Tariff wars: How SA will be affected and what can it do to work around it

President Donald Trump's newly imposed tariffs on South African exports to the US and on other countries around the globe has sent shockwaves across markets. 

The South African Presidency on Thursday said it noted the tariffs with concern.

"Whilst South Africa remains committed to a mutually beneficial trade relationship with the United States, unilaterally imposed and punitive tariffs are a concern and serve as a barrier to trade and shared prosperity.  The tariffs affirm the urgency to negotiate a new bilateral and mutually beneficial trade agreement with the US, as an essential step to secure long-term trade certainty," The Presidency said. 

Meanwhile, NWU Business School economist Prof Raymond Parsons said that the scale of the further wide-ranging US unilateral tariff hikes announced by President Trump will not only drive a huge wedge into the world’s multilateral trading system but is also bad news for the SA economy.

"The international impact of much higher US tariffs will now be  disruptive of global value chains, invite retaliation, ignite inflation, dampen world economic  growth and prompt repricing of risks in financial markets. The world’s trading system is at a  fork in the road and global reaction has understandably been highly negative," Parsons said.  

‘Tariff wars’ have a bad history. Whatever advantages may be thought to accrue to the US  economy through much higher tariffs, ‘beggar-my-neighbour’ policies have never been good  news for the world economy. The collateral economic damage is usually high. All the  economic evidence suggests there will be many more losers rather than winners as a result.  Some economies may potentially be brought to the brink of recession, with accompanying job  losses and even social dislocation," Parsons further said.  

He added that the additional US tariffs therefore come at a growing cost and their unpredictability will  heighten the pain.

"Even after the latest watershed announcement by President Trump, the US retains the right to swiftly and occasionally retract or reinstate tariffs. This uncertain environment created by the constant change in the ‘rules of the game’ makes  trade and investment decisions by business very problematical. Tariff uncertainty can be as  economically damaging as tariffs themselves." 

South African Exports 

"Higher tariffs of 30% on SA exports to the US are also a serious headwind for SA. SA needs a  calm and pragmatic approach based on evidence-based homework. The automotive sector will  take a particularly hard hit. In seeking to manage higher US trade tariffs, SA must mobilise the  necessary economic diplomacy to try to offset the economic damage and stabilise the situation.  Given President Trump’s reciprocal approach to tariffs, SA must see what trade adjustments  might be made to win concessions to ameliorate the situation," Parsons said. 

"SA must also prudently seize the moment to begin to identify alternative markets as the US  withdraws behind protectionist barriers. The isolationist direction of US trade policy is now  abundantly clear and is the ‘new normal’. For SA, the African Continental Free Trade  Agreement (ACFTA) is one ready mechanism that seeks to reduce existing barriers to intra Africa trade. African economies including SA will need to steadily integrate as the US pulls  back. ACFTA must be given a much higher priority," he further said.  

Parsons said as the world economy is now likely to be less supportive of domestic growth, it becomes all the necessary for SA to demonstrate a strong strategic pivot in growth policy to offset the negative consequences of external shocks.

"The need to accelerate internal structural reforms is  even more urgent. Both government policy and business strategies will need to adapt to a new  range of risks, as well as exploring new or alternative economic opportunities. To do so, SA  must draw on the best advice possible to expedite and implement the necessary solutions.’," Parsons said. 

Adriaan Pask, CIO at PSG Wealth, said, "Tariffs effect pricing and such, has a very direct impact on pricing. The majority of the reporting has been focussing on potentially higher tax revenues for the US, but the real important issue is how global demand and supply dynamics will be affected as cost to consumers change. Seen in isolation higher tariffs will be inflationary as prices increase when the inherent tax component increases, but the reduction in demand for these products needs to be taken into account as well."

Pask added, "If consumers find new pricing to be unpalatable, this can materially affect spending and growth, leading to bigger worries. Then there are the second and third round effects to consider, on the labour force and broader economic and market sentiment for example. Amid all the uncertainty there is one thing we know for sure, and that is that US demand for foreign product will decline. Whether that translates into higher demand for domestic US product is a more complicated question, as many countries look to introduce tariffs of their own."

"Obviously, the tariffs are negative for South Africa, but there are also some very tough lessons to learn from this as our foreign relations and diplomatic efforts did not function well and likely worsened the situation on tariffs for us, which is exactly the opposite of what diplomatic efforts are designed to achieve," Pask said. 

BUSINESS REPORT