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

Riaan Rossouw, Martin Cameron and Wim Naudé
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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

No 2026-01, CeBER Working Papers from Centre for Business and Economics Research (CeBER), University of Coimbra

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.

Keywords: Trade; Exports; Monetary Policy; Trade Policy; CGE modelling; GTAP; South Africa (search for similar items in EconPapers)
JEL-codes: C68 E52 F13 O55 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2026-01
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