NATIONAL NEWS - At the start of 2018, the outlook for emerging markets seemed extremely positive. A strong global growth environment and continued risk appetite from investors was good news for these economies.
This was also encouraging for South Africa. It seemed that the country’s change in political leadership and the potential for improved business and consumer confidence could see it benefit from the continued appetite for emerging markets.
However, when president Donald Trump announced at the start of March that the US would be imposing tariffs on steel and aluminium imports, this picture began to change. When Trump added to these earlier this month with his announcement that the US would be placing a 25% tariff on $50 billion of Chinese goods, things grew even gloomier.
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.
Read: US trade attack sparks emerging market sell-off
Speaking at the CoreShares ‘Think Index Investing’ Convention last week, Mike Schüssler, the founder of economists.co.za, said that South Africa can’t ignore these impacts, even if it’s still unclear just how far the US will go.
The unpredictable Trump
“A lot of people think it won’t lead to a full trade war,” said Schüssler. “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. In an announcement on Friday, the two imposed tariffs on $3.3 billion of American products.
The unpredictable factor, however, is Trump. It is extremely difficult to judge what he will do. As he has shown with his approach to North Korea, highly antagonistic rhetoric can very quickly lead to conciliation.
“We cannot read people’s minds,” said Schüssler. “We don’t know how far Trump is willing to take this. At the moment it looks like a lot of noise and warning shots.”
Gina Schoeman, South Africa economist for the Citibank Global Economics team, agreed.
“It’s impossible to know how this all ends up,” she said. “We don’t know who is going to do what over the long run.”
It may be that Trump’s threats of much greater tariffs is simply his way of forcing other countries to compromise, however one can’t discount that they could be genuine intentions. If they are the latter, then there really will be trouble.
