ADRIAAN PASK | Trump tariff impact on South Africa

On April 2 US President Donald Trump announced “liberation day” tariffs.

The tariffs apply to more than 100 countries across the globe and range from 10% to 50%.

SA’s tariff was set at 30%, significantly exceeding the worst-case scenario forecast by the National Treasury, which had anticipated a rate of 25%.

The country’s percentage share of US imports is about 2.50%, but the US is SA’s second-largest trading partner, after China, contributing 8.80% to SA’s total exports.

Previously, the US collected virtually no tariff income from imports from SA, while SA levied 7% tariffs on US imports.

In the 2023, SA’s exports to the US totalled $13bn (R250.6bn), accounting for about 2.10% of GDP.

The exports originate almost entirely from the manufacturing and mining sectors (98%).

The US accounts for 98% of SA’s chromium ore exports, a crucial ingredient in the manufacturing of stainless steel.

Aluminium and steel tariffs have been a focal point for US policymakers and hold significant importance from a trade perspective. These sectors contribute 0.30% to GDP.

The new 25% tariff on vehicle imports is also important. Virtually all (97%) BMW X3 vehicles are produced in SA, creating valuable jobs in the manufacturing sector.

Looking abroad, new tariffs were most severe on Asian economies. Tariff increases imposed on China, Taiwan, Thailand and Vietnam are all well above 40%.

Markets have reacted swiftly to the news, with most indices experiencing sharp declines over the last week. The S&P 500 is down 1,200 points from its highs earlier this year, a drawdown of about 18%. The JSE All share (ALSI) is down 6.90% since the reciprocal tariffs announcement.

Naturally the market movements serve as a signal of a tougher economic climate ahead, coupled with renewed uncertainty regarding inflation prospects.

All else being equal, analysts predict the tariffs will slow GDP growth in Asia by 0.50% of GDP. Citibank expects the EU and Japan to lose 0.30% to 0.40% of GDP.

Citibank cited the responses from some countries affected by Trump’s tariffs:

• China: on April 4, China announced a major escalation by imposing a 34% tariff on American goods starting on April 10. This is part of China’s response to the US tariffs, which have reached 54% on Chinese imports. Additionally, China restricted the export of certain rare-earth elements to the US and expanded its “unreliable entity” list (These tariffs, from both countries, have since escalated dramatically).
• EU: is planning a two-phase response. Initially, it will target aluminium and steel, with broader measures against all products and services expected by the end of April. The EU is facing a 20% tariff from the US.
• Canada: though exempt from the latest tariffs, Canada has declared it will counter US tariffs with retaliatory actions. Prime Minister Mark Carney stressed the importance of decisive action during the crisis.
• UK: has chosen not to retaliate immediately. Instead, Prime Minister Keir Starmer is seeking negotiations with the US to avoid or reduce tariffs.
• Japan and South Korea: the two countries have decided to delay retaliation, focusing instead on negotiating concessions. Japan has described the situation as a “national crisis” while South Korea is cautious about escalating tensions.
• Australia: Prime minister Anthony Albanese criticised the tariffs as unjustified, saying they are “not the act of a friend”. However, Australia was yet to announce specific retaliatory measures.
• Taiwan: President Lai Ching said the country will not impose reciprocal tariffs against the US but will work on removing trade barriers.
• India: the government will take a measured, independent approach, opting for dialogue and strategic trade realignment over immediate retaliation.
• Vietnam: has offered to reduce tariffs on US goods to zero. Diplomats are on their way to Mar-a-Lago

For equity market investors, it is crucial to assess the extent of market exposure to the US in terms of revenue.

The chart below from Schroders highlights stock markets in economies with which the US has a trade deficit.

Other stock markets in countries where the US has a trade surplus (exports more than what is imported), also have exposure to the US and therefore face risk, albeit perhaps at lower tariff rates. For instance, UK listed equities derive 27% of revenues from the US.

In terms of trade deficit countries, Taiwan and Canada stand out above other markets on a revenue basis. With 43% of revenues derived from the US, Taiwan is a big exporter of microchips via listed company TSMC.

Europe and Canada also stand out, with 23% and 33% revenue exposure respectively.

It should be noted the numbers provide some indication of potential areas where risks may arise, but quantifying the risk is not an exact science. The complexity arises from the need to consider a wide range of sentiment and impact factors, including secondary and third round impact factors.

More broadly, if the tariffs prove to be more than a negotiating tactic, we think there is a rising risk the US may reignite inflation and/or induce a US recession.

Schroders research shares a similar view and estimated inflation may accelerate by more than 2% from prevailing levels, directly attributable to the effect of tariffs. In addition, they estimate the impact on growth to be negative 0.9%, despite any potential uplift in government revenue and subsequent spending.

Similarly, Citibank projects SA’s GDP will be curtailed by 0.50% as a consequence of the tariffs introduced on liberation day.

In this environment we would like to offer the following context, comfort and advice:

• Markets routinely face temporary setbacks. Recessions are followed by recoveries. This has been the cycle of markets and economies since their inception. The events are perhaps unique in specificity, but they are also very common from the perspective of a long-term investor.
• S&P intra-year declines vs calendar year returns: despite average intra-year drops of 14.1%, annual returns were positive in 34 of 45 years.

Our solutions are invested in world-class active managers who have the flexibility to take advantage of the opportunities and mitigate the risks created by the reconfiguration of the global trade landscape.

The flexibility enables them to adjust their exposure to countries, sectors or individual companies whose fortunes may be influenced by prevailing market conditions, either by increasing or decreasing their exposure.

Most importantly, the managers differentiate between the short-term noise in the markets and the long-term trends that may have a lasting impact and adjust portfolios accordingly.

It is important to keep a cool head and view recent events in light of a longer investment journey that will likely be characterised by many ups and downs.

The biggest risk to an investor is often their own actions. Decisions made during stressful times can greatly affect long-term success. It is recommended to speak to your financial adviser before acting. 

• Adriaan Pask is CIO at PSG Wealth, a leading financial services group listed on the Johannesburg (JSE), Namibian (NSX) and Mauritius (SEM) stock exchanges, with adviser offices in SA and Namibia. Listed on the JSE as PSG Financial Services, the company has been in operation since 1998, and offers a value-orientated approach to clients’ financial needs, from asset and wealth management to insurance. It provides a comprehensive wealth management offering designed to meet the needs of individuals, families and businesses.