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Trump's tariffs and the effect on New Zealand businesses: Are we going back in time?

There’s been a funny meme going around recently about time zones. It says something like, “In Sydney it’s 8am, in London it’s 10pm, and in the USA it’s 1942.” Of course, this relates directly to the Brett Kavanaugh scandal. But as Jai Breitnauer writes, this could apply to a whole pile of policies introduced under the Trump administration, particularly the revival of trade tariffs.

Way back in the 19th and early 20th centuries, trade tariffs were commonplace. As globalisation and the internet have opened-up international markets, many tariffs – or taxes – on imports have been reduced or removed by many countries to allow more competition and consumer choice, and free trade agreements have been a preferred modus operandi. However, last year, Trump dialled international trade back to the glory of the wartime era by placing extensive tariffs on imports from China – a campaign promise – which of course China matched.

Most economists recoiled at the news. Generally, they advise against these sorts of broadly applied, punitive tariffs. They hurt the consumer as higher costs are passed on, they hurt manufacturers who rely on foreign imports, and they can make the domestic market less efficient as competition is reduced. Bad news for the US and China, but what does all this mean for New Zealand?

“The tariffs introduced by the United States on imports from China have led to retaliatory tariffs being introduced by China. Overall, about US$360 billion of bilateral trade has been affected,” says Jim Robinson, Manager Trade and Regulatory Cooperation at New Zealand’s Ministry of Business, Innovation & Employment.

“These additional tariffs make trade between the US and China more expensive, dragging on bilateral trade.  While in the short-term this could lead to an increase in the supply and reduction in prices of some goods in third markets, including New Zealand, the flow-on effects are difficult to predict.”

Reassuringly, Robinson says that so far, the impact on the NZ economy has been limited. However, it is hard to know if that will be maintained. 

“Further escalation in trade tensions are a source of downside risk for the global economy, which poses downside risk for the New Zealand economy,” he says. “Higher trade barriers could significantly disrupt global supply chains, making some tradable goods more expensive. It is difficult to predict what the net impact for New Zealand’s imports would be.”

The US-China trade war, coupled with the upcoming UK departure from the EU (increasingly looking like a no-deal Brexit), could place secondary tension on global markets, affecting NZ trade. But in the theatre of Trump, literally anything could happen, so best not hold your breath worrying about it. ​

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