Escalating US tariffs send SA market into tailspin amid political uncertainty

Rand plunges to two-year low by 1.6% to R19.44 against the dollar, its lowest since May 2023

- SIPHELELE DLUDLA

THE fallout from escalating US import tariffs reverberated across global markets on Monday as fears of trade tensions between the United States and China grew, with South Africa's economy bearing the brunt of the turmoil exacerbated by domestic political uncertainty.

The rand plunged to a near two-year low by 1.6% to R19.44 against the US dollar during early trade on Monday, its lowest level since 26 May 2023 when it hit R19.65/$1, worsened by the uncertainty over the future of the Government of National Unity (GNU).

Financial markets remained on edge on Monday over the outcome of the ANC National Working Committee, which met to decide on the constitution of the GNU, after the DA disagreed with the VAT increases proposed in both the budgets.

Investec chief economist, Annabel Bishop, said the recent substantial US dollar weakness would have seen the rand nearing R17.50/$1, but its weakness above R19.00/$1 was driven by domestic factors alone due to high political risk.

"Without the threat of the DA exiting the GNU and hence the government of South Africa, the rand would be substantially stronger, well below R18.00/$1 after the imposition of universal tariffs from the US, with many countries seeing higher protectionism," Bishop said.