Trump’s tariff mania and the rand

THE South African rand has taken a severe blow following US President Donald Trump’s announcement of increased tariffs on imported goods.

- ADVOCATE LAVAN GOPAUL

The USA policy shift has sent shockwaves through global financial markets, with intense punishment to emerging economies like South Africa feeling the brunt of the impact.

The rand’s dip could have far-reaching consequences for the country’s economy, businesses and ordinary citizens, affecting everything from fuel prices to the cost of imports and overseas travel. While the rand’s move to almost R20 for a US dollar scared financial markets, it returned battered and bruised to almost R19 to a dollar by Monday. However, the currency volatility could spell bad times ahead.

Trump’s tariff mania started with tariff hikes on all trade partners a few weeks ago, then spiralling into a frenzy of several tiers of tariffs, with South Africa having a 30% tariff hike, the UK a 10% hike, and the implementation of a 34% tariff on Chinese imports initially, then spiking to a 104% tariff increase for China last Wednesday.

China replied with hikes in step with the USA. Last Friday, China hiked tariffs to 125% and Trump indicated that he would push the tariff on China to 145%. Financial markets were devastated in response to these hikes, and then Trump surprised the world with a 90-day freeze on tariff hikes in all countries except China last Thursday.

Why is Trump committing to tariff hikes? The simple explanation is that the Trump administration believes that increasing the tariff on imported goods, particularly Chinese goods, will force the US consumer to buy local products, boosting local manufacturing and creating jobs for the USA.

The flaw with this model is that manufacturing in modern times is machine-oriented and does not create many jobs. There is a lag in the time to establish factories, and this will force the USA operators to buy from foreign companies at high prices which will lead to a massive surge in inflation in the USA.