Peet Serfontein & Chantal Marx
Tariffs, essentially taxes imposed on imported goods, are powerful economic tools that are traditionally used to protect vulnerable domestic industries from "cheaper" imports or dumping practices. However, as we have seen this year, they can also be used by countries to influence international trade dynamics for political means. The United States (US) has a dual goal in implementing new tariffs - the first being their purpose by design (protecting local industries) and the second being part of a broader geopolitical strategy (exerting political pressure to achieve certain trade and non-trade related outcomes).
Investors and economists continue to debate the ultimate impact of the sweeping tariffs that have been implemented by the US, as these levies are expected to ripple far beyond American borders, significantly impact global markets, and reshape economic relationships worldwide.
The bigger picture
At the heart of US President Donald Trump's tariff policy lies his "America First" policy - a doctrine that places US economic sovereignty above multilateralism and global consensus. It views international trade not as a cooperative system but as a competitive battleground where the US must aggressively renegotiate terms it deems unfair. Central to this approach is the belief that long-standing trade deficits, offshoring and overreliance on foreign supply chains have eroded America's industrial base and strategic independence. To counter this, tariffs have been deployed as both protective barriers and bargaining tools - shielding domestic industries while compelling trading partners to accept more favourable bilateral agreements.
The US, through the strategic imposition of tariffs, fundamentally seeks to reshape global trade relationships and economic power balances. Its broader strategy seems to be to protect national security interests, enhance economic self-sufficiency, regain control over crucial industries and strengthen its negotiating position on the world stage. Tariffs are also serving as leverage in geopolitical negotiations, allowing the US to apply economic pressure to achieve concessions on diplomatic, environmental or intellectual property matters.
The global impact of US tariffs
Global markets reacted to increased uncertainty, with volatility spikes becoming more commonplace and investor confidence being shaken. After the initial announcement of very high tariffs on 2 April 2025, there was a concern that international supply chains could potentially be severely disrupted, that the costs of raw materials and finished goods could rise, and that global trade may slow down as businesses navigate higher expenses. The fear was centred on a possible consequence being a rise in inflation and lower growth - or stagflationary conditions - globally.
Emerging markets economies are often disproportionately affected by protectionist policies. With increased tariffs, the expectation was that these countries may face reduced demand for their exports, potential capital flight, weakening currencies and heightened inflationary pressures.
Specific implications for South Africa
South Africa, as a mid-sized open economy, is usually highly sensitive to fluctuations in international trade policies. When the new "reciprocal" tariffs were first announced in April, notable impact was expected in the following areas.
The impact has so far deferred to what was expected in April
After a three-month stay of execution after the initial April announcement, a flurry of negotiations saw more "permanent" tariffs being implemented on the US' trading partners from August. The levels were much lower than what was first announced but still meaningfully higher relative to where these levies have been in the past.
The impact on inflation was thus delayed, and the US monetary authority has also become less concerned over the inflation impact as negotiations have played out. So far, there have been some small adjustments to consumer goods prices in the US, but older inventories may still have to be worked through, and it seems that businesses are absorbing some of the impact as well.
There has, however, been a notable shift in global growth expectations following the initial tariff announcements. Much of this slowdown has been ascribed to the uncertainty surrounding the new tariff regime that has resulted in slower business investment and softer consumer confidence. Some businesses will have been forced to absorb tariff impacts - also impacting growth. The growth story has been somewhat sustained by major AI investment, particularly in the US.
Investor sentiment has certainly grown more "skittish". Financial markets are more volatile and there have been notable flow disruptions - but not in the way the market initially expected. Emerging market flows have improved, and currencies have appreciated relative to the greenback as investors have looked to diversify their investments out of the US, at least in part due to policy uncertainty. The US dollar has weakened notably, helping the rand as well. Equity markets have remained very strong, even in the US, where enthusiasm over AI has propelled technology stocks to record highs.
Commodity prices have been mixed. Copper has been propped up by the broader AI thematic, PGM prices have recovered and the gold price has experienced a very strong rally due to its safe-haven appeal as political chaos has perhaps even improved the case for gold outside of what had already been very solid fundamentals post-Russia's invasion of Ukraine in 2022. These better pricing dynamics, on balance, have supported the local equity returns that have a high proportion of mining stocks in the index.
Outside of trying to confirm more favourable terms with the US, most countries have also woken up to the fact that an outsized dependence on the US is a major risk and have sent delegations to different parts of the world to explore and secure new markets for their exports. The situation in South Africa has mirrored this - particularly in areas like agriculture exports.
The story is still developing, however, and the impact of the US tariffs may not yet be fully felt or entirely understood just yet - particularly as it interplays with other factors like the debasement trade and the AI thematic, clouding the story somewhat.
