Let the tariff wars begin

3 February 2025 - How will Trump’s tariff wars US consumers and SA markets? Is SA at Magnitsky risk for anti-Israel stance? According to IMF, is SA using GNU opportunity? After DRC disaster, SA restore its military credibility?

Let the tariff wars begin

On Saturday United States (US) President Donald Trump signed three executive orders imposing 25% import tariffs on certain goods from Canada and Mexico, and 10% on all imports from China, starting at midnight on Tuesday, with no end date. Energy imports from Canada – including oil, natural gas, and electricity – will be taxed at 10%. According to White House officials, there would be no exceptions from the tariffs. Retaliation by Canada, China or Mexico against the tariffs would be met with further increases in US import duties.

The US is the world’s second-largest goods exporter, exporting $2.1 trillion worth of goods in 2022, behind only China. In that year, Canada, Mexico, and China were the first-, third- and fourth-largest purchasers of US goods exports, respectively, with the European Union (EU) in second place.

On the other side of the trade equation, the US is the world’s largest market for exporters, importing $3.2 trillion worth of goods from its trading partners all over the world. The top suppliers of goods to the US were China in first place, Mexico in third and Canada in fourth. The EU was the second-largest exporter to the US.

Higher import tariffs on goods from Canada, China and Mexico will be paid by US businesses and consumers. This will raise their costs unless they can switch to goods produced more cheaply locally or in foreign jurisdictions that are not being targeted. The aggressive US approach to tariffs increases the risk that other countries will retaliate by imposing tariffs on imports from the US. The common wisdom is that this will lead to tit-for-tat tariff wars that lower global trade volumes, reduce arbitrage opportunities based on comparative economic advantage, drive up prices, and leave businesses and consumers worse off. Economists believe that the world economy will grow measurably more slowly should global supply chains be disrupted by trade wars.

However, an alternative scenario is that heated conflict about tariffs, triggered by Mr Trump’s brashness, could lead to an overall reset of how global trade is conducted. The rules currently governing trade are famously convoluted, complex and beset with concessions to special interests in the form of exemptions, subsidies, non-tariff barriers, and exchange rate manipulations. A review that places them on a more equal and transparent footing could prove to be a boon to trade. However, at this stage it is too soon to tell if that will happen.

Mr Trump’s executive orders show a high willingness to pick a fight with the big beasts of the global economy. The South African economy is small fry by comparison. Its government should therefore expect little kindness and forgiveness from its US counterpart if it persists in actively supporting regimes the US regards as hostile, such as China, Iran, Russia, and Venezuela. South African exporters should anticipate more difficulty accessing the US market in future, especially if they are currently benefiting from the Africa Growth and Opportunity Act (AGOA). Persistently higher interest rates are another potential consequence of trade wars, as higher tariffs and less trade place upward pressure on prices.

Magnitsky risk for anti-Israel cheerleaders

Senior political leaders and officials in South Africa who have been spearheading the country’s foreign policy on Iran, Israel, China and Russia could find themselves subjected to targeted US sanctions. Reports suggest that Washington is looking for means other than cancelling AGOA to express its displeasure with South Africa’s government. One such mechanism could be to enact targeted sanctions against those South African leaders considered directly responsible for corruption and violations of human rights.

A tool to do so is readily at hand: the Global Magnitsky Human Rights Accountability Act, usually referred to as the Global Magnitsky Act. The law gives the US president the discretionary power to declare individuals unwelcome in the US, revoke their visas, block their US property, and prohibit US citizens and entities from transacting with them.

It also gives certain members of Congress the power to require the executive branch to “determine whether specific alleged perpetrators meet the criteria for such sanctions”. To make this determination, the executive branch must consider information from sources that can include foreign governments and nonprofit organisations that monitor human rights.

One such information source could be the government of Israel, which has both a highly regarded intelligence service and an axe to grind with parts of South Africa’s government, particularly the African National Congress (ANC). This could result in revelations that are highly embarrassing for senior members of the ANC – a potentially more anxiety-inducing prospect than that of having to forego Fifth Avenue shopping trips in New York City. Should the Government of National Unity (GNU) fold, the US Congress and administrations might feel fewer compunctions about deploying this tool. South Africa’s renewed legal attacks on Israel as part of the nine-country Hague Group last week further increases the risk of targeted sanctions on South Africa’s foreign relations decision makers.

No GNU magic in IMF numbers

The International Monetary Fund (IMF) country report on South Africa released last week forecasts economic growth at 1.5% in 2025 and 1.8% in the medium term. This is in line with National Treasury expectations and means that the IMF expects South Africa to remain stuck in the sub-2% growth zone which it has occupied for the past decade and a half.

Reading between the lines, the IMF does not expect the GNU to make use of the political window of opportunity voters gave it to place the country on a higher growth path. The IMF describes the opportunity as follows: “On the upside, faster and more ambitious reform implementation by the new government, or stronger global growth, could boost confidence and growth.” But this comes after it has concluded that the balance of risks is “tilted to the downside” for reasons both domestic and global.

Measures which the IMF suggests could boost growth include introducing additional reforms to create a more favourable environment for business; improving governance; and making the labour market more flexible.

However, the South African government appears intent on doing the exact opposite. Instead of making South Africa more attractive for investment, President Ramaphosa signed into law an Expropriation Act that leaves investors in the dark regarding how much compensation they could expect to be paid should they be expropriated, with “zero” a feasible number in the case of land. Instead of improving governance, the ANC is undermining collaboration in the GNU by riding roughshod over its partners. Instead of increasing flexibility in the labour market, it is ratcheting up race-oriented hiring requirements and persisting with a national minimum wage that caused 228,000 job losses in 2024 alone, according to calculations by the Development Policy Research Unit at the University of Cape Town.

Under the circumstances, the IMF is correct in its assessment. The GNU magic is fading because the ANC is letting the opportunity slip away – putting the lie to Mr Ramaphosa’s endorsement of growth and investment on the international stage at the World Economic Forum in Davos.

Military disaster in the DRC

Events in the Democratic Republic of Congo (DRC) are threatening to derail Mr Ramaphosa’s goal of presenting himself as the head of a capable state at the G20 Summit in Johannesburg in November. Media reports over the weekend suggest that the entire South African force in Rwanda has effectively been taken prisoner by Rwandan troops and confined to its base by the M23 rebels and their Rwandan allies.

If the reports are confirmed, this would represent a military disaster comparable to the South African surrender of Tobruk in 1942, during World War Two. If the South African troops are not rescued it will damage the country’s military credibility beyond repair for the foreseeable future.

Reversing the situation will require South Africa to commit money, troops and diplomatic skill to place pressure on Kigali to withdraw. It seems Rwanda is in no rush to do so and South Africa is in no position to force it. This military misadventure is likely to leave the DRC further destabilised and South Africa humiliated. Last week South Africa’s defence minister, Angie Motshekga, and her military top brass claimed to have everything under control. Parliament has been mostly kept in the dark about the purpose, costs and progress of the deployment.

The South African National Defence Force has had its funding reduced steadily over the years and the soldiers in the DRC are not properly equipped or supported. News24 reports the following message from besieged South African soldiers before their cell phone communication was cut off: “Where is the help and the planes? No one knows anything. They have forgotten us. We are being sacrificed. This entire deployment is a suicide mission.”