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Property Talk

Property Talk

Author: Andreas Wassenaar
Date: 2016-11-25
The financial press has been awash with editorials surrounding the expected future impact of a Trump presidency on global trade and the world economy. What is the likely impact on the South African economy, the exchange rate of the Rand and our local inflation rate

The Financial Mail recently ran a feature article stating that if the worst expectations of the Trump presidency were to be realized we would be headed for lower growth, a weaker Rand and higher local inflation. It all hinges on the risk of limitations to trade through a revived protectionism attitude.

The one positive aspect is that the African Growth and Opportunities Act, which provides for R16,6bn of annual duty free exports to the US, was extended by the US Congress last year until 2025.

As a small open economy we understand the value of trade and how our success is tied to the performance of our main trading partners. According to Stanlib chief economist, Kevin Lings, more than 50% of our SA GDP is either imported or exported.

The fear that has resulted has come from Trump's intended remedy to its own trade deficit by imposing hefty import duties on Chinese and Mexican imports, by renegotiating the North American Free Trade Agreement and by setting aside the Trans-Pacific Partnership Agreement, which intended to create a Pacific Rim free-trade zone.

The big test will be to see if the campaign rhetoric advocated leading up to the election actually translates into action once Trump is president. The recent anti-west language used by our own President is unfortunate, as it will not lead to a positive impact on our trade relations with the US.

Once you visit the US and experience first hand the size of their economy relative to our own, you quickly get a sense of relative importance and really how utterly insignificant we are on a global basis. Emerging markets, such as SA, have been identified as the biggest losers if large-scale global trade agreements are amended.

China and Mexico featured as being on Trump's radar. Limiting access to markets and introducing trade barriers could be particularly harmful for all of us. Although the Republicans control both the senate and the House of Representatives, for Trump to implement widespread changes promised in his campaign, he will still require the support across these law-making institutions.

American fiscal policy has the risk of becoming more expansionary which may lead to increases in US interest rates. This would strengthen the US Dollar, place downward pressure on commodity prices; our big export earners, and result in a weaker Rand. With so much uncertainty being the order of the day, the best advise is to focus on your local sphere of influence and make a difference where it counts.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.