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Beyond Retaliation: South Africa Can Effectively Counter Trump's Trade Shocks

Author

Listed:
  • Riaan Rossouw

    (Trade and Development (TRADE) Research Focus Area, North-West University, South Africa)

  • Martin Cameron

    (Trade Research Advisory (Pty) Ltd, South Africa)

  • Wim Naudé

    (University of Coimbra, CeBER and Faculty of Economics)

Abstract

How should a developing country such as South Africa respond to the USA's "Liberation Day" Tariffs of April 2025 and subsequent shocks? In this paper, we argue that a retaliatory tit-for-tat trade war is futile. Consequently, we identify an alternative strategic policy response beyond retaliation. Combining the GTAPDynamic (GDyn) Computable General Equilibrium model with an expanded Decision Support Model (DSM), we simulate five policy response scenarios over the period 2017–2030. Our results demonstrate that a passive response to US protectionism is the least attractive option. However, a comprehensive policy mix comprising expansionary monetary policy (to induce exchange rate depreciation), unilateral tariff reduction (to lower input costs), and targeted export promotion (to diversify exports) can take South Africa’s real GDP growth back to rates last seen during 2004 to 2007 (at around 5.51% in compound annualized growth (CAGR) terms) by 2030, resulting in a surge in unskilled employment through an investment-led boom in sectors like construction and metals of around 9.8% CAGR by 2030. The results confirm that, following this path, South Africa can effectively counter Trump's trade shocks.

Suggested Citation

  • Riaan Rossouw & Martin Cameron & Wim Naudé, 2026. "Beyond Retaliation: South Africa Can Effectively Counter Trump's Trade Shocks," CeBER Working Papers 2026-01, Centre for Business and Economics Research (CeBER), University of Coimbra.
    • Handle: RePEc:gmf:papers:2026-01
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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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