Businessman and Republican candidate Donald Trump shocked the world when he won the race to the White House. It was a shock because just yesterday pollsters predicted a Clinton win, but looking back now we shouldn’t have trusted them as their Brexit forecasts also went horribly wrong.
But clearly forecasters underestimated the ire among those that had suffered job losses under the Obama era and the extent to which populist rhetoric and protectionist policies is agreeing with voters. “Politicians didn’t know how much the working class were affected about job losses. The Obama administration were pushing for green energy and miners were being replaced,” explains Tinashe Chuchu lecturer and undergraduate course coordinator at Wits.
Perhaps pollsters can’t be blamed for getting it wrong as those who did vote for Trump kept their feelings close to their chest. And while Trump angered liberal women with his misogynistic views Chuchu believes that most women still felt that Clinton was not the right woman for the job. “She was uniquely experienced and a lot of women, when asked, said they wanted a woman in the White House, just not this one,” says Chuchu.
Should South Africans care?
The world’s shock, morbid fascination and gaff lines on social media following the Trump win make for an entertaining day and a brief respite from South Africa’s own political problems following the State Capture Report released by former Public Protector Thuli Madonsela.
With America so (geographically) far away we may be forgiven for thinking that the latest election outcome will not affect us. But we’d be dead wrong, and here’s why:
1. Our investments are affected
If you’ve got exposure to the stockmarket be prepared for a bumpy ride. “Equities have been smashed across the globe with the Nikkei down nearly 6%; the NASDAQ futures trip switch was triggered when it hit a 5% loss during the early hours this morning. Chinese shares are down slightly but let’s be honest China’s government always intervenes somehow to keep their equities afloat,” points out Wichard Cilliers, head of dealing and a director at TreasuryOne.
He adds: “Bonds yields in the US and Europe continue to decline as the market shuffles out of equities and floods into a less risky assets for the time being. The ZAR is down across the board and was down as much as 4.3% versus the USD at 06:54 this morning. The USD/ZAR saw a high of 13.83 and low of 13.17 and is currently holding at around 13.66 at the time of writing.”
Markets don’t like uncertainty and there’s no clarity on whether Trump will follow through on some of his more outrageous promises. So for now, we’re in for a rocky ride because of the potential clashes Trump will have with countries that America has close trade ties with, including our own.
“The markets’ main concerns include Trump’s protectionist policies, focusing on potential trade wars with China – America’s largest trading partner – and with Mexico, it’s third largest. In addition, with Trump having said certain countries are ‘cheating’ due to their undervalued currencies, currency tensions should also be expected,” explains Nigel Green, founder and CEO of deVere.
2. We’ll be paying more to trade with the US
If Trump goes through with his policies it could be more expensive for South Africa to trade with the United States and the sectors most likely affected would be automotive, chemical and agricultural industries that trade with the US under the African Growth Opportunity Act (AGOA).
Trump pledged to put 45% tariffs on imports from China and 35% on imports from Mexico. Chuchu believes South Africa could face the 35% too. “This means companies in South Africa would struggle to trade with the US as its South Africa’s biggest trading partner.” If trade reduces with America, South Africans’ jobs could be on the line.
3. Our currency could get weaker
“The rand is a high-beta currency, which means that it tends to be more sensitive to any moves against the dollar than other currencies, and this is likely to play out over the short term,” says Old Mutual Investment group chief economist, Rian le Roux.
Le Roux adds that over the medium term the biggest risk to South Africa and the Rand is if US fiscal becomes notably more expansionary. It might lead to a more aggressive pace of rate hikes by the Fed, resulting in a stronger Dollar, downward pressure on commodity prices and, hence, a weaker Rand.
4. The uncertainty could affect indebted consumers
With all this bad news (Trump being elected and Brexit) affecting developed markets and creating uncertainty, now may be the time to sort out your debt as it’s only like to get worse, especially if South Africa gets downgraded to junk status. Just recently, Moody’s warned that South Africa’s big banks would face problems with problem loans in the next 12 to 18 months as the economy struggles to grow.
This means it will be harder to borrow as banks tighten up their lending criteria to ensure they only get customers that are willing and able to repay their loans. Banks also tend to clamp up when there’s uncertainty. “We can only guess at the ripple effect his election is going to bring to the world economy but none of it is going to help deeply indebted consumers in South Africa to catch a breather,” Debt Rescue CEO, Neil Roets told BusinessTech.
5. There’ll be restrictions on travelling to the US thanks to immigration law changes
If you’ve ever wanted to work or travel in the United States it may become more difficult from January 2017 onwards, when Trump takes office. Given what he’s said about immigrants and building walls the ability to come and go to America would be restricted even further. If you have a rare skill set that America desires, you may be fine but with promises to protect jobs, Americans’ well-being would be put ahead of any foreigner aiming to live and work there.