The Implications of U.S. Presidential Elections

Benefits of a Trump Victory include:

• Economic Growth: Trump’s presidency was characterised by strong economic policies, including a 2.5% GDP increase in his final year. A return to similar pro-business policies could boost trade relations with South Africa and stimulate growth.
• Investment Opportunities: Trump’s focus on deregulation and tax incentives could lead to increased U.S. investment in South Africa, creating much-needed jobs in a country with over 34% unemployment.
• AGOA Benefits: Under a Trump administration, AGOA, which provides duty-free access for South African products to the U.S. market, may be reinforced, potentially enhancing economic ties.
• Newfound Stability in Trade Policies: Trump’s assertive approach could result in clearer, more predictable trade policies, allowing South African exporters to plan their long-term strategies with greater assurance.

The possible positive impact a Harris/Walz victory for South Africa include some of the following points to take note of:

• Strengthening Trade Relations: A Harris administration may prioritize trade agreements with African nations, potentially expanding AGOA and benefiting South African exports.
• Climate Change Focus: Harris’s support for environmental initiatives could attract investment into South Africa’s renewable energy sector, vital for economic growth.
• Increased Foreign Investment: Harris’s emphasis on social and economic justice may boost foreign direct investment in South Africa. As American companies seek to engage with responsible markets, this could lead to higher employment rates and expanded economic activity.

There are however possible downsides to both candidates and what that could mean for South Africa going forward for the next four years under either a Trump or Harris administration.

Possible downside for South Africa under a Trump administration includes but is not limited to the following main points of concern:

• Increased US Protectionism and Tariffs: Trump’s known protectionist policies could impose tariffs, adversely affecting South African exports, particularly in sectors reliant on AGOA, like the textiles sector but also the South African agricultural sector.
• Currency Volatility: Political instability could lead to fluctuations in the foreign exchange market, impacting the Rand’s value and complicating trade for South African businesses.
• Continued Global Economic Uncertainty: An erratic presidency could foster instability in global markets, leading to currency volatility. Should aggressive trade measures be implemented, the rand could depreciate notably in a short time frame and thus potentially could have adverse effects on import prices and volumes and ultimately lead to further inflationary pressure within South Africa.

Concerns with a Harris administration include the following discussion points:

• Risk of Protectionism increased: There’s a risk that a Harris administration might adopt protectionist trends similar to those of previous administrations. If aggressive trade policies emerge, South African exports, particularly those reliant on AGOA, could be negatively impacted
• Currency Exchange Rate Impacts: Changes in U.S. trade policies can lead to volatility in the foreign exchange market. Protectionist measures could struggle against South African exports, leading to depreciation of the rand, which would increase import costs and exacerbate inflation.
• Unpredictable Foreign Policy: While focusing on diplomacy, Harris’s foreign policy could still introduce uncertainty. Any shifts in U.S. policy priorities may complicate South Africa’s geopolitical standing and economic dealings, particularly if there’s a focus on a broader African strategy that may not align with South African interests.
• Unusual tax policy consideration: The Harris campaign mentioned the possible consideration of a tax on unrealised gains. This concept, while aimed at increasing revenue from wealthier individuals, raises significant concerns regarding its potential impact on financial markets, market liquidity, and overall economic growth.

The Economic Context

The South African rand is sensitive to U.S. economic policies, market movements and US sentiment towards emerging markets. Aggressive trade actions from the US may trigger a depreciation of the Rand, complicating the import landscape while driving up import prices as a result. Conversely, anticipated investment and trade could strengthen the currency, contingent on the U.S. market’s response to Trump’s or Kamala’s policies.

It should however be kept in mind that approximately 13% of South Africa’s total exports go to the U.S., making it one of the country’s largest trading partners. Knowing that a U.S. is one of South Africa’s largest trading partners, the AGOA agreement facilitated a growth of nearly 41% of South African exports to the U.S. in 2020 alone, underscoring the importance of this agreement to South Africa and its U.S. related exports.

As of 2023, the unemployment rate stood at around 34%, particularly concerning for youth aged 15-24. Enhanced access to the U.S. market could support job growth, while increased tariffs pose a risk to these opportunities.

Conclusion

A potential Trump or Harris victory brings both opportunities and challenges for South Africa. Stronger economic growth and stable trade policies could yield significant benefits, but protectionist measures and geopolitical tensions present substantial risks. To navigate these complexities, South Africa should capitalise on AGOA opportunities while preparing for possible uncertainties.

Market volatility is likely inevitable, particularly when political risks influence various asset classes, resulting in significant fluctuations in listed stocks, bonds, and currency values. In the event of either a Trump or Harris administration, returns on private equity and alternative investments may be less volatile and more stable due to the nature of these assets, which often respond differently to political risk compared to publicly traded securities.

As global markets continue to evolve, adaptability will be essential for fostering a bright economic future, irrespective of the political climate in the United States. Effectively managing these dynamics will help ensure sustained growth and stability for the South African economy.