EMEA Economies Will Be Tested Amid U.S. Tariff Heat

The impacts of U.S. additional tariffs announced on April 2 could likely have multifaceted impacts over EMEA countries. To start with South Africa, the imposition of a 31% tariff on South Africa-origin goods by the U.S. could mark a critical juncture in South Africa’s economic trajectory. First, tariffs potentially could shave up a substantial amount off GDP growth. (Note: The central bank of South Africa (SARB) previously modelled several scenarios related to South Africa's access to U.S. markets, with the impacts over the GDP growth ranging from under 0.1ppt to 0.7ppt depending on the severity of the trade barriers and how badly financial market sentiment is affected).

Despite South Africa has no immediate plans to retaliate and will instead seek to negotiate exemptions and quota agreements, according to government officials, we think the impact could be harsher than expected particularly considering the U.S. is South Africa's second-largest bilateral trading partner after China. Weaker business confidence and postponed business investment decisions may delay South Africa’s capex cycle. Any investment delays on electricity infrastructure would be critical considering power cuts (loadshedding) is back at country’s agenda late February. Currency volatilities could also increase as export revenues will likely decline, and inflationary spillovers from higher input costs are also probable which could hurt manufacturing.

Speaking about the U.S. tariffs, South African trade minister Parks Tau recently underscored the need for South Africa to accelerate efforts to diversify its export markets, mentioning markets in Asia and the Middle East as potential opportunities. In the meantime, he said the government would seek to support industries most affected by the tariffs, including car manufacturing, agriculture, processed foods and metals. We think the key will be how U.S. will react to South Africa’s negotiation requests taking into account that political relations between South Africa and the U.S. is not at its best after Trump took the office in January.

On Turkiye front, we expect the impacts of the relatively low 10% additional tariffs on Turkish goods will be minimal. In contrast, we think Turkiye even can benefit from any larger scale trade wars, which could slow down global economy, as Turkiye could benefit from global commodity price drops being a significant importer of raw materials and energy. In addition to that, additional tariffs can open doors for Turkiye particularly in the U.S. and the EU markets and help Turkiye to capture global market share as rivals like China and India face steeper duties. Trade Minister Omer Bolat said on April 4 that the U.S. tariffs on Turkiye-origin products were -best of the worst- given higher tariffs on many other countries and added that Turkiye wants to discuss the issue in negotiations with the U.S. Department of Commerce and Trade Representative soon. Turkiye’s Vice President Cevdet Yilmaz also noted that a decline in commodities such as oil prices could ease inflationary pressures in Turkiye and support domestic economy during a period of high import costs. We are of the view that Turkiye can use U.S. tariffs as an opportunity if it can act quickly on trade diversification, policy support, and manufacturing upgrades.

On the other side of the coin, competitors to Turkish products like China and India will likely increase their presence in the Turkish market to compensate for losses in the U.S., posing stiff competition to Turkish firms could also negatively affect Turkish firms.

When it comes to Russia, President Trump did not include Russia on the list of countries that will face new tariffs, which can be regarded as a friendly political gesture by President Trump to President Putin as negotiations on ending the Ukraine war continues. Worth noting that there is no meaningful trade between the U.S. and Russia due to sanctions, which is also precluding the imposition of any additional tariffs.