What Trump's trade war means for New Zealand

by The Listener / 08 March, 2018

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US President Donald Trump. Photo/Getty Images

US President Donald Trump. Photo/Getty Images

RelatedArticlesModule - Trump trade war NZ

We had dared to hope he wouldn’t get around to it, but US President Donald Trump has just made good on his promise to weaponise American tariff barriers.

Trump's threat of a 25% impost on imported steel and 10% on aluminium has just been signed into law in a new executive order, and is raising the possibility of a prosperity-stifling global trade war, rattling the world and prompting talk of a backlash.

The US has huge trade deficits not only with China – now at NZ$18.2 billion – but also with large trading blocs including the European Union. At the mention of tariffs, the latter has threatened retaliatory moves on flagship American products such as bourbon whiskey, Harley-Davidson motorbikes and Levi’s jeans. In response, Trump is threatening European carmakers with a tax on imports. Meanwhile, China is considering retaliatory penalties in response to the steep US tariffs, as is Canada.

A full-scale trade war would be bad news for trade-dependent nations such as New Zealand. Trump’s specific tariff threats should have only a modest direct impact on us, but there could easily be an escalation to affect more products. And any increase in global trade reprisals risks damaging vital links between countries: the world cannot possibly benefit, for instance, from a chilling in relations between the US and China and Europe.

The World Trade Organisation, on which small trading nations rely so much for dispute resolution, would almost certainly be caught in the crossfire. Former New Zealand Prime Minister Mike Moore, who led the WTO between 1999 and 2002, this week went so far as to warn that Trump’s threatened levies could trigger not just a trade war but also a global recession.

Confoundingly for us, the protectionist reboot comes as new questions arise about our future relationship with America’s biggest trade rival, China. Prime Minister Jacinda Ardern’s recent comments on regional trade development co-operation with our second-biggest trading partner indicate her Government is re-evaluating New Zealand’s interests. Deputy Prime Minister Winston Peters affirmed a “reset”, especially in relation to the benefits of participating in Beijing’s One Belt, One Road initiative, which entails mutual infrastructural harmonisation among nations, and new, China-friendly freight routes.

The previous National Government’s rhetoric on this was, to use an apt phrase, gung-ho. However, Australia is not on board with the programme and, as always in transtasman relations, is pressing us to stay in lock-step with its foreign policy.

The Ardern Government, like its predecessor, is firmly resisting that pressure, and has made it clear there is no rethink on whether to deepen our relationship with China. This is still held to be a no-brainer, not least given the trade lifebuoy of the China-NZ free trade deal – signed by the Clark Administration – in helping us through the global financial crisis.

The Government’s recent signing of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) agreement highlights its belief that our prosperity depends on building trade bridges with as many countries as possible.

The importance of such bridges is underlined by the fact that, since 2008, when Peters, as Foreign Minister, opposed the China FTA, trade between the two countries has increased more than threefold: we now have a $3.6 billion goods and services trade surplus. This means we earn more from our goods and services exports to China than we spend on imports from China. However, at the time of the signing of the China FTA, Peters directly contradicted Helen Clark and said it wouldn’t address what was then a $3.6 billion trade deficit. How wrong that was.

Now, in the event of aggressive US protectionism, our future opportunities lie more than ever with outward-facing countries, of which China is the most powerful. However, even with the “reset” of our Pacific aid programme, we cannot hope to match what China invests. China’s influence on our smaller Pacific friends and neighbours is at once beneficial and worrying.

The world’s immediate priority is to decipher the intentions of the mercurial and belligerent Trump. He’s hardly the only leader guilty of blame-the-foreigners populism, but declining jobs in American industry cannot be blamed solely on cheap or subsidised imports. Automation and other technological short-cuts constantly threaten jobs.

If trade wars have the effect of increasing US domestic inflation and lost export opportunities cost jobs, Trump’s promise of tariffs could yet be his downfall. The question is what the cost will be to the rest of the world.

This is an updated version of an editorial first published in the March 17, 2018 issue of the New Zealand Listener.

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