Trump’s tariffs are causing a huge upset on global markets, but the rand is tanking mainly due to the possible collapse of the GNU.
The tariffs US president Donald Trump announced last Wednesday has led to a bloodbath on the markets that saw them perform far worse than in March 2020 when the Covid-pandemic hit the world.
Among these, the rand lost almost 6% of its value against the dollar.
On Friday night the rand closed at R19.10/$, a whole 70 cents weaker than a week before when it stood at R18.39. On Monday afternoon the rand was trading at R19.40.
According to Reuters, the S&P500 Index, that includes 500 leading companies in the US and covers approximately 80% of available market capitalization, lost $5 000 billion in market value just last week.
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Intentional manipulation of the rand – economist
Prof Bonke Dumisa, an independent economic analyst, says this shows that the intentional manipulation of the rand continues and is getting worse, as four of the five market indicators opened relatively significantly negative this morning.
“Those who are manipulating the value of the rand will continue doing this and milk it until there is nothing more to exploit. South Africa is under siege and it is precisely for these reasons that many people are prejudiced against the capitalist free market system.
“South Africa does have its ‘own goals’ but the major reason why South Africa has been and is being targeted is because it has been principled in raising issues that others would rather not have discussed honestly in public.”
Dumisa says although some people think there is some kind of plan behind Trump’s irrational tariff wars, he doubts if there is any coherence in what he is doing.
The rand did not only lose its value against the dollar but also weakened significantly against the UK Pound Sterling from R23.50/UK£ on Friday 28 March to R24.97/UK£ by Monday morning and Dumisa says it looks like it may go above the R25 psychological barrier levels for the first time ever as early as Monday.
In addition, the rand weakened significantly against the Euro from R19.56/€ on Friday 28 March to R21.33/€ on Monday morning. The only good news was that the gold price continues opening higher, opening at US$3 022 compared to last Friday’s opening price of US$3 087. Brent crude oil opened at US$63.36, compared to last Friday’s opening price of US$68.44.
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Markets still trying to understand long-term implications of tariffs
Maarten Ackerman, chief economist at Citadel, also point out that the turmoil in the markets last week continued today with quite a big sell-off in Asian markets, which will probably spill over into US markets later in the day.
“This is a clear indication that the markets are still not in a position to really understand what the longer-term implications can and potentially will be around Trump’s tariffs,” he says.
Ackerman says the rand also took a severe knock last week, but most of that was due to local issues. “The rand also slipped after Trump announced 31% tariffs on South Africa, but the biggest decline in the rand was as a result of the political gridlock around the budget.
“The US trade tariffs are important, but only 8% of our exports are to the US and therefore, it is important but it is a smaller component. About a third of that is excluded from tariffs because those are commodities such as platinum that Trump did not impose tariffs on.”
The rand is now in trouble due to global risk-off, which is affecting the currency and also in anticipation to see what the outcome is going to be with the Government of National Unity (GNU) sitting around the table again, Ackerman says.
“In this environment, with those two uncertainties, we expect the rand to remain under pressure and if there is a negative outcome regarding the GNU, the rand is probably in a position where it will shed even more value at this point in time.”
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Tariffs not only to affect markets, but also inflation, interest rates and economic growth
Liandra da Silva, specialised economist at the Nedbank Group Economic Unit, says Trump’s tariffs have notable implications, particularly on SA/US trade, but to some extent also on the growth outlook for South Africa.
She says the main sectors in South African exports to the US include precious metals (35%), transport equipment (22.1%), iron and steel (13.8%), mineral products (6.5%), chemicals (6.4%) and machinery (5.7%), accounting for almost 90% of total SA exports to the US in 2024.
“South Africa’s exports face both direct and indirect impacts from these tariffs. Exports to the US, particularly in the main sectors, could slow as their prices become less competitive, reducing demand.
“Additionally, the imposition of tariffs in other key economies, which are important trade partners for us, could face weaker growth prospects, dampening their demand for South African exports. This, combined with a muted global growth outlook, which is likely to worsen, suggests that South African exports could be weaker than initially expected.”
Da Silva says the tariffs also present adverse risks to the rand, inflation and interest rates.
“A unique feature of the tariff turmoil is that the US dollar has been under pressure. This development starkly contrasts previous global shocks when investors flocked to the relative safety of the US dollar.
“The trade war is still evolving and the global landscape is far from settled, which makes predictions difficult. However, the tariff turmoil and the likely end to the African Growth and Opportunity Act (Agoa) convinced us to reduce our gross domestic product (GDP) forecast by 0.3% to 1.1% for 2025 and by 0.2% to 1.6% in 2026.
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Tariffs make no economic sense – economists
George Brown, economist at Schroders, says Trump’s highly anticipated reciprocal tariffs were more punitive than expected.
According to his calculations, this could roughly push up US inflation by 2% and hit growth to the tune of 0.9%.
“Several countries have indicated they will retaliate with countermeasures, so the risk remains of even higher tariffs to come.”
