South Africa part of collateral damage from US-China trade war

South Africa may be almost 12 000 kilometers from Beijing and even further away from Washington DC, but is still affected by the US-China trade war.

The country is “a small, open economy which grows by selling into the global demand,” central bank Governor Lesetja Kganyago told reporters in Pretoria on Thursday. That’s no different to other emerging economies, which will also be held back, he said.

Flaring US-China tensions over trade came to a head this month when talks between the two superpowers fell apart. US President Donald Trump has since raised tariffs on Chinese goods and put restrictions on telecommunications giant Huawei, with a solution to the impasse seemingly far off.

That may hurt the probability of South Africa’s economy coming out of the doldrums - an eventuality that companies such as Liberty are banking on to stimulate revenue growth. The dispute between the US and China will also worsen negative sentiment around equity prices, which the insurer needs to boost the value of its assets, Chief Executive Officer David Munro said in an interview at Bloomberg’s offices in Johannesburg.

“We are battling a little bit of headwind with the U.S.-China trade war,” Munro said. “The extent to which equity markets rally increases our assets under management and assets that we administer in pension funds. The whole business is geared toward equity market performance.”

Ultimately, “there are no winners,” Kganyago said as the South African Reserve Bank held the key interest rate at 6.75% while cutting the full-year economic growth forecast.

“Trade wars are silly, you want to control your market, but you still want access to other markets so it’s illogical,” he said.

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