America’s government rollback

For the past 150 years or so, the trend in the US has been towards an enlarged role for the federal government in people’s lives and the economy. As historian Heather Cox Richardson writes in an insightful Substack post, the trend towards bigger government started in earnest with Abraham Lincoln, US President between 1861 and 1865.

After growing up in poverty, he envisaged a role for government that went far beyond protecting private property and ensuring national security – and so income tax and national currency were born. Up until his assassination, Lincoln held fast to the idea that the American government should work hard for the people.

Since then, with a few pauses such as the Reagan administration, we have seen presidents such as Republicans Theodore Roosevelt and Dwight Eisenhower as well as Democrats Franklin Delano Roosevelt and Barack Obama run with the same thinking. The result is that the welfare safety net and regulatory guardrails have grown dramatically over time.

Now, however, a new Republican administration is taking a sledgehammer to many of the protections and services Americans receive from their government. The world’s richest man, Elon Musk, is implementing a drastic downsizing strategy right across the government in a reversal of a long-term trend.

The administration is pushing a Republican budget proposal that cuts $2 trillion from mandatory spending, including social security and Medicare while slashing food aid for millions. At the same time, it proposes $4.5 trillion in tax cuts for corporations and the wealthy – all the while increasing America’s debt ceiling.

Musk’s Department of Government Efficiency (DOGE) is deleting or defunding entire federal agencies (without Congressional say-so). This, according to Musk and President Donald Trump, represents an effort to root out waste, fraud, abuse and save money for the taxpayer. It’s also (in their view) a chance to unleash growth by awakening business’s killer instincts.

Yet many people question whether Musk has an inherent conflict of interest as he guts many of the same agencies that regulate his businesses (Tesla, SpaceX, and X) or oversee contracts with his companies. In the eyes of the critics, America risks retreating into a new era of oligarchy, where the government operates for the benefit of a few elites.

These developments may be seen as a pushback against overregulation in America – which, unlike Europe’s welfare states, has a long history of scepticism about big government. There is a danger, however, that the pendulum may swing too far in the opposite direction.

For investors, deregulation and lower corporation taxes could be a short-term tailwind, with sectors like financial services and energy especially likely to benefit. But in the longer term, the erosion of regulatory oversight and consumer protections may also lead to instability, with weakened institutions, environmental harms, and rising public discontent.

At the same time, a shifting international relations framework is reshaping global dynamics. The Trump administration’s protectionist approach aims to revive domestic manufacturing but risks igniting trade wars that could disrupt global supply chains. Its more isolationist stance undermines many elements of today’s rule-based international order.

As such, investors should brace for both short and medium-term volatility. America’s economy, the shape of its government, and the world order are evolving in unpredictable ways. Whether this is a short-term reversal or the start of a seismic shift from a multilateralist world remains to be seen.

“The legitimate object of government is ‘to do for the people what needs to be done, but which they cannot, by individual effort, do at all, or do so well, for themselves,’… as public roads and highways, public schools, charities, pauperism, orphanage, estates of the deceased, and the machinery of government itself.”

– Abraham Lincoln, 16th President of the United States

“We really have here rule of the bureaucracy as opposed to rule of the people – democracy. I think we do need to delete entire agencies as opposed to leaving a lot of them behind. If we don’t remove the roots of the weed, then it’s easy for the weed to grow back.”?

– Elon Musk, businessman and US special government employee

?

Global News

• US President Donald Trump’s advisers have discussed shifting billions in funding from USAID to the US International Development Finance Corporation, which was created during the first Trump administration. This will result in reduced humanitarian assistance and a greater role for private equity groups, hedge funds, and other investors in projecting economic might as the US competes for influence and strategic projects overseas with China.
• About 75,000 US federal employees have signed up for a voluntary resignation program inspired by Elon Musk as part of an efficiency drive, which is short of the numbers the White House hoped for and increasing the likelihood of deeper mass firings. That total, confirmed by a source familiar with the data, makes up about 3% of the 2.4 million civilian federal workforce. White House press secretary Karoline Leavitt had previously set the goal at 5% to 10%.
• Trump has suggested that Musk’s government efficiency team has found irregularities while examining data at the US Treasury Department, which may lead the US to disregard some payments, and that debt could be lower than initially thought. It wasn’t immediately clear whether he was talking about US government debt or payments processed through the Treasury Department.
• Trump announced plans on Wednesday to impose reciprocal tariffs on countries that levy duties on US imports, raising concerns about a potential global trade war and inflation. While Republican House Speaker Mike Johnson suggested exemptions might apply to industries like automotive and pharmaceuticals, this remains uncertain. Yesterday Trump signed a measure directing officials to propose country-specific levies to rebalance trade, with research expected to conclude by April. Markets responded positively to indications that the tariffs wouldn’t take immediate effect and gold gained as much as 0.8% to $2,927.17 an ounce yesterday, about $16 shy of its all-time high.
• Trump announced a 25% tariff on steel and aluminium imports, targeting key suppliers like Canada and Mexico to protect US industries and curb foreign efforts to bypass trade regulations. Effective from 12 March, the tariffs aim to boost domestic production and job growth but have raised concerns about higher consumer costs. This move follows a 10% tariff on Chinese imports and is part of a broader economic plan involving tax cuts and expanded energy production. However, Canada, Mexico, and several European nations have criticised the measures as unfair, warning of potential retaliation and a global trade war that could disrupt markets and strain relations with key allies.
• The US federal budget gap widened to a record $840 billion for the first third of the fiscal year, driven by spending increases in areas including health, social security, transfers to veterans, and debt-interest payments. Adjusting for calendar differences, the cumulative deficit for October through January widened by 25%.
• US inflation rose 0.5% month-on-month in January, the fastest pace since August 2023, taking annual inflation for the 12 months to end January to 3%. The data was released on Wednesday by the Bureau of Labor Statistics, with the figure coming in above expectations. Following the new data, interest-rate swaps showed traders expected just one quarter-point interest rate cut this year, dropping their forecast from two cuts.
• Russian President Vladimir Putin invited President Trump to visit Moscow during a call on Wednesday, where both leaders expressed a willingness to work together, including initiating immediate peace talks to end Russia’s war in Ukraine. However, Ukrainian President Volodymyr Zelenskyy protested the exclusion of Ukraine from these discussions, highlighting concerns over the unilateral nature of Trump’s announcement.
• Trump has turned up the pressure on Jordan and Egypt, saying he may cut their aid if they don’t agree to his proposal for them to house the Palestinian population of Gaza and that Palestinians would not have the right to return to the territory. The president also said that if Hamas did not release all the remaining Israeli hostages by noon tomorrow, the cease-fire agreement with Israel should be cancelled. Hamas said last night it would free hostages on Saturday as scheduled, backing down from a threatened indefinite delay that had cast doubt on the durability of the initial six-week Gaza ceasefire.
• A CBS News/YouGov poll published this past Sunday shows that more than half of US adults approve of Trump’s performance in his first month in office. The survey, however, reveals concerns about insufficient efforts to reduce consumer prices. While 56% support the 10% tariffs on China, most oppose the proposed 25% tariffs on Mexico, Canada, and future tariffs on Europe. Additionally, 50% believe Musk’s government efficiency teams should influence operations, with support rising to 74% among Republicans. Historically, early approval ratings often shift as a presidency progresses.
• Chinese stocks are coming back into favour among global investors as its growing technology push and expectations for additional stimulus help rekindle optimism. Hedge funds snapped up the most Chinese equities in more than four months last week on a net basis, driven almost entirely by long buys, according to a trader note from Goldman Sachs Group. Fidelity International, believing it’s underweight on Chinese stocks, is buying more.
• Trump Media & Technology Group this week awarded its directors blocks of shares currently worth just over $825,000. The directors include two of Trump’s key nominees to serve in his administration. However, Kash Patel told Congress in a questionnaire as part of his nomination process for FBI director that he would not accept that compensation. Shares have been awarded to six directors, including Donald Trump Jr, Patel, and Linda McMahon, who has been nominated for Department of Education secretary.
• Online shopping giants Temu and Shein have seen a sustained drop in sales in the week after Trump scrapped a duty exemption that their small parcels benefit from, suggesting a chilling effect on American consumers who previously flocked to their ultra-cheap wares. Shein’s US sales fell 16% to 41% for five days from 5 February, while PDD Holdings’s Temu dropped as much as 32% during the period, according to Bloomberg Second Measure, which analyses credit and debit card data.
• Meta’s record 16-day rally has been driven by AI solutions that have led to faster growth and a higher average revenue per user. This has pushed its value toward $2 trillion for the first time. The 16-day rally represented the longest winning streak of any current Nasdaq 100 Index component going back to 1990, according to data compiled by Bloomberg. Despite the gain, it remains one of the cheapest big tech plays. Its gains come as other companies in the “Magnificent Seven” are disappointing investors as their AI plans are taking longer to come to fruition. (Meta is a Top 10 holding in the Fundsmith Equity Fund, one of our preferred global equity funds).
• Tesla shares tumbled about 11% this week, its worst weekly performance since October, weighed down by shockingly bad sales reports from around the world. In Germany, sales plunged last month to the lowest since 2021, and they tumbled in France and the UK as well. Deliveries in China fell 11.5% year-on-year, while the shares of Chinese competitor BYD Company hit their best week since 2020 as investors cheered an update to its smart-driving technology.
• As at Thursday’s close the S&P 500 was 1.5% up for the week

Local News

• Even though the government of national unity (GNU) faces disagreements on some fundamental policy issues, it does not pose a significant risk to the economy at this point, Goolam Ballim, Chief Economist and Head of Research for the Standard Bank Group said. He said on Tuesday that the GNU had faced challenging moments but had proven resilient. Yet, a Nedbank survey released yesterday shows that capital spend needs to triple for growth targets to be realised. Capex projects announced in 2024 jumped to R445.9 billion, up from R210 billion in 2023, the highest increase since 2021.
• Ahead of next week’s Budget speech, Nedbank Chief Economist Nicky Weimar has said that South Africa must focus on overcoming internal limitations, such as Eskom’s struggles, to position itself for stronger growth over the next few years. Economists anticipate a conservative 2025 budget from Finance Minister Enoch Godongwana, with no major tax hikes beyond indirect levies and only limited support for struggling state-owned enterprises Transnet and Eskom. PwC, which is optimistic that Enoch Godongwana’s Budget speech will resonate positively with the business community, wants an update on significant economic and structural reforms, especially regarding Eskom and Transnet.
• South Africa’s high administered prices, such as regulated fuel and electricity costs, will present a challenge to the South African Reserve Bank’s (SARB’s) desire to lower the country’s inflation target of 3% to 6%, in what would be the most significant monetary policy shift in more than two decades. This is according to a policy paper released by Codera Analytics, a local research house and data provider, run by former SARB and New Zealand central bank official Daan Steenkamp.
• Trump’s executive order to halt foreign aid to South Africa has sparked concerns that the country’s duty-free access to the US market under the African Growth & Opportunity Act (AGOA) could be at risk. Business South Africa, the umbrella organisation for business, said on Sunday that it was “very worried” about South Africa’s continued participation in AGOA, ahead of a pending renewal in September. AGOA’s uncertain future puts $4 billion in preferential exports and a total of $20 billion at risk should South Africa be removed from the programme.
• Trump’s shock executive order to halt foreign aid to South Africa does not apply to the President’s Emergency Plan for Aids Relief (Pepfar), the US embassy has confirmed. Pepfar is the single biggest foreign donor to SA’s HIV/Aids programmes and has contributed more than R140 billion to South Africa in the past 20 years in recognition of its HIV/Aids burden. South Africa is home to the world’s biggest HIV/Aids population, with an estimated 7.8 million people living with the disease. The US contributed 17% of the country’s R44.4 billion HIV/Aids budget in 2023/24, according to government figures.
• The steel and aluminium industry is bracing for a new set of challenges after Trump introduced tariffs on all imports. Monday’s order for 25% tariffs on both metals is expected to place a further burden on a sector that is already battling various domestic and global pressures.
• The South African Chamber of Commerce and Industry raised alarms over a potential downturn in the country’s economic confidence on Wednesday, attributing the cause to shifting policies under Trump’s administration. Its business confidence index showed an increase in optimism between May last year and January of 12.2 index points. At risk because of the executive order are US business and economic development loans and other credit facilities for businesses, and South Africa’s dealings with the World Bank and International Monetary Fund, with which the US wields considerable influence.
• The DA has taken the government to court over the Expropriation Act, underscoring the deep ideological divide in the GNU and adding fuel to the diplomatic fire between South Africa and the Trump administration. DA Federal Council Chairman Helen Zille likened the legislation to the dark days of apartheid, saying that it echoes the infamous laws that allowed the then government “to forcibly remove communities from their land, often with inadequate compensation or none at all”.
• High-level discussions between National Treasury and human settlement officials over tax incentives for landowners who release or donate their land for human settlement are taking place, with the latter pushing for its programmes to be zero-rated. Department of Human Settlements spokesperson Tsekiso Machike said the discussion included the South African Revenue Service.
• The National Health Insurance Act (NHI) will still be implemented, with a preliminary list of public health facilities earmarked for a pilot project for the rollout, despite the Act being scrapped from a growth blueprint. The construction of new public health facilities that President Cyril Ramaphosa listed in his address was part of the gradual rollout of NHI. These include facilities in Limpopo, the Free State, the Eastern Cape, and the North West province, which were either under construction or undergoing revitalisation.
• Inefficiencies in Eskom’s governance – particularly with fruitless and wasteful expenditure, criminal conduct, and lack of consequence management – have been adding to the primary energy cost and consequently the tariff to the consumer, according to the Auditor-General. The Special Investigations Unit has launched an investigation into corruption at Eskom, revealing alarming schemes involving employees manipulating procurement processes to siphon off more than R1 billion.
• Musk’s Starlink will not be coming to South Africa soon after Musk objected, through Starlink’s parent company, SpaceX, to the 30% historically disadvantaged ownership requirement that SpaceX would be obliged to comply with were it to invest. Communications and Digital Technologies Minister, Solly Malatsi, is investigating the introduction of equity equivalents as an alternative to the 30% ownership requirement in the Electronic Communications Act. Musk has slammed South Africa for what he says are its racially discriminatory policies.
• Economists and agricultural leaders on Wednesday revealed expectations of a notable recovery for the country’s economy, anticipating GDP growth of close to 2% in 2025. Old Mutual Chief Economist, Johann Els, said that inflation was expected to average around 3.8%, alongside predictions of two further interest rate cuts of 25 basis points each in 2025.
• BMW South Africa plans to start exporting the fourth generation X3 SUV it produces at its Rosslyn plant near Pretoria to the US from next year, dependent on “geopolitical outcomes” in terms of Trump’s executive order halting all aid to the country, leading to a threat to South Africa’s ability to continue to access the duty-free benefits in the African Growth and Opportunity Act. The Rosslyn plant is one of only three plants globally that will produce the X3 for world markets.
• Since the start of the year, AngloGold Ashanti, Harmony, and Gold Fields have each seen their share prices increase by more than 40%, adding a combined R200 billion in value over the period. This comes as the price of gold almost hit $3,000 an ounce on Tuesday, a level that Swiss investment bank UBS predicted late last year would only happen well into the second half.
• Pan African Resources is set to ramp up production over the next few months to benefit from current elevated bullion prices. On Wednesday, it reported interim headline earnings per share slumped by 43.7% to US1.20 cents after revenue slid 1% to $189.3 million (R337 million) due to a 13% decrease in gold production for the period, as well as the impact of the synthetic gold forward sale transaction of about $17.4. Pan African reported a 21% rise in the dollar gold price received during the interim period.
• Impala Platinum’s first-half earnings are expected to fall as much as 49% due to lower rand revenue, which offset the benefit of improved refined and saleable output, higher sales volumes, and strong cost controls.
• The Public Investment Corporation (PIC), Africa’s largest fund manager, has increased its stake in pharmaceutical manufacturer Aspen Pharmacare to just more than 20% as it continues its buying streak. The PIC is now the company’s largest investor, with the group’s founder Stephen Saad the second biggest. The PIC’s exposure to Aspen is now worth R15 billion, even though Aspen stock has lost 26% over the past six months.
• Shares in British American Tobacco (BAT) plummeted yesterday after the group booked a ￡6.2 billion charge from outstanding litigation in Canada. The stock was down as much as 9% on the JSE but pared the loss to 6.6% in the afternoon. This is a further lawsuit against BAT subsidiary Imperial Tobacco Canada, which is among BAT’s units that have faced class action lawsuits over the past decade, alleging the tobacco companies misled consumers about the health risks of smoking and failed to adequately warn them of the dangers.
• As at the time of writing, the rand was flat and the ALSI was 1.4% up for the week.