The Trump Administration and South Africa’s Economy

Yesterday, Donald Trump was elected as the United States’ new president, making history as the US’ oldest president and the second one to serve a non-consecutive term.

In his election campaign and debates, Trump has expressed dynamic views on relations with China, trade policies, tariffs, the Israel-Iran conflict, relations with NATO, and how he plans to mitigate inflation and the cost of living crisis in the US. His slogan? “America First.” His views on key issues such as foreign and monetary policy directly affect South Africa’s economy.

This post discusses US international relations, monetary policy, economic uncertainty and volatility, the US Federal Reserve bank, and how Trump plans to revive America’s economy; how his policies affect our economy, trades, SARBS, and the strength of the Rand.

Read on to discover how Trump’s views on key issues–alliances and economic policies–may affect South Africa’s financial landscape in the coming months and years.

The Good News

Trump’s nationalist tendencies could spur economic growth in South Africa, especially business relationships and oil prices.

US Business Tax Cuts

Many US voters said the economy was one of their key concerns as they headed to the polls. Trump sparked voter confidence in the period leading up to the election, vowing to reduce taxes for individuals and corporations.

He aims to cut corporation tax to 15% from 21%. This would be terrible for US outstanding payment debt levels, but great for foreign investment rates, as it would increase American business profits–and so improve market sentiment, increasing investor confidence.

South Africa relies significantly on US foreign investment, particularly in the mining, vehicle, and chemical goods sectors. Tax cuts might expand American operations, making the US happier to rely on the South African skilled labour force and our exports.

American Oil Price Cuts

In July, South Africa imported $8.54 billion of goods from the US, including oil. While we don’t primarily import oil from the US, cuts in prices could drive down our costs and lower inflation globally. Moreover, since oil prices are measured in dollars, cheaper oil prices in the US would cut costs across the board. The president-elect wants to lower gas prices “below $2 a gallon” by issuing “a national emergency declaration” to increase America’s domestic energy supply. This could reduce inflation overall, as energy is a key player in food and production costs.

Economists have pointed out that presidents don’t control oil prices. With careful geopolitical strategy and financial policy, Trump may be able to prove them wrong.

The Not-As-Good News

While Trump’s oil and tax cuts are cause for hope, their effects may be offset by tightening the White House’s grip on the Federal Reserve Bank, his awe-inspiring tariffs, tensions with China, America’s role in Middle Eastern conflicts, and widespread US economic uncertainty.

Before we discuss Trump’s proposed policies that will harm the global economy, let’s outline key econometrics: uncertainty, volatility, and market sentiment.

Uncertainty, Volatility, and Market Sentiment

While these terms sound similar, distinguishing between uncertainty and volatility is vital to have informed discussions about the repercussions of policies and market sentiment–both key drivers in economic policy reform.

In economics, uncertainty describes when we don’t know what the probability (chance something will happen) or outcome of something might be. It’s a huge factor in what drives policies and financial decisions. For example, when investors are uncertain of a financial market or whether an interest rate could change, they’re less likely to invest, using a “wait-and-see” policy.

Volatility refers to how things change over time (like stock prices or economic conditions). You might have heard someone talk about the volatility of a market, for instance.

Both are important when describing how policymakers, banks, industries, and consumers feel about what’s going on: market sentiment.

Economic Uncertainty and Trump’s Volatility

Economic uncertainty makes firms reluctant to invest. South Africa is heavily dependent on foreign investments. Since Trump is still undecided on the details of policies he has floated, investors are nervous about spending money they might not make back.

For instance, Trump’s anti-immigrant policy promises to make housing affordable for Americans; however, he has yet to address the bottlenecks that losing America’s blue-collar, albeit vastly undocumented, workforce could create in industries like construction and hospitality.

Additionally, he has not identified specifics of how he would identify illegal immigrants–would the feds go door-to-door? What of the burden extending Trump’s beloved wall poses.., and who would build it?

Questions like these and many more have poised the American workforce and investor market to be especially hesitant over the end of this year and the first half of 2025, potentially decimating South Africa’s investor economy.

Trump’s unpredictability on matters like immigration, trade, and foreign policy makes emerging economies like ours especially susceptible to global economic changes. South Africa could start leaking money as investors opt for safe-haven assets.

What does Trump’s win mean for the world?

US-China Relations and Global Supply Chains: a Possible Trade War

Trump plans to impose tyrannic tariffs on China. Tariffs up to 60%.

“To me,” Trump has said, “the most beautiful word in the dictionary is tariff. It’s my favourite word. It needs a public relations firm.”

The rest of the world is not quite as enamoured.

The tariffs are meant to incentivise local US production of goods. While this may stimulate the US labour market, it could halt Chinese market growth rates, making products once readily available hard to afford, especially for already struggling South African markets.

This could disrupt supply chains globally, especially in South Africa, where the bulk of our technology and goods is produced using Chinese goods.

Universal Tariffs and International Relations

Furthermore, Trump plans to mandate a 10 to 20% tariff on all international imports, disrupting global trade. American economists fear that trading partners might retaliate with tariffs of their own, igniting a trade war and escalating preexisting tensions. South Africa, which exports to both the US and China, could face higher costs for goods from these countries, and disruptions in trade agreements could decrease demand for South African products.

The move to raise tariffs would violate US commitments to the World Trade Organisation, in which countries agree not to raise their tariffs above certain levels.

The Middle East and Energy Prices: a New Uncertainty

Trump has pledged to bring peace to Israel and Iran. He has also suggested that Israel “finish the job.” That is, the one they began by killing 43,000 Palestinians and 3,000 Lebanese people. Trump has openly supported Israel’s war efforts, even relocating the US embassy to Jerusalem to appeal to the Republicans’ Christian populace.

The Middle East dictates energy and food prices in large parts of the world. Unfortunately, Trump is one of the world’s most volatile world leaders, particularly regarding foreign policy. He continues to praise characters like Kim Jon Un and Putin while alienating known allies such as Germany and South Korea for trying to “rip us off.”

In a conversation with the Financial Times Richard Grenell, Trump’s former intelligence director stated “Predictability is a terrible thing…Of course the other side wants predictability. Trump is not predictable and we Americans like it.”

Industry expert Nicolas Bloom noted that during the 2016 US elections, the econometric of uncertainty “surged after Trump’s election because he used to just kick out a lot of pretty radical policy ideas and no one was quite certain if they would happen.”

No one knows whether Trump will extend American weapons or facilitate peace talks. All we can count on is his trademark unpredictability–consumers and policymakers alike should prepare for the uncharted steps Trump may trample over our economies.

The Question of the Federal Reserve

Trump has said he would like a say in monetary policy, particularly in how interest rates are decided. At the Chicago Economic Club, he said he thinks he has “the right to say I think you should go up or down a little bit. I don’t think I should be allowed to order it, but I think I have the right to put in comments as to whether or not the interest rates should go up or down.”

Wall Street, US economists, and academics are worried about the inflation Trump’s combative tariffs could create, especially if other countries react adversely.

The Federal Reserve Bank would have to heighten its repo rate to mitigate Trump’s tariffs’ effect. Since US monetary policy so closely influences ours, SARBs would be set on raising our repo interest rate, too. What if Trump decides to lower interest when inflation is most rife?

A surge in interest rates would make borrowing money more expensive and investors lose their confidence, shrinking South Africa’s and America’s economies.

America First?

Trump’s protectionist and nationalist measures may wreak havoc on global economies, inciting trade wars and exacerbating existing tensions. His proposed tariffs and foreign policy volatility have many an economist biting their nails.

The world has two months to prepare for Trump’s inauguration, and thus the implementation of what might be some of America’s most explosive policies yet.

Is all fair in love and “America First”?

Your Finances First.

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