In pursuit of ‘fairness’ for the US, the president could send his country into recession – and throw New Zealand’s hoped-for recovery into reverse, writes Catherine McGregor in today’s extract from The Bulletin.
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A new salvo in Trump’s trade war
President Donald Trump ratcheted up his wide-ranging tariff plan again on Thursday with the implementation of a global 25% tariff on steel and aluminium imports to the US, reports CNN. While the president has imposed tariffs of varying sizes on Canada, Mexico and China over the past six weeks, this is the first time in Trump’s second term that a set of tariffs has been applied to all countries. Within hours, Europe and Canada retaliated with their own new tariffs – to which, Trump warned, the US will respond with yet more tariffs. This morning he threatened a jaw-dropping 200% tariff on European wine and spirits in retaliation for Europe’s planned tariff on American whiskey. The global trade war is well and truly on.
World braces for ‘reciprocal’ tariffs
While this week’s tariffs are a concern for countries with large steel and aluminium industries like Australia, most countries are preoccupied with Trump’s future plans. “I have decided for purposes of fairness, that I will charge a reciprocal tariff, meaning whatever countries charge the United States of America, we will charge them,” he tweeted last month. “No more, no less.”
The reciprocal tariffs, which could begin as early as April 2 and affect the whole world, would impose levies on US imports that match those already in place against American goods. “Very simply, it’s if they charge us, we charge them,” Trump said. As well as existing tariffs, Trump wants to target “other factors he says put US producers at a disadvantage, including [other countries’] subsidies, regulation, value-added taxes (VAT), currency devaluation and lax intellectual property protections”, explains German public news organisation Deutsche Welle.
What will it all mean for New Zealand?
The New Zealand Initiative’s Oliver Hartwich, writing in the NZ Herald (Premium paywalled), says the risks to this country come in two forms. The first is the direct impact on New Zealand exports, primarily agricultural products. Tariffs on these would make them more expensive for US consumers, depressing demand. The second are the indirect effects. The big concern is China, New Zealand’s largest export market. Says Hartwich: “If Chinese growth slows under the weight of American tariffs, demand for New Zealand’s primary exports will inevitably suffer.”
Modelling by AUT professor Niven Winchester estimates Trump’s universal tariffs would reduce New Zealand exports to the US by two-thirds, and reduce New Zealand GDP and national income by nearly 1% – “a significant blow to an already vulnerable economy”, writes Hartwich.
Drilling down on the potential impacts
In Stuff, Esther Taunton looks at some of the ways Trump’s trade war could affect the lives of ordinary New Zealanders. Echoing Hartwich, Taunton says a global slowdown would stunt the hoped-for recovery of the NZ economy, which would have a knock-on effect on the labour market. On the bright side, it could also mean lower home loan rates – especially longer-term rates, “which are driven more by offshore trends than by what the Reserve Bank is up to”.
While cratering agricultural exports would lead to lower domestic prices for NZ wine and meat, such savings “wouldn’t outweigh the total negative economic effects of a global slowdown”, cautions Infometrics’ Gareth Kiernan. Finally, a lower US dollar will make a trip to Disneyland or New York more affordable, though “once again, the only trouble is, if households are under pressure and consumer confidence is low, people will be less likely to travel”, says Kiernan.
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