SANISHA PACKIRISAMY: Rewriting South Africa’s script in a walled-off world

The global economy, once guided by open trade’s clear rules, now faces rising protectionism, dividing players and a shifting stage. A fractured world order looms, where South Africa — a fragile contender — must navigate trade tensions and local pitfalls to secure its footing. With the GNU wavering, can the country stay on script?

The postwar dream of unfettered markets, stitched together by institutions such as the IMF and the World Trade Organisation, is unravelling. The US, once the chief architect of global trade, is building walls, layering tariffs to cradle its industries. Protectionism taps a deep well of public frustration over job losses from globalisation’s tide, though whether it’s a passing wave or a deeper current remains unclear. The fallout is spreading, nonetheless. China has countered with its own levies, the EU is drafting retaliatory duties and Canada is hunkering down.

The global economy is reshaping into self-reliant rival blocs, disrupting the free flow of goods and capital. Nations’ self-reliant tilt risks destabilising markets, nudging the world off its open-trade axis.

This new order breeds risks. Growth, already wobbly, faces difficulties as import costs climb, squeezing demand and lifting inflation expectations. Supply chains, already strained, risk further disruption as tariffs fracture global trade.

Central banks face a dilemma. The US Federal Reserve, wary of stagflation’s echo, may hold interest rates firm, risking a deeper slowdown. Globally, peers mirror this restraint, pausing rate cuts to curb inflation — though easing could follow if recession threatens. Markets, jittery from trade uncertainty, are bracing for continued volatility, with investors shielding portfolios against a bumpy ride.

The dollar and US treasuries, typically crisis anchors, defied norms amid the tariff chaos — the dollar slid, yields soared — as recession fears and tariff-driven inflation eroded confidence in US assets, with speculation pointing to foreign bond dumps as nations such as China sold US treasuries to counter trade pressures and rebalance reserves. Still, no currency is threatening the dollar’s dominance. The euro, weighed down by the EU’s fractured politics, uneven growth and competing fiscal priorities, lacks cohesion to rival a global anchor. China’s tightly controlled yuan struggles for trust beyond Asia as capital controls limit its appeal, and the Swiss franc, a safe haven, is constrained by Switzerland’s small economy, undermining its scalability for global trade.

Amid the tariff-driven uncertainty, central banks are stockpiling gold, signalling unease over dollar reliance. Gold, illiquid for trade, hedges against protectionism’s financial disruptions, potentially weakening the greenback through diversified reserves.

US tariffs imperil South Africa’s economic script, risking its trade surplus, which climbed from $495m in 2004 to $1.05bn by 2023, according to economic data and analysis provider Quantec. A proposed 30% tariff on most exports — deferred until early July 2025 — and a 25% levy on vehicles endanger the automotive sector, a cornerstone of manufacturing, further pressured by low-cost Chinese competitors.

While platinum, titanium, ferroalloys and aluminium, which account for more than 45% of South Africa’s exports to the US, are exempt, the potential loss of duty-free access under the African Growth & Opportunity Act threatens 86,000 direct and 125,000 supply chain jobs, cautions vehicle manufacturers and importers association Naamsa.

South Africa’s negligible share of US trade — just 0.25% — renders countermeasures futile, leaving us with little leverage to push back. Instead, expanding into European, Asian and African markets is critical. The African Continental Free Trade Area offers long-term potential for regional strength, though its slow rollout — hindered by infrastructure gaps and regulatory misalignment — limits its immediate impact, forcing South Africa to lean on bilateral deals to offset market losses with the US.

Diplomatically, South Africa’s ties with China and Russia, geopolitical activism and domestic policy disputes invite sanctions by the US. A skilled ambassador might navigate these tensions, but missteps could isolate South Africa, threatening its trade-dependent sectors. Prioritising trade diversification and regional integration, while deftly managing global relations, remains essential to sustaining economic stability.

Locally, policy cohesion between South Africa’s coalition partners is faltering. Clashes between the ANC and the DA over the budget and reforms threaten to upend the GNU, with voter trust fraying. Growth, squeezed by trade barriers and supply chain strains, increasingly depends on reforms that hinge on political stability. A DA withdrawal could dent confidence and investment, amplifying economic uncertainty, which jumped in the Bureau for Economic Research’s manufacturing survey for the first quarter.

To counter protectionism’s tightening grip, South Africa must act. Accelerating reforms, deepening trade ties with Europe, Asia and Africa, and stabilising political leadership are critical to drive growth and attract investment. With inflation risks rising amid tariffs and mutterings of sanctions by Washington, our ability to balance deft diplomacy with domestic coherence will determine the country’s economic resilience. Delivering on these priorities will anchor South Africa’s economy against global trade disruptions.

Packirisamy is chief economist at Momentum Investments