Ripple effects of Trump tariffs leave gloomy trade outlook

Newsroom

3 days ago

The global economic uncertainty caused by Donald Trump's tariffs will likely reduce global demand for New Zealand exports and make the coalition's goal of doubling exports even more challenging, the Reserve Bank's chief economist says.
However, the fall in export demand is likely to be considerably smaller than that seen following the 2008 global financial crisis, Paul Conway says.
Speaking at an Export NZ event on Thursday, Conway said New Zealand was deeply influenced by global developments, meaning 'even if tariffs don't hit us that hard directly, we will feel the ripple effects as they work through the global economy'.
The global economy had been dealing with more frequent and varied shocks since the early 2000s, with uncertainty on the rise and economic tools increasingly used for political and strategic ends.
'It makes the rules of the game less clear. It makes the global economy more difficult to navigate, with spillover effects into the domestic economy.'
The direct impact on New Zealand would be softened by the fact that 'we're not actually as export driven as we like to think we are', with the export share of GDP having fallen for decades, along with the fact that tourism exports were intrinsically difficult to tariff.
Conway said meat, wine, and precision instruments like medical devices would be among the most directly affected export sectors. The US bought little of the types of dairy products exported by New Zealand, meaning the Trump tariffs would have a minimal impact on global dairy prices.
US demand in global markets was stronger for the goods that New Zealand imported, meaning there was likely to be greater price reductions for imports than exports.
The tariffs would also reshape global trade flows as buyers and sellers adjusted, with American buyers likely to look for goods from countries subject to lower tariffs in addition to locally made products.
While Chinese exports to the US had dropped by roughly 15 percent in the year to June, the country's exports had held steady overall as shipments were redirected to the European Union, Southeast Asia and other countries.
New Zealand's technology sector could benefit from reduced US demand for Chinese products, while the same could be true for meat exporters if a 50 percent tariff on Brazillian imports into the US went ahead as planned.
With our current 10 percent tariff no higher than any other country, Conway said we were on the right side of global shifts in trade flows.
However, the broader uncertainty caused by Trump's tariffs would slow the New Zealand economy down, with household spending and business investment heavily affected by the lack of confidence about what the future had in store.
'Why invest in new machinery if you're unsure about future demand? Why take on debt when you're unsure how interest rates or prices might move given increased macroeconomic volatility? It's a similar story with households.'
Overall, there was likely to be a negative demand shock that reduced medium-term inflation pressures in New Zealand – a contrast to the US, where the tariffs were expected to add to inflation.
While the effects would not be comparable to the GFC – another global shock with its epicentre in the US – there would be a material slowdown in trading partner growth.
Asked how the gloomy trade outlook would affect the coalition Government's goal of doubling exports by 2034, Conway said he got in trouble for commenting too much on current government policy but described it as 'an ambitious target' and 'challenging'.
'Full power to the Government, and to the businesses in behind that; actually, I think it's sort of up to businesses. The Government creates the incentives, and it's businesses that need to do that.'
Trade in services (outside of tourism) was the bright spot for New Zealand exports, which made sense given the country's remoteness and the weightless nature of trading products via digital means.
The longer levels of uncertainty remained high, the more pronounced the drag on trade and economic growth would be, Conway said.
'A short spike in uncertainty isn't that big a deal, even if it goes extremely high, but if it goes up and sort of stays there, that can sort of suck down growth.
'I'm not sure that we're looking into that, [but] I do think there will be a sigh of relief when the tariff schedule of the US does remain constant. It's not just the fact of tariffs, but the fact of them changing all the time, which is contributing to uncertainty.'