How global trade war would hurt SA

When president Donald Trump announced at the start of March that the US would be imposing tariffs on steel and aluminium imports – and added that the US would be placing a 25% tariff on $50 billion of Chinese goods – things grew gloomy for emerging markets.

From what had been a positive global backdrop, the environment was suddenly far less supportive. Uncertainty about where the US stance would lead and the potential for a trade war made investors far less keen to take on risk, and therefore, much less bullish on emerging markets.

Speaking at the CoreShares Think Index Investing convention last week, Mike Schussler, the founder of economists.co.za, said South Africa could not ignore these impacts, even if it was still unclear just how far the US would go.

“A lot of people think it won’t lead to a full trade war,” said Schussler. “What we have at the moment is a skirmish. The $50 billion of trade that they have put tariffs on already is a very small amount in the global picture.”

Even though China and the EU are imposing retaliatory tariffs, these are significantly smaller than those the US has already approved, about $3.3 billion.

The unpredictable factor, however, is Trump. It is difficult to judge what he will do. As he has shown with his approach to North Korea, antagonistic rhetoric can very quickly lead to conciliation.

Already, it seems, that the uncertainty is impacting global trade. Judged by the world container index, trade is still growing, but has slowed from 4% to 1%.

As the effects take a long time to work through, it would also have a significant impact on global growth for next year.

This is not good news for South Africa, which is trying to work itself out of years of poor economic performance. A strong global growth environment would be supportive, but weakness in the global economy would make it even more difficult for the country to accelerate its fortunes.

South Africa is also highly dependent on foreign investment inflows.

However, the uncertainty being created in the global environment has already shifted investor perceptions, with risk appetites diminishing significantly and emerging markets falling out of favour.