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

Author

Listed:
  • Rossouw, Riaan

    (North-West University)

  • Cameron, Martin

    (Trade Research Advisory (Pty) Ltd)

  • Naudé, Wim

    (RWTH Aachen University)

Abstract

How should a developing country such as South Africa respond to the USA's "Liberation Day" Tariffs of April 2025 and subsequent shocks? Combining the GTAP-Dynamic (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

  • Rossouw, Riaan & Cameron, Martin & Naudé, Wim, 2026. "Beyond Retaliation: South Africa Can Effectively Counter Trump's Trade Shocks," IZA Discussion Papers 18391, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp18391
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    References listed on IDEAS

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    1. Cameron, Martin & Naudé, Wim, 2026. "Planning and Assessing Export Promotion Activities Using Large International Trade Datasets: The Evolution of the Decision Support Model, 1995-2025," IZA Discussion Papers 18469, IZA Network @ LISER.

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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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