JOE KLOPPER: How the US election could affect emerging markets

As the US presidential election approaches, the opposing policies of Donald Trump and Kamala Harris should be examined as they will affect the US economy and global markets.

Each candidate brings distinct views on trade, monetary policy, foreign relations and climate initiatives, with implications extending beyond the US’s borders to emerging markets such as SA, where trade relations and capital flows are already significantly affected. 

Against a backdrop of global monetary easing, a weakening US dollar and waning US growth relative to the rest of the world, we explore six core areas of how the two candidates’ differing policy positions could affect emerging markets and SA.  

Trade, tariffs, and multilateral relations. Trump and Harris have starkly different approaches to trade. Trump has traditionally pursued a protectionist trade policy, focusing on protecting US industries. Meanwhile, Harris is expected to prioritise multilateral trade relations, work within international organisations and foster stability. Here are the possible impacts on SA under the different regimes: 

• Trump has emphasised tariffs and trade barriers to shield US industries from foreign competition. If re-elected Trump confirmed that he would reinstate and increase tariffs on imports, which would reduce demand for exports from SA and other emerging markets. His push to reduce US reliance on foreign manufacturing could further weaken demand for SA goods, affecting industries that rely on access to US markets. Trump may also seek to renegotiate or withdraw from trade agreements, potentially weakening SA’s trade relationship with the US and making it more vulnerable to global commodity price volatility. 
• Harris would focus on strengthening ties with organisations such as the World Trade Organisation, the IMF and AU. This would create a more stable trade environment for emerging markets, including SA, where exporters may gain better access to the US market without the looming threat of tariffs. Harris might also expand programmes such as the African Growth & Opportunity Act (Agoa), which offers African countries duty-free access to US markets. With SA as a significant Agoa beneficiary, extending this programme would provide opportunities to increase exports and strengthen its trade balance, which could lead to a stronger rand.

Monetary policy, interest rates and capital flows. Monetary policy shapes capital flows to emerging markets, specifically US interest rates. Trump’s gesture that he would welcome presidential influence on the Federal Reserve and Harris’ approach to an independent Fed could affect SA’s financial stability and capital inflows. 

• Trump has previously pressured the Fed to lower interest rates to stimulate the US economy. This strategy could channel capital flows to higher-yielding emerging markets such as SA. However, his other policies may result in a stronger dollar, which could put pressure on the rand. A strengthened dollar typically makes it more costly for emerging markets to service dollar-denominated debt and increases inflationary pressures. If Trump’s policies lead to dollar strength it could drive up SA’s import costs and lead to a more volatile currency. 
• Harris would not directly control Fed policy. Her administration is expected to support a stable and independent Fed, prioritising long-term financial stability over short-term economic stimulus. This could benefit emerging markets by maintaining steady interest rate policies, enabling economies such as SA's to plan for capital flows with less volatility. Harris's approach might also avoid aggressive fiscal policies that could overly strengthen the dollar, helping stabilise the rand and reducing inflationary pressures on imports and dollar-denominated debt. 

Foreign policy and sanctions. Foreign policy plays a vital role in shaping emerging markets, with Trump and Harris likely to pursue quite different international strategies. Trump’s assertive foreign policies may raise global trade tensions, while Harris is expected to take a more diplomatic approach. 

• Trump is known for his hawkish stance on foreign relations. His policies could heighten tensions with major global players such as China. Given SA’s Brics+ membership and trade relationships with China, such geopolitical pressures may create indirect challenges. If Trump intensifies sanctions on crucial SA partners this could disrupt trade networks, especially if China or other Brics nations face more US restrictions. 
• Harris’ foreign policy approach is expected to be diplomatic, avoiding outright trade wars and fostering co-operation. This would benefit SA by creating a more stable environment for its exports to the US and China. An increased US focus on Africa could further enhance SA’s strategic position, with Harris potentially advocating for increased development aid and stronger partnerships focused on infrastructure, technology, and human capital development. 

Commodities and resource exports. SA’s economy is deeply rooted in its natural resources, including gold, platinum, coal, iron ore and chrome, making global commodity demand a critical factor. Both candidates’ policies will affect commodities, though Harris’ focus on green energy diverges significantly from Trump’ more traditional energy stance. 

• Trump’ emphasis on US energy independence and support for fossil fuels could maintain lower global oil prices, indirectly benefiting SA by reducing import costs. However, his trade tensions with China might also affect demand for key SA exports such as iron ore and other minerals. As SA depends on commodity exports, especially to large markets like China, reduced demand could hit these sectors hard. 
• Harris’ climate-focused policies may accelerate the transition to renewable energy, leaving SA vulnerable to reduced demand for metals such as platinum, traditionally used in "dirty" industries, and technologies such as internal combustion engines in motor vehicles. Furthermore, SA’s reliance on coal-powered electricity generation and poor environmental protection record could result in US sanctions and restrictions. However, Harris’ green initiatives might also reduce global fossil fuel dependency, which could help stabilise oil prices, benefiting SA by reducing the cost of imports and improving its trade balance. 

Investment flows and investor sentiment. Investor sentiment and capital flows are critical for emerging markets, which often depend on foreign direct investment to support economic growth. The stability of US policy and market conditions can significantly influence investor sentiment towards emerging markets such as SA. 

• Trump’s policies could heighten global market volatility, making emerging markets appear riskier to investors. Increased market uncertainty often leads investors to retreat from high-risk investments, potentially curtailing capital inflows to SA and other emerging markets. Reduced foreign investment could affect SA’s growth, particularly in sectors such as infrastructure and manufacturing that rely on foreign investment. 
• Harris is known for her more predictable policy approach. Her focus on stability could make emerging markets such as SA appear less risky to global investors. Her emphasis on green initiatives and international co-operation might attract foreign investments, bolstering SA’s manufacturing, mining and renewable energy sectors. Harris’ policies could stimulate sustainable growth in SA’s critical industries by reducing volatility and improving global confidence in emerging markets. 

How candidates could affect emerging markets 

A Trump victory could offer short-term gains for SA if low US interest rates drive capital flows to higher-yielding markets. However, his protectionist trade policies and the potential for a stronger dollar may pose challenges, adding to currency volatility and complicating trade relationships. SA’s reliance on raw materials and its alignment with Brics+ might also make it susceptible to the influences of Trump’s foreign policy stances, which could strain global trade networks. 

Conversely, Harris’ multilateral approach may provide long-term benefits for SA. By fostering international co-operation and supporting sustainable growth, Harris could create a more stable environment that attracts investment and encourages development. SA’s strategic position as a key player in Africa could make it a valuable partner for Harris’ international policies, which focus on global economic integration and environmental sustainability. 

Investors should monitor the candidates’ evolving stances as the election unfolds, especially those that affect US economic relations with emerging markets. SA’s increasing role as an investment destination in Africa means US monetary policy will significantly influence its growth trajectory, making this election a key event for global markets and investment portfolios. 

• Klopper is a portfolio manager at Independent Securities.