For the commodity-driven, BRICS-aligned South African economy, Trump’s protectionist policies, trade conflicts and geopolitical decisions may lead to increased future currency volatility and trade uncertainty.

The United States (US) election outcome, with former President Donald Trump winning in a landslide victory, has led to “notable volatility” in the South African rand, with as much as 2.5% of its value erased, leaving it to trade at R17.82 by midday today, according to Citadel Global Director Bianca Botes.

“Initial market responses to the news today saw the rand weaken, and brought a day of volatility to the fore, influenced by uncertainty over potential shifts in US policies. The reaction, albeit volatile, does not reflect a “shock” factor, and Trump trade has been priced in over the past few months. We are, however, entering a new era of uncertainty.” says Botes, a foreign exchange specialist.

NEW AMERICAN PROTECTIONISM AND WHERE IT LEAVES SOUTH AFRICA ON THE GLOBAL STAGE

“South Africa’s ties with seemingly anti-west countries, as part of the BRICS countries, and Trump’s previous hardline stance against Iran which now forms part of BRICS, puts South Africa in a precarious position on the global stage. South Africa’s neutral or positive diplomatic and economic ties with Russia and Iran could strain its relationship with the US under Trump. Should the US pressure South Africa to scale back these associations, it may create diplomatic friction with current allies or even lead to punitive trade measures, negatively impacting investor confidence and the rand,” says Botes.

An issue that remains of concern for African and South African trade with the US is the long-standing African Growth and Opportunity Act (AGOA). Botes explains the impact: “AGOA allows South Africa duty-free access to the US for certain exports, which play an important role in supporting the South African economy. Trump has in the past questioned the benefits of AGOA for their economy and might consider revising or even restricting South Africa’s access under this act if he perceives South Africa’s policies as misaligned with US interests, including the interests of their local manufacturers. Any loss of AGOA privileges would likely disrupt South African exports, affecting growth projections and placing further pressure on the rand.”

“Trump’s emphasis on protecting American industries and reducing trade deficits could mean tighter trade barriers – ushering in a new era of America protectionism that is likely to cause major disruptions to current global trade dynamics. Should he resume tariffs or restrict imports broadly, it could slow global trade, diminishing demand for South Africa’s exports and weakening the rand due to reduced foreign exchange inflows. Trump’s protectionism may create ripple effects that will weaken demand for commodities, a major export for South Africa. As global commodity demand fluctuates, so does the rand, which is highly sensitive to shifts in export volumes and prices, particularly in metals and minerals.”

Another key issue to note, says Botes, is Trump’s adversarial approach to China – another BRICS ally of South Africa. “Trump’s presidency could trigger another round of trade or geopolitical tensions, which generally increases risk aversion in global markets. As a result, investors may pull back from emerging market currencies, including the rand, in favour of ‘safer’ assets like the dollar, leading to further rand volatility. South Africa’s broader trade relationships with countries like China will likely be scrutinised. If trade tensions between the US and China escalate, it could impact South Africa indirectly, given its strong export and investment ties with China. This uncertainty could increase volatility in the rand as investors weigh potential trade slowdowns.”

GLOBAL GEOPOLITICAL AND POLICY IMPACTS OF A SECOND TRUMP PRESIDENCY

“Any geopolitical instability or escalation triggered by the Trump presidency – particularly involving the US and major trade partners – could create risk aversion in the global markets, causing investors to retreat from emerging markets. Conversely, if global trade tensions ease, it could support emerging market currencies like the rand, promoting long-term stability. We will have to wait and see what happens,” Botes cautions.

“A negative stance from Trump against certain BRICS-associated countries could strain global diplomatic stability. Similarly, if US policies under Trump lead to renewed Middle Eastern tensions, energy markets may experience shocks, affecting global commodity prices. South Africa, as an energy importer, would face increased costs, weakening the trade balance and potentially pressuring the rand if energy prices rise sharply.”

CONCLUSION

“Over the long term, the rand’s performance under a Trump administration would likely face sustained volatility, influenced by both US policy shifts and broader global economic trends. Trump is likely to favour policies that strengthen the dollar, which would pull capital flows away from the emerging markets. This could, critically, also increase the cost of South Africa’s US-dollar-denominated debt, further challenging the rand’s stability,” says Botes.

In conclusion, Botes cautions that the rand’s performance is always closely tied to global commodity demand – and it may be too early to tell how a Trump presidency might affect this demand. “If Trump’s policies disrupt global growth, particularly in major economies like China, South Africa’s mining and commodities sectors could suffer, putting further pressure on the rand. However, if global economic recovery continues, demand for commodities could bolster the rand, particularly if emerging markets see increased capital inflows.”