Making sense of Trumponomics, one tariff at a time

Spare a thought for anybody tasked with making South African trade forecasts. 

The future, or even just the next few hours, appears to be hostage to Donald Trump’s twitter account. Will import tariffs on SA goods into the US be set at 10%? 30%? 300%

It’s a guessing game with huge implications, all subject to the inconsistent whims of the US administration. 

The tariff outcome – eventually there has to be one – will have a huge bearing on employment in various local sectors, notably agriculture, automanufacture and boatbuilding. At the time of writing South Africa faces a 40% tariff (30% plus 10% BRICS penalty), with only two weeks left to ‘make a deal’ with Trump and Co.

By comparison the European Union faces a 30% tariff subject to their own trade negotiations with the US.

The uncertainty weighs heavily on investor sentiment, particularly in export-orientated sectors that rely heavily on the US market. For example, as much as 80 percent of SA-manufactured luxury boats are sold into the US where a hefty import tariff could put a dampener on trade volumes.

Ironically, such a move would also harm US component manufacturers who supply as much as 60% of components for locally-produced catamarans. Any drop in local manufacturing output in this sector would result in a substantial drop in demand for US components.

The situation is particularly vexing in light of the questionable trade rationale for raising US tariffs on South African imports. Our trade with the US constitutes less than 0,3% of total US trade volumes. It is hard to believe the hefty tariff is aimed solely at addressing a trade imbalance, particularly as tariffs on incoming US goods is a paltry 7,6% on average. 

In our view the tariff standoff may stem from underlying geopolitical dynamics that lie outside the ambit of trade negotiations.

Our hope is that the final tariff decision will take heed of the potential dire consequences for US-SA trade relations.

Jacques Moolman
President of the Cape Chamber of Commerce and Industry