Recent weeks have seen the foundations of the global economic order shaken. US President Donald Trump’s “Liberation Day” announcement raised tariffs on imports from other countries to extreme levels last seen almost 100 years ago.

Some of these tariffs were as high as 50% in the case of Lesotho and 46% on Vietnam. After China retaliated with import taxes of its own, Trump raised the tariff on goods entering the US from China to 145%, making profitable trade between the two largest economies virtually impossible. Traditional allies like the UK and Australia weren’t spared either and each were slapped with a flat 10% import tax. Imports from South Africa were hit with 30% tariffs.

Faced with a negative market reaction, and under pressure from business leaders and political advisers, Trump paused some of these tariffs for 90 days to allow trade talks and made other concessions. So for the moment, the tariff on imports from South Africa is “only” 10%, but this still means that the AGOA duty-free access is over.

Importantly, an agreement between China and the US lowered tariffs a month after they were raised. This is unlikely to be the end of the matter but does signal that the worst-case scenario of trade between the two largest economies on earth grinding to a halt, is likely to be avoided.

China is the largest supplier to the US by far, and in the absence of an agreement, there was a real possibility that American consumers would face much higher prices and shortages of key goods in the months ahead. As things stand, the impact is still negative, but not as bad as it might have been. For the US, this is a supply shock: prices rise, consumer spending falls -echoing the post-Covid surge in prices. This is a difficult situation for the US central bank, the Federal Reserve. However, for the rest of the world it is a demand shock, and central banks have started responding with interest rate cuts. Other countries face lower demand for their exports, but also downward pressure on inflation, especially with the sharp fall in the oil price. The South African Reserve Bank has room to cut rates further, but it will proceed cautiously and keep a close eye on international developments.

Equity markets recovered after the initial shock as the Trump administration backed down and started negotiating. This V-shaped market move is a powerful reminder of how difficult it is to time the market, and how riding out volatility is often the best course of action. Nonetheless, trust in the US as the stable anchor of the global economy and financial system has been shaken, with consequences for the longer term.

For South Africa, the Trump shock was worsened by domestic political uncertainty. Disagreements over the 2025 Budget, particularly the proposed VAT hikes, threatened to split the governing coalition. After much political wrangling and legal challenges, the VAT increases were ultimately shelved. The Finance Minister presented the third, revised Budget to Parliament, this time without the additional VAT revenue, and with updated lower economic growth forecasts. The Budget continues to focus on trying to gradually reduce government borrowing, since debt levels are high and Government spends a lot on interest payments as a result. Support for infrastructure upgrades is also retained, notably by involving private capital and expertise.

For now, the Government of National Unity remains intact, and with it, the various reforms aimed at boosting the performance of the local economy under the banner of Operation Vulindlela. Amid global turbulence, political stability is crucial. Getting our own house in order is also more important than ever, since we cannot rely on the global economy to carry us in this environment.