We are not dealing with measured or consultative policymaking

The tariffs, which range from 10% to 50% across more than 100 countries, and an astonishing 145% on Chinese goods, were announced 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 and counterproductive.

Normally, tariffs are preceded by diplomatic dialogue, gradual implementation and consideration for the ripple effects across economies. In this instance, that process has been entirely bypassed. Instead, what we’re seeing is a jarring shift that undermines predictability – a core requirement for long-term capital investment and business planning.

South Africa has not been spared

We now face a 30% tariff – a full five percentage points higher than local policymakers expected. Although we make up 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. That’s a significant exposure for our economy.

Most of these exports are in 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: 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.

It’s not just about macroeconomic growth or inflation. The reality is that tariffs directly impact specific businesses and industries. For South Africa, the immediate challenge is how to maintain competitiveness in sectors now facing artificially inflated pricing abroad. And for investors, it’s about identifying which companies are resilient enough to withstand these shocks.

Globally, the pattern is similar

The European Union faces 20% tariffs, sparking internal debate and preparations for countermeasures. Vietnam was hit with nearly 50% tariffs, while China, predictably, is at the centre of the storm. With a tariff now sitting at 145%, and a rapid escalation from an initial 125%, the message from Washington is unmistakable. But so too is Beijing’s response: tit-for-tat tariffs and a sharpening of geopolitical tensions.

It’s difficult to disentangle trade policy from broader strategic rivalry. In China’s case, the measures clearly go beyond economics and reflect deeper anxieties about the future balance of global power. While Chinese growth has moderated, it still far outpaces much of the developed world. And as it narrows the gap with the US, tensions are likely to intensify.
Interestingly, not all responses have been confrontational. The UK, Japan, South Korea, and Australia have taken a more diplomatic approach, signalling their willingness to negotiate. Taiwan has suggested focusing on reducing broader trade barriers. Vietnam even offered to eliminate tariffs on US imports entirely, showing that in some corners, strategic pragmatism is still alive.

A softening of rhetoric

In the midst of all this, Trump has backtracked slightly, announcing a 90-day pause on many of the new tariffs – China being the major exception. While the official rationale is unclear, it’s likely that the domestic fallout played a role. Bond markets reacted negatively, big business pushed back, and 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.

From an investment perspective, this creates a particularly volatile environment

Markets are swinging on news flow, with large companies 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, particularly those introduced in an unpredictable manner, can distort price signals and earnings expectations. But if you have a clear understanding of a business’s intrinsic value through the cycle, these selloffs can create attractive entry points. 

The reality is that volatility driven by political manoeuvring is not new. We saw a similar pattern during Trump’s first term, with trade wars and market turbulence dominating headlines. Yet those years passed, tariffs were rolled back, and markets adjusted. It’s important not to overreact to short-term noise or try to predict policy turns with precision.

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’s 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.

You can also listen to this podcast on iono.fm here.