Counting the costs of tariffs

Otago Daily Times

a day ago

What an arbitrary and unfair world.
While New Zealand might not be stung as badly as many others, it is still being penalised by capricious and unjust tariffs.
This nation has virtually no tariffs (about 0.8%) on goods from the United States, while US-owned giants like Meta, Microsoft and Google extract billions of dollars through tax avoidance.
New Zealand, long a close friend internationally, has been forced to tread carefully around US President Donald Trump.
It recently welcomed an FBI office in Wellington and has held back on pledging recognition of Palestinian statehood.
Nonetheless, the baseline 10% tariff imposed by the US earlier this year rises to 15%. Why? New Zealand recorded a trade surplus with the United States last year.
If food prices had not been high, or if New Zealand had imported a few US aircraft, the balance might have been reversed — and the 10% might have stayed, as it has for Singapore and Australia.
However, the US might still have made dismantling Pharmac a condition of a better deal.
It is, of course, futile to appease bullies. There are effectively no real negotiations.
Mr Trump issues decrees, and only afterwards might there be limited room to move.
The might of China may have muscle, especially because of the US debt it holds. Puny New Zealand is simply too small.
If there were just a little fairness, New Zealand could also apply 15% to US imports.
Nobody, however, is seriously proposing that. New Zealand has staked its reputation and its interests as a trading nation on free trade. It also dares not provoke the Trump tactic of responding with another ratchet of the rack.
It says much about the state of play that wily Foreign Minister Winston Peters and others advocated keeping this country's head down.
Mr Trump has so many big fish to fry — discussions are continuing with China and the European Union on the trade front alone — this seemed the wisest course.
In a flurry of action, New Zealand's head trade official is now off the Washington, and Trade Minister Todd McLay will follow.
Unsurprisingly, there is scepticism that this will do much good. Previously, such efforts failed to reduce steel and aluminium tariffs, and tiny New Zealand will struggle to receive much air or ear time at the highest levels.
Politically, however, it makes the government look as though it is doing something.
Despite Labour's criticism of poor tactics, it is doubtful whether proactive and public lobbying in Washington would have made any difference.
The resulting 15% tariff matches that applied to US allies Japan and South Korea and is slightly lower than much of Southeast Asia.
However, it is higher than the rate for fellow beef exporters Argentina and Uruguay. The US is also New Zealand's largest wine export market.
Wine receipts are expected to suffer, and F&P Healthcare, one of New Zealand's largest companies with manufacturing in Auckland and Mexico, will be disadvantaged as it competes with a major US rival.
Exporters were reconciling themselves to 10%, and 15% might not sound excessive.
But it represents a 50% increase on the earlier amount and is far harder to absorb. The result will be lower returns for exporters and higher costs for consumers, while the US collects tariff revenue.
Trade Minister Todd McLay estimates the tariff cost to exporters at an additional $500 million.
Fortunately, this coincides with strong global food demand and prices. Unfortunately, it comes at a time when the New Zealand economy is struggling to recover from prolonged doldrums.
Although not catastrophic, it dents confidence and removes another brick as the government tries to rebuild economic growth and salvage its electoral prospects.
The US has overtaken Australia as New Zealand's second-largest export market, worth $9 billion last year, though still well behind China.
New Zealand will bear the costs of President Trump's disruptive trade policies, both directly through tariffs and indirectly through their dampening effect on US and global growth.