“There is greater cynicism and scepticism of democracy,” said Patrick Gaspard, the US ambassador to South Africa during Barack Obama’s presidency, on factors that will shape next week’s election in that country.
In a discussion this week with Ann Bernstein, the director of the Centre for Development and Enterprise, Gaspard said that the moment we’re living in is characterised by hyper-sovereignty as countries eschew globalisation in favour of “building moats around their countries and pulling up the drawbridge”.
This is a critical point for countries like South Africa, which are weighing the implications for themselves of the election on November 5, as the current vice-president, Kamala Harris, takes on the Republican Party’s candidate, Donald Trump. Polls show there is nothing in it right now, with both candidates neck and neck.
This hyper-sovereignty – symbolised by Trump’s recent statement that “the most beautiful word in the dictionary is ‘tariff’; it’s my favourite word” – illustrates how high the stakes are for a continent that has much to lose. Not least of which is its preferential trade deal, the African Growth and Opportunity Act (Agoa), which provides 32 African countries with duty-free access for certain exports to the US market.
Laurence Caromba, an analyst at the Mapungubwe Institute for Strategic Reflection, tells Currency that there now appear to be two distinct scenarios for South Africa and Africa, depending on who prevails in the election.
“Under Harris, the status quo will largely remain, even though there are still tensions between the two countries. But under Trump, we [will] see a switch to a much more challenging environment,” he says.
Should Trump win, analysts expect greater protectionism, highlighted by new tariffs on imported goods. As part of this, Trump has threatened to impose a new 10% tariff on all countries, and a 60% tariff on China.
This election promise has been roundly panned by economists as likely to fuel inflation in that country. This month, 23 Nobel prize winners for economics, led by Columbia University professor Joseph Stiglitz, signed a letter slamming the “counterproductive economic agenda” of Trump.
“His policies, including high tariffs even on goods from our friends and allies and regressive tax cuts for corporations and individuals, will lead to higher prices, larger deficits, and greater inequality,” they said.
Under a Trump presidency, Agoa would be at risk too.
“Agoa is precisely the sort of trade deal that Trump doesn’t like: it’s a non-reciprocal agreement, which gives African countries duty-free access to the US market, which gets nothing in return,” says Caromba. “And then when you couple that with Trump’s willingness to pay back his enemies – and South Africa’s stance against US allies like Israel – you can see why his presidency would be a risk to the future of Agoa.”
This inclination was on display this week, as Trump told supporters at a rally in Pennsylvania that he would impose a “reciprocal trade act” to punish Europe for not buying US products.
“They don’t take our cars. They don’t take our farm products. They sell millions and millions of cars in the United States. No, no, no – they are going to have to pay a big price,” he said.
Caromba says that even amid a global trend towards protectionism and economic nationalism, Trump’s tariff plan would be worse for South Africa than anything proposed by Harris. And the bad news is, Trump seems serious about this.
“His view on protectionism does seem to be one of his deeply held beliefs going back to the 1990s, so while some have said this may just be an election promise, this feels like an expression of his authentic policy view rather than a bluff,” Caromba says.
Weaker rand
Shaun Murison, an analyst at IG Markets, has written extensively about the impact of a Trump or Harris victory on South Africa’s economy. He agrees that the trade fallout could be significant.
“Trade tensions and potential tariffs could challenge South African exports to the US, necessitating diversification in export markets,” he says.
Murison says that beyond tariffs, South Africa could see the rand weaken against the dollar due to Trump’s “America First” policies. If that happens, it would make imports to South Africa more expensive, but boost the competitiveness of the country’s exports – even if getting those products into the US would be trickier.
“Investor sentiment may shift towards US assets, potentially reducing foreign investment flows to South Africa and increasing the cost of capital,” he says. “A potential decrease in US foreign direct investment could prompt South Africa to seek alternative investment sources.”
If anything, this could push South Africa closer to its Brics partners – like China, which has already shown an inclination to provide funding to the country.
Then, there is the impact on the JSE from a more fractured and volatile global trading environment.
In Murison’s view, several stocks would provide a degree of protection in the event of a Trump victory.
First, mining firms like Anglo American and African Rainbow Minerals could benefit from a weaker rand, as they sell commodities in dollars. Second, export-oriented manufacturers like Sasol, Sappi, Nampak and Mondi, and agricultural exporters like Oceana and Astral Foods would do well from a weaker currency.
Similarly, tourism companies like Sun International and City Lodge would profit from more tourists choosing to visit a cheaper destination like South Africa.
Consumer-facing companies like Shoprite and Tiger Brands also “might be viewed as safer bets during periods of global uncertainty”.
Little understanding
The silver lining of this global turmoil is that no US president in recent times has bothered to spend much time worrying about Africa, which suggests the fallout for the continent may be limited. Even Trump, who has boasted of exacting retribution against his enemies once he is back in the White House, would probably be too concerned elsewhere to worry about Africa.
In part, this indifference is borne from the fact that Americans don’t have much affinity with Africa, Gaspard said.
“Americans little understand that we have tens of thousands of automobiles that ride on the streets of the US that were manufactured in South Africa. They don’t understand the agricultural trade relationship we have with South Africans. And most Americans are woefully unaware of the impact the South African banking industry has up and down the African continent and how strong, vital and essential that industry is,” he said.
Not that South Africans are much better. The country is prone to “Disney-fying” the US, ignoring the complexities and problems of a modern large economy, Gaspard argued.
As Obama’s former political director, Gaspard’s allegiance to the election is clear. He has known Harris for years. He describes Trump as the “Frankenstein Monster” the Republic Party built in its basement, but it soon escaped and somehow ended up as the party’s candidate.
“Even if [Harris] wins, there is cause for concern, because she’ll win in a tight election, and Donald Trump has already demonstrated his inability to concede defeat, and he’ll exhort his followers to contest the results in a way that is anti-democratic and could be violent,” Gaspard said.
The prospect of this illustrates why South Africa’s distance from the US – both ideologically and geographically – might not be a bad thing.
However, Caromba says that while South Africa – and Africa – has been largely absent from the priority list of US presidents, this is incrementally changing, as the country realises that, diplomatically, it does not want to lose the support of developing countries to ideological rivals like China.
“This provides the next US administration with a real incentive to ensure that South Africa, as the most industrialised country on the continent, remains on the agenda of either Harris or Trump, whichever of the two is left standing a week from now,” he says.