Adriaan Pask | Chief Investment Officer | PSG Wealth | mail me |
President Donald Trump’s so-called Liberation Day tariffs, announced in early April, have once again reminded investors of the fragility of market confidence. This is especially true in the face of policy missteps.
The scale and pace of these measures have sparked sharp reactions. They have wiped out trillions in equity value within days and created confusion across global supply chains.
Trump trade war effects on global market confidence
We are not dealing with measured or consultative policymaking. The tariffs range from 10% to 50% across more than 100 countries, and an astonishing 145% on Chinese goods. Trump announced these measures with a speed and severity that caught markets off guard.
While the underlying issues President Trump seeks to address, such as the erosion of US domestic industry and the imbalance in global trade – may hold some merit, the execution has been blunt. It has also proved counterproductive.
Normally, diplomatic dialogue, gradual implementation and consideration for economic ripple effects precede tariffs. However, in this instance, Trump bypassed that process entirely. Instead, we are seeing a jarring shift that undermines predictability. Predictability is a core requirement for long-term capital investment and business planning.
Trump trade war effects on South African exports
South Africa has not been spared. We now face a 30% tariff, a full five percentage points higher than local policymakers expected.
Although South Africa accounts for only 2.50% of US imports, nearly 9% of our exports go to the US. In Rand terms, that amounted to roughly $13 billion in 2023, about 2.10% of our GDP. This represents a significant exposure for our economy.
Most of these exports come from mining and manufacturing, precisely the sectors the US is trying to shield. Aluminium and steel, two industries central to both South African exports and US tariff policy, now face major barriers. These sectors alone account for around 30 basis points of our GDP.
The automotive industry is also in the firing line. Take BMW’s Rosslyn plant, for instance. Around 97% of X3 models sold in the US are made in South Africa. These units are now subject to a 25% tariff on vehicles and parts.
Navigating investment strategy amid Trump trade war effects
It’s not just about macroeconomic growth or inflation. Tariffs directly impact specific businesses and industries.
For South Africa, the immediate challenge is maintaining competitiveness in sectors now facing artificially inflated pricing abroad. For investors, the focus is on identifying which companies are resilient enough to withstand these shocks.
Globally, the pattern is similar. The European Union faces 20% tariffs, which has sparked internal debate and preparations for countermeasures.
Vietnam was hit with nearly 50% tariffs. China, predictably, is at the centre of the storm. With a tariff now sitting at 145%, up from an initial 125%, the message from Washington is unmistakable. Beijing’s response has been equally clear: tit-for-tat tariffs and increased geopolitical tensions.
It is difficult to disentangle trade policy from broader strategic rivalry. In China’s case, these measures clearly go beyond economics. They reflect deeper anxieties about the future balance of global power.
While Chinese growth has moderated, it still far outpaces much of the developed world. As China narrows the gap with the US, tensions are likely to intensify.
Diplomatic responses vary
Interestingly, not all responses have been confrontational. The UK, Japan, South Korea and Australia have taken a more diplomatic approach. They are signalling their willingness to negotiate.
Taiwan has suggested focusing on reducing broader trade barriers. Vietnam even offered to eliminate tariffs on US imports entirely. This shows that in some corners, strategic pragmatism is still alive.
In the midst of all this, Trump has backtracked slightly. He announced a 90-day pause on many of the new tariffs, although China remains the major exception.
While the official rationale is unclear, the likely reason is domestic fallout. Bond markets reacted negatively. Big business pushed back. Even Republican voter support began to waver.
With US debt servicing costs already exceeding $1 trillion, the prospect of higher yields, driven by uncertainty and inflation expectations, likely weighed heavily on the administration’s mind.
Volatility for investors
From an investment perspective, this creates a particularly volatile environment. Markets are swinging on news flow. Large companies are seeing their share prices jump or drop 10% based on a single headline.
In this context, constructing a portfolio around specific tariff outcomes is risky and unrealistic. Instead, the best course is to maintain diversification and flexibility.
Tariffs, especially those introduced unpredictably, distort price signals and earnings expectations. However, if you understand a business’s intrinsic value through the cycle, these selloffs can create attractive entry points.
Political noise is not new
Volatility driven by political manoeuvring is not new. We saw a similar pattern during Trump’s first term. Trade wars and market turbulence dominated headlines.
Yet those years passed. Tariffs were rolled back. Markets adjusted. It is therefore important not to overreact to short-term noise or try to predict policy turns with precision.
Focusing on fundamentals amid Trump trade war effects
For long-term investors, the guiding principle should remain unchanged. Buy quality businesses at reasonable valuations and hold them through the cycle.
Recessions will come, sometimes prompted by external shocks like these tariffs, but they are part of the normal economic rhythm. Political uncertainty, too, is an ongoing feature of global markets.
Rather than becoming fixated on every twist and turn, it is more constructive to acknowledge that markets will always present challenges. Staying focused on fundamentals and being patient often prove to be the most effective strategy.
