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How Trump's economic policies might affect South Africa

Being the president of the United States of America is akin to being the president of the world. The US is seen as the epitome of democracy and being the superpower of the world, their policies have a way of directly or indirectly shaping our local policies. Everything the US president says the whole world listens to, and his pronouncements can have a huge social and economic trickle-down effect that goes reverberating across the world in just a matter of hours. With President Trump sitting in the Oval Office now, his proposed policy changes must be looked through the lens of how they will affect international trade and specifically, how they will influence bilateral relationships between South Africa and the US.
How Trump's economic policies might affect South Africa
To put things into a continental perspective, Dambisa Moyo a Zambian born but London-based economistsays that; she believes the growth in protectionist economic policies in the US will hurt Africa and the rest of the world over time as the policies are implemented.Her fears of a global negative impact of protectionism as proposed by President Trump were echoed by other analysts and economists both in the US and across the world. After Trump’s inauguration speech, an analyst from Lionexo noted that "in the 1930s the US put up 3,200 tariffs to block trade and this saw a decline in the economy and unemployment that it took a long time to come out of."

Putting America first and repealing of trade policies

In his inauguration speech, President Trump directly advocated for protectionist economic policies in a bid to create jobs for the American people and promote the growth of US businesses. President Trump addressed the world and said that “we assembled here today are issuing a new decree to be heard in every city, in every foreign capital, and in every hall of power. From this day forward, a new vision will govern our land. From this day forward, it's going to be only America first, America first.” He continued with his admonition to the rest of the world by adding that “every decision on trade, on taxes, on immigration, on foreign affairs will be made to benefit American workers and American families. We must protect our borders from the ravages of other countries making our products, stealing our companies and destroying our jobs.”

During his campaign, President Trump only mentioned direct tariffs on imports from China and Mexico at 45% and 30% respectively. He specifically focused on the two because according to him they are the worst in stealing US manufacturing plants and taking US jobs with them. Besides the two countries, President Trump also proposes repeal or a complete overhaul of the NAFTA and TPP trade agreements arguing that they were structured in a way that is unfair to the US people and its economy.

Probable policy changes affecting South Africa

Having signed several executive order to enforce implementation of some of his campaign promises, all governments are now watching President Trump’s next move keenly to understand how his policies will affect their own countries. For South Africa the low-lying fruit seem to be the AGOA agreement which has made the US one of the largest trading partners for South Africa. Under the AGOA treaty, several countries across Africa, among which South Africa is one, are allowed to export specific goods to the US free of taxation.

How Trump's economic policies might affect South Africa
Under Trump’s isolationist economic philosophy, this kind of trade agreement might not appear to be fair to the American people, since there is no direct link on how it creates jobs for the US citizens and boosts the growth of US businesses. Although not mentioned yet in his rapid economic policy and trade agreements changes he has lined up for signing within his first 100 days in the office, the AGOA treaty will eventually catch President Trump’s eyes and his decision on it might not be favourable to South Africa.

Besides AGOA, the uncertainty created by the Trump Presidency in the US is expected to result to a mild capital right from the US to emerging markets. If this comes to pass then South Africa will benefit being one of the leading destinations for Foreign Direct Investments across Africa.

Another impact of the policy changes in the US to South Africa will be on the value of the rand. With Trump’s presidency being associated with high inflation, the US dollar is expected to take a dive which means the rand will become stronger. With a stronger rand, South African exports to the US will become more expensive while the US exports to South Africa will become relatively cheaper. This has the effect of widening the balance of trade deficit for South Africa as we will end up importing more than we export.

All the above are potential eventualities but we can only wait and see Trump’s policy on Africa in the coming days; in order to comprehensively understand how South Africa will be affected in the days and years to come.

17 Feb 2017 11:32