Why New Zealand should worry about trade, regardless of who wins the US election

• Expect global trade to be tough, regardless of who wins
• Trump’s proposed tariffs would “kill off” trade
• New Zealand faces a delicate balancing act if China-US trade war escalates
• Risk to interest rates because of “unsustainable” US fiscal policies

New Zealand is being warned to prepare for a more challenging trade environment, regardless of who wins the US presidential election.

Experts say the protectionist policies of both Donald Trump and Kamala Harris could have far-reaching consequences, particularly in heavily trade-dependent nations such as our own.

Trump has proposed a tariff of up to 20 percent on all imported goods, while Harris has been part of an administration that has imposed a series of targeted tariffs.

New Zealand International Business Forum executive director Stephen Jacobi told Morning Report Trump’s tariff proposal was of particular concern.

“If it applied to New Zealand exports, it would be quite serious. I mean, it would kill off quite a lot of trade,” Jacobi said.

New Zealand exports a significant amount of goods to the US, worth about $8 billion a year. This was roughly on par with Australia but considerably behind exports to China.

Jacobi said a lot of New Zealand exports entered the US without duties or with “very low tariffs”.

“If you apply a 20 percent tariff to wine, or to fish or, worst of all, to beef – which is our largest export to the United States – … then we could be looking at a very serious situation,” he said.

Salt Funds Management economist Bevan Graham said the world is “already in a more challenging trade environment”.

“As a percentage of global GDP (gross domestic product), trade has really gone nowhere since the Global Financial Crisis (2007-09). And neither Harris nor Trump are big free trade people,” he said.

Graham said the incumbent Biden-Harris administration had not reversed a number of Trump’s tariffs from his previous term, instead adding more tariffs, particularly targeting China.

The China factor

The US and China have been in a major trade war since the previous Trump administration, with little sign of it easing under the Biden presidency.

China is New Zealand’s biggest trading partner, and Jacobi said Wellington – which had been edging closer to Washington – found itself in a delicate balancing act.

China could become more important to New Zealand if trade with the US was impaired by major tariffs from a potential second Trump administration, he said.

“We would want to be falling back on China if anything else,” Jacobi said.

But he said New Zealand had been finding it “more difficult” to navigate a balance between China and the US.

“The other problem with a Trump administration in particular – although as we’ve said a Harris administration may not be much better – is his attitude to the World Trade Organisation (WTO),” Jacobi said.

“If actions of the United States gave rise to a global trade war and the WTO was threatened, then the scenario again would be very weak,” he said.

Unsustainable fiscal policies, risk to interest rates

New Zealand could also feel the impact of the United States’ “unsustainable” fiscal policies, regardless of who wins the presidential election, according to Graham.

He warned of potential risks to global interest rates as a result.

He said the US has been posting mammoth budget deficits at a time when its economy has been growing strongly, but both Harris and Trump’s policies will lead to a further deterioration in its fiscal outlook.

Graham feels Trump’s policies could be worse for US fiscal policy, but he said the outlook did not bode well for New Zealand.

Trump wants to cut the US corporate tax rate. Harris wants to raise it, and plans to provide tax relief for families.

“What that’s doing is that it is just underpinning higher interest rates. So, we’d see higher bond yields as more treasury supply comes on stream, but it also constrains the extent to which interest rates can fall as monetary policy is currently eased,” Graham said.

“Because we’ve put upward pressure on the neutral interest rate, so that fiscal sustainability track in the US has global implications as well,” he said.

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