It’s often said that when one door closes another opens, especially when the news is bad. But what often actually happens is that when that one door closes, you spend a lot of time walking up and down the corridor wondering which door will open next and when.
The fact is that uncertainty is a turnoff. South Africans should know this better than most. There is only one profession where you can be wrong 50% of the time and still keep your job: meteorologist. But other than that, it’s a bummer. And it does seem we are increasingly living in an age of uncertainty.
The most obvious recent consequence is the tumbling US stock market. The S&P 500 is technically in correction territory, with the proximate cause being US President Donald Trump’s tariff war. It’s just mind-boggling what this means in concrete terms. The S&P 500 has now lost more than $5-trillion this year, which happens to be almost six times the value of the US trade deficit that Trump’s tariffs are attempting to narrow, the Prof G Markets newsletter (with popular commentator Scott Galloway) points out.
It’s worth noting that it’s not just the trade war: US stock valuations are stretched. The S&P’s price-to-earnings multiple is currently sitting at an average of 25x compared with the long-term average of 16x. This is one of the reasons, I suspect, why other stock markets around the world have not followed the US example. Almost all global stock exchange indices are flat or up on a year-to-date basis, including the JSE. It’s also worth noting that even after the fall, investors in the US markets are still only down half of last year’s increase.
But this is all very unusual; normally, the US stock market takes the lead and the rest of the world follows. The other curiosity is that in the equivalent period during Trump’s previous presidency, the general economic sentiment was very good, despite Trump threatening — and implementing — a tariff war then too.
Part of the difference is just the way Trump is conducting the tariff war this time: last week, the White House imposed a 25% tariff on all imported steel and aluminium, prompting retaliation from Canada and Europe.
Trump briefly threatened to double the rate to 50%, only to reverse course — another episode in what has become familiar whiplash. “His tariff policy has already officially shifted at least five times this year through a mix of carve-outs, delays and reversals,” pointed out Prof G.
I think there is even more to it than that: the extent of the tariff variations are much more extreme this time, and much more general. For example, In July 2018, Trump imposed 25% tariffs against China, but they were only on industrial machinery, semiconductors and auto parts. Later tariffs were also introduced on electronics, plastics and chemicals.
But the actual value of trade covered was only worth about $50-billion, compared with total imports from China of $440-billion. Later in 2018, a 10% tariff was imposed on consumer goods, which might have been much more eventful. But by this time, Chinese exporters had frantically moved their manufacturing plants all over the place.
The result was that the total trade deficit during Trump’s first term declined by only about 8%, and it was still massively in China’s favour.
Markets now
What has happened this time is twofold: First, the markets were expecting Trump’s tariff war to be much the same as it was last time; lots of verbiage but not much change on the ground. The notion was that Trump would use tariffs as a negotiating tool and, ultimately they would only be minor impediments to trade.
Second, I think now Trump realises his previous effort was pretty much a bust, and is dead afraid of the same result this time, causing him to be regarded as ineffective and unsuccessful, the worst thing in his book. So, he has amped up the volume. For example, last time he imposed steel and aluminium tariffs against Mexico and Canada, but they were both lifted within a year.
This time, he imposed a 25% additional tariff on all imports from Mexico and Canada, effective 4 March 2025 (originally they were scheduled for 4 February). His only concession was a lower 10% tariff specifically on energy resources from Canada. Then, when Canada retaliated, he announced an increase to 50% tariffs on Canadian steel and aluminium imports – it was later reduced to 25%.
This is just bloody-minded. Already, the OECD has lowered its global growth target for 2025 by a smidgen, and US growth by quite a lot: from 2.8% last year to 2.2% this year and 1.6% in 2026.
“The message is clearly that trade uncertainty and economic policy uncertainty are having a significant toll,” OECD chief economist Álvaro Pereira told the Financial Times.
Obviously what is happening is that the US markets are trying to factor in the effect of these tariffs but also, importantly, trying to factor in the uncertainty in the way they have been imposed. Which is almost worse.
“The US has become an ‘unserious partner’. That’s where we are now with our global alliances. Every country in the world is thinking about how they diversify away from doing business with America because they do not know who they are waking up next to,” says Galloway.
Hard to argue with that. US voters obviously thought they were electing the previous Trump, but instead they got a new, and much more unhinged, Trump.
Funny old thing, history. DM
This post first appeared in the Daily Maverick here. To signup for Daily Maverick's fabulous newsletters, click below.
Amabhungane
Join the conversation