From worst-case scenario to worst-case reality

What was once seen as a small probability in a worst-case scenario in economic projections has quickly become a worst-case reality, as the United States’ tariff war kicked off on Wednesday, 9 April.

Following the implementation of a 10% flat tariff against all countries on 5 April, Wednesday marks the start of even higher tariffs against countries the Trump administration sees as having “unfair” trade balances with the United States.

According to Arthur Kamp, Chief Economist, Sanlam Investments, the tariff increases align with assumptions the group had previously reserved for a low-probability, high-impact “worst-case” scenario.

However, this has very quickly become reality, with the potential for disaster if things continue to escalate.

“Even if tariffs are ultimately scaled back towards the baseline increase of 10% – which seems unlikely across the board given the rapid announcement of reciprocal tariffs by, for example, China – this represents a material jolt to the global trade system,” Kamp said.

He added that there is “hope” that the tariff war will be short-lived, with historical precedent set during the previous Trump administration showing that they may well be.

The tariffs imposed under Phase 1 of the 2018 US-China trade dispute were eventually scaled back through negotiations and exclusions, Kamp said, giving hope that something similar may occur this time.

He added that it appears that a number of countries who have been hit with the tariffs are willing to deliver concessions to get the US to reduce or remove the tariffs entirely.

Despite this, the economist warned that the risk of an all-out trade war is present.

This is reflected through further escalations with China and comes in the context of there being no moderating force in US Congress.

Following the implementation of a 34% tariff on Chinese imports, China retaliated by imposing an 84% tariff on US imports. Things escalated even further on Wednesday, with the US pushing the tariff up to 104%

Kamp said that if this pattern continues, the implications would be dire—starting with an increasing probability of a US recession, which holds obvious negative consequences for the global economy.

“We hold out the hope that there will be sufficient push-back from lawmakers and society more broadly to deliver a more tempered outcome,” he said.

South Africa won’t escape the mess

South Africa was one of the countries hit by Trump’s tariffs on Wednesday, with the US pushing a 31% tariff on local exports.

Fortunately for South Africa, many of the country’s key exports—like gold, metals and minerals—are exempt from the tariff. But this does not mean it will escape the impact.

Kamp said that South Africa’s direct trade exposure to the US is relatively modest but not insignificant.

In 2024, goods exports to the US amounted to R156.8 billion, reflecting 7.6% of total South African goods exports, and 2.1% of GDP.

Considering the 31% tariff increase for South Africa, and after taking the 25% US import tariff increases on aluminium, steel and motor vehicles into account, adjusting for exclusions, the overall effective US tariff increase for South Africa is likely to be less than 20%, Kamp said.

This is still a significant increase and is likely to see a sharp decrease in South African exports to the US, including motor vehicles. Some exclusions may also be rescinded.

Kamp said that the impact of the tariffs will be far greater than losing access to the African Growth and Opportunity Act (AGOA) alone.

Downward revisions to South Africa’s GDP forecast for 2025 are already emerging, he said.

This, combined with heightened geopolitical risk due to the potential breakup between the DA and ANC in the Government of National Unity, the risk factors for South Africa are high.

Kamp warned that the effect on business sentiment and investment could be even more pronounced – particularly given South Africa’s dependence on the US for foreign capital, especially portfolio capital, which is highly liquid.

“Geopolitical tensions are also resurfacing,” he said, pointing to the US-South Africa Bilateral Relations Review Act, which had previously been shelved, but has now been revived under a Republican-controlled Congress.

The bill, if passed, would seek to review the United States’ relationship with South Africa and proposes sanctions against government officials and the ANC in particular for holding anti-USA views and pursing goals and relationships that stand against US national security.

While this is a risk factor, Kamp said that full financial sanctions, including exclusion from SWIFT, remain only a low-probability scenario.

However, as the tariff war has shown, even low-probability scenarios can quickly become reality.