US tariff hikes are bad news for the South African economy

The scale of the further wide-ranging United States (US) unilateral tariff hikes announced by President Donald Trump will not only drive a huge wedge into the world’s multilateral trading system but is also bad news for the South African economy. 

In commenting on President Trump’s liberation day announcement of wide-ranging higher tariffs on the world economy, Prof Raymond Parsons, economist from the North-West University (NWU) Business School, says the international impact of much higher US tariffs will now be disruptive toglobal value chains. He says it will 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. 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.”

Prof Parsons points out that the collateral economic damage is usually high. All the economic evidence suggests there will be many more losers than winners as a result. Some economies may potentially be brought to the brink of recession, with accompanying job losses and even social dislocation.

According to Prof Parsons, 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.

“Higher tariffs of 30% on South African exports to the US are also a serious headwind for South Africa. South Africa needs a calm and pragmatic approach grounded in evidence-based homework. The automotive sector will take a particularly hard hit. In seeking to manage higher US trade tariffs, South Africa 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, South Africa must see what trade adjustments might be made to win concessions to ameliorate the situation.”

Prof Parsons says South Africa 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 South Africa, the African Continental Free Trade Agreement (ACFTA) is one ready mechanism that seeks to reduce existing barriers to intra-Africa trade. African economies, including South Africa, will need to steadily integrate as the US pulls back. ACFTA must be given a much higher priority.

“Then, as the world economy is now likely to be less supportive of domestic growth, it becomes even more necessary for South Africa 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 consequently extremelyurgent. Both government policy and business strategies will need to adapt to a new range of risks, and should also explorenew or alternative economic opportunities. To do so, South Africa must draw on the best advice possible to expedite and implement the necessary solutions.”

Submitted on Thu, 04/03/2025 - 15:24