South Africa still in serious trouble

Markets breathed a huge sigh of relief on Wednesday (9 April) after US President Donald Trump hit reverse on punitive tariffs against major trading partners.

However, while the immediate and worst concerns about the tariff war were put on hold, the US tariffs of 10% remain in effect, and nothing was done to quell global and local uncertainty.

South Africa was one of the beneficiaries of Trump’s surprise move to suspend punitive tariffs exceeding 10% on all countries except China.

With a 30% tariff on South African imports kicking in on Wednesday, the reversal to 10% came as a welcome surprise.

The rand, which hit its worst-ever levels against the US dollar at R19.93/$ saw an immediate pull-back, gaining 2% to settle around R19.30/$.

But the currency remains incredibly weak, sitting at R19.45/$ by 11h00 on Thursday (10 April)—reflecting the ongoing global and local woes.

This is because the 30% tariffs are only one of the forces currently working against South Africa. The country still faces many other troubles:

• A 10% global tariff on exports to the US remains in effect
• The US and China are escalating their targeted tariff war, keeping markets under pressure
• The Trump Administration’s unpredictability keep investors on edge
• Local tensions between the DA and ANC put the future of the GNU in question
• South Africa’s relations with the US are still strained, with the threat of escalation
• South Africa’s participation in AGOA is widely expected to end

Another key factor to remember is that the reversal on punitive tariffs is only temporary, with the White House announcing it as a “pause” for 90 days.

There is no certainty that Trump will follow through with this.

According to Bianca Botes, Director at Citadel Global, Trump’s negotiations and narrative over the next 90 days will remain pivotal to market performance.

In the meantime, Daniel Wesonga, senior sales manager at forex broker Pepperstone said that the continued global trade tensions, combined with domestic political instability, will continue to weigh on sentiment towards South Africa.

“Investor risk aversion has been amplified by US President Trump’s sweeping tariff actions and ongoing uncertainty around South Africa’s coalition government,” he said.

While Trump’s abrupt reversal of his tariff stance offers a potential path to stabilisation, the trade war with China—where tariffs were raised to 125%—will continue to impact markets negatively.

The reversal has also not shifted the dial on the African Growth and Opportunity Act (AGOA), which economists and analysts see as certainly done, especially for South Africa.

African nations and the US will hold talks in June or July on a trade pact that provides duty-free access to the world’s largest economy, South African Trade Minister Parks Tau said, adding it will be hard to salvage the arrangement that tariffs superseded last week.

“Its going to be difficult” to save the African Growth and Opportunity Act, Tau said on Radio 702 Thursday.

AGOA is due to expire in September, and the continent’s trade ministers are meeting Democratic Republic of the Congo on Tuesday where they will discuss a collective way forward, he said.

Tau said South African officials are also holding talks with other countries to find alternative markets.

Wesonga said that there is hope for a better outlook for South Africa, but this is only if the GNU remains intact and global trade conditions improve.

Impact on South African consumers

While the tariff war may seem like a far away battle to many individuals, it has a very real impact on the life of the average South African.

“When the tariffs were first imposed, the rand plunged to historic lows, touching R19.93 to the dollar. This pushed up the prices of imported goods and even local essentials like food and fuel,” said Sebastien Alexanderson, Head of National Debt Advisors.

“Now, with the pause, we’ve seen the rand pull back slightly, but the bigger picture is about how fragile our economy really is.”

Alexanderson said that key sectors like agriculture and automotive, already hit hard by the tariffs, were facing massive cost pressures and potential job losses.

These pressures are still there. The 10% tariff is in effect, with an additional 25% tariff on the automotive sector, and the likely exit from AGOA.

The pause in tariffs might slow the bleeding, the uncertainty remains.

“Whether tariffs are on or off, the message to ordinary people is the same: global decisions are reshaping local realities fast,” Alexanderson said.

Everyday South Africans are likely to be hit by the ongoing volatility in many ways:

• Food and Fuel Prices: Tariffs on agriculture led to fears of rising local food prices. Even a temporary reprieve does not undo inflationary pressure felt at the tills.
• Job Security: Sectors like automotive and agriculture, major employers in rural and industrial towns, remain at risk.
• Currency Shock: The rand’s wild swings drive up the cost of imports and push inflation up.
• Political Unrest: Internal tensions within the GNU over taxation and spending are fuelling investor anxiety, pushing bond yields up and making borrowing more expensive for government and consumers alike.

(With Bloomberg)