed to a critical risk that Trump’s “America-first” policies could jeopardise the African Growth and Opportunity Act (Agoa).
This legislation has been pivotal in fostering trade relations between the US and South Africa. If reinstated, the imposition of higher tariffs—potentially a blanket 10% on all imports from South Africa—could stifle economic growth, which is currently languishing at a mere 0.4%.
“His onshoring policy would be expected to negatively impact global growth excluding the US,” she said.
Bishop added that a heavy tariff increase on imports would especially affect China, with expectations of over a 50% rise, slowing China’s growth.
China is a key trading partner for South Africa, with $12.48 billion (R219bn) leaving the country’s shore for China last year, and imports of $23.65bn (R415bn), according to Trading Economics.
A Trump presidency would also lead to risk aversion, Bishop said, which would strengthen the dollar, placing further pressure on the rand.
This trepidation was further echoed by Wichard Cilliers, head of market risk at TreasuryONE, who warned of increased market volatility and diminished AGOA benefits should Trump retake the presidency.
Cilliers explained that Trump’s tendency towards trade protectionism could destabilise existing trade relations and exacerbate pressures on emerging markets like South Africa.
“Policy continuity under a Harris administration could stabilise trade relations and the rand. Conversely, with Trump elected, it would usher in trade protectionism amidst policy unpredictability, possibly affecting AGOA benefits, and causing market volatility,” he said.
While the potential for tariffs on Chinese goods could hit South Africa hard, Cilliers pointed out a worrying correlation: rising commodity prices, particularly oil, could cripple the nation’s economy. With oil as South Africa’s principal import, any significant price increase would adversely adjust the nation’s terms of trade.
“Moreover, changes in commodity prices, including gold and oil, will hit right at home in South Africa. As oil is the biggest import component a big rise will negatively affect our terms of trade,” said Cilliers.
Nolan Wapenaar, co-chief investment officer at Anchor Capital, added that “markets seem to be pricing in an increasing likelihood of Trump 2.0” and a Trump win will be bad for emerging economies.
“Trump is expected to create higher US inflation, which is wild considering he is campaigning on the basis of inflation being too high already, a stronger dollar, higher deficits (which again is wild considering he is campaigning on the basis of Democrats losing control of public finances) and higher US bond yields,” said Wapenaar.
Trump’s policies would undermine a base case scenario that involves rate cuts in the US, leading to a stronger rand, said Old Mutual chief economist Johann Els. Harris, meanwhile, would likely to continue with Biden’s policies, he said.
Joe Klopper, portfolio manager at Independent Securities, said “South Africa’s increasing role as an investment destination in Africa means that US monetary policy will significantly influence its growth trajectory, making this election a key event for global markets and investment portfolios”.
BUSINESS REPORT