After spending a week in Brazil, where I attended the Fourth Dilemmas for Humanity Conference in São Paulo and presented to the brightest economic policy wonks in the Global South, it was depressing to return to SA and confront the elite commentariat’s economic illiteracy.
According to US economist Paul Krugman: “Trump’s postpause tariff regime remains the biggest trade shock in US, and I think world history … uncertainty about Trump’s policies is as big a drag on the economy as the policies themselves.” The market response to the trade shock has been to “sell America”, resulting in the simultaneous collapse of shares, bonds and the dollar.
Modern monetary theory economist Nathan Tankus wrote: “Today was the Trump tariff crisis’s Lehman Brothers moment. I firmly believe April 9 2025 will be a date remembered like September 15 2008.” This could morph into a financial crisis if deleveraging by hedge funds “causes further market dislocations in superficially unrelated markets”. And things could get really ugly if China starts selling US treasuries. The ripple effects of the initial trade shock will result in lower global GDP growth.
For developing countries this is a macroeconomic policy shock. As China has shown, it requires the deployment of macroeconomic policy tools and industrial policies to counter the effects of lower global GDP growth and the disruption to world trade volumes. Economist Robert Brooks wrote: “In 2018, after the US put a tariff on half of everything it imported from China at a 25% rate, the renminbi fell 10% versus the dollar, in what was almost a one-for-one offset.” Since Trump’s “liberation day” China has started allowing its currency to depreciate.
According to XA Global Trade Advisors, SA exports to the US of R91.2bn (1.3% of GDP) are affected by the postpause 25% and 10% tariffs. This will add R16bn to the cost of SA exports entering the US market, equivalent to an effective tariff of 10.5% on total exports of R152.7bn during 2024. In SA, after two failed budgets, it is incredible that there is still a debate about an irrelevant VAT increase, given the significant change in the global and domestic economic outlook.
The primary objective of the budget should be to grow the economy and create jobs, not to balance the books. There is no budget shortfall. On March 12 the National Treasury decided to take back an arbitrary R69bn in additional VAT, after considering zero-rated items, from a planned R393bn increase in spending. Now it will be lucky to get R11.5bn, since the second half percentage point increase will not happen.
This is spare change in the context of a R1.7-trillion gross borrowing requirement and an increase in debt to R6.8-trillion during the three-year medium-term expenditure framework period, and will not reduce debt. There is no need to provide alternatives to the originally planned VAT increase. The Treasury can just leave the R69bn in the economy, which would provide a small stimulus.
Anybody who believes in the Treasury’s 1.9% GDP growth forecast for 2025 is a fool. During 2025 SA will have a third consecutive year of GDP growth that is less than 1%. This means every number in the budget is wrong. As was the case after the Covid-19 pandemic five years ago, SA needs an emergency budget that will provide a fiscal stimulus to the economy and precautionary rate cuts in case the global crisis worsens. SA also needs targeted and funded industrial policies to counter the effects of the tariffs on the economy and assist the affected companies.
• Gqubule is an adviser on economic development and transformation.
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