Donald Trump was sworn in on Monday and already signed a series of executive actions that will affect the global economy.
Now that the United States (US) has a new president, Donald Trump, who was sworn in on Monday, the question is if he will be a trump card for the global and South African economy or if this is the start of a trade war that will also affect the local economy.
Maarten Ackerman, chief economist at Citadel, says we can expect that global economic markets will face potential shifts, while there will be immediate and long-term implications for global and South African markets.
He anticipates that there will be subdued immediate market reactions as many of Trump’s anticipated policies were already priced in, including expectations for more fiscal spending as is clear in rising US bond yields.
“However, other proposed policies, such as trade tariffs on China, could create ripple effects for emerging markets such as South Africa. Trade wars could weaken global growth and put pressure on the rand, but aggressive Chinese economic stimulus could benefit South Africa as a key commodity exporter.”
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Watch out for Trump’s impact on Agoa – economist
Ackerman also flags the risks related to the African Growth and Opportunity Act (Agoa), which underpins South Africa’s automotive sector, amongst others. “A reduction in Agoa benefits could harm one of South Africa’s few growing manufacturing sectors, with significant implications for our gross domestic product (GDP) and jobs.”
He says Trump’s fiscal policies are likely to strengthen the US dollar, which will challenge South Africa’s growth prospects and put upward pressure on inflation. Therefore, Ackerman calls for structural reforms in energy, infrastructure and business efficiency to attract investment and build resilience.
But despite the risks, Ackerman sees opportunities in new global trade patterns, and he highlights the importance of a diversified investment portfolio to mitigate volatility. “With the right reforms and strategies, South African investors and businesses can navigate uncertainty while positioning for growth.”
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Trump will significantly affect domestic and global economies
Sanisha Packirisamy, chief economist at the Momentum Investments Group, says as Trump enters his second non-consecutive term as president of the United States, his foreign policy initiatives, proposed immigration reforms, anticipated tax cuts and commitment to deregulation are set to significantly affect both domestic and international economies and markets.
She points out that his inauguration speech focused on trade and immigration, while comments were less pronounced on deregulation and fiscal matters.
“Regarding foreign policy, his focus on Greenland, Canada and the Panama Canal indicates a willingness to consolidate power across the western hemisphere, limit Chinese powers in the region and secure new trade routes and access to key rare mineral resources.
“His policies suggest that US growth exceptionalism will continue, and this is likely to support US equity markets given that expectations for corporate profits are likely to remain healthy on solid economic growth outcomes. However, stretched valuations could pare back expected returns on US equities.”
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Trump’s policy agenda could stir inflation concerns
Packirisamy says Trump’s policy agenda could nevertheless stir inflation concerns, and markets are worried about fiscal deterioration. She believes that both these factors are likely to be negative for US bonds.
“Markets are steadily pricing out the prospect for future interest rate cuts in the US given inflation concerns, and this indicates that terminal interest rates are likely to be higher than initially envisaged.”
She also highlights these key proposals from Trump’s election campaign:
- Immigration: Trump aims to implement strict immigration policies, including mass deportations and tougher border controls. While addressing illegal immigration, these measures may lead to labour shortages in critical sectors like agriculture and construction.
- Tax cuts: Trump plans to extend and deepen the tax cuts from his first term to stimulate economic growth, increase disposable income and reduce corporate taxes.
- Deregulation: His administration is expected to aggressively cut regulations, especially in energy and finance, to spur business growth. However, this could raise concerns over environmental protection and financial stability, particularly with a renewed focus on fossil fuel production, Packirisamy says.
- Foreign policy: Trump seeks a more isolationist stance, especially regarding Ukraine, while continuing strong support for Israel. Packirisamy says this could reduce US involvement in global conflicts but might affect NATO commitments and require increased military spending elsewhere.
- Tariffs: Trump has signalled reinstating high tariffs on Chinese imports (possibly reaching a weighted average of 46%) and plans to impose tariffs on goods from other nations, including Mexico (25%), Canada (25%) and BRICS countries (up to 100%) should they advance their plans on a competing global currency. These tariffs are part of a protectionist trade strategy and could pressure China to make concessions, particularly on intellectual property.
Packirisamy says the markets are also concerned about Trump’s potential influence on the Federal Reserve, although safeguards are expected to ensure its independence in setting monetary policy.
She also warns that while Agoa accounts for 2% of South Africa’s exports, losing these preferential trade arrangements could hurt specific industries including the motor industry and agriculture.
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Reserve Bank governor warns Trump’s policies could derail repo rate cuts
Lesetja Kganyago, governor of the South African Reserve Bank, also warned in an interview with Bloomberg that Trump’s protectionist policies could fuel inflation and risk derailing future interest-rate cuts, although he said there are currently too many “moving parts” to be sure about the outlook.
“To the extent that the measures taken are inflationary, it could slow down the disinflation process that the central banks so steadfastly worked on since the great inflation of 2022. The reduction in the restrictiveness of monetary policy that we saw over the past year could then be brought to an abrupt halt.”
