Warning US tariff ‘jungle' regrowing
A trade expert warns the tariff "jungle" is growing back as nations grapple with United States President Donald Trump's fast approaching tariff deadline.
Many US trade partners face hefty tariff increases in the fallout, including close allies such as Japan and Korea.
Mr Trump's "reciprocal" tariffs have New Zealand exporters watching how it will play out for them, their trading partners and the wider marketplace on the August 1 deadline.
Another concern is that Mr Trump's trade policy might encourage more nations to step up protectionism.
Ministry of Foreign Affairs and Trade's trade and economic deputy secretary Vangelis Vitalis told meat professionals at the Red Meat Sector Conference in Christchurch last week the uncertainty was a real challenge for exporters looking to trade with the US.
He said nobody really knew what was happening in day-to-day international policy.
Research showed trade uncertainty was worth the equivalent of at least a 10% to 12% tariff, he said,
"The jungle is definitely growing back. We do face a really challenging and turbulent external environment and it's not just the US, although that's a major factor at the moment for uncertainty," Mr Vitalis said.
''The challenges are real, all of the big players are thinking whether these [free trade agreement] rules work for them any more and we place a premium on these rules."
A baseline tariff applies to almost every nation, including New Zealand, of 10%, with auto parts at a 25% tariff and aluminium 50%.
The 10% tariff is on top of existing tariffs — such as the about 16%-18% New Zealand exporters already face sending frozen vegetables to the US.
"Over the last two to three weeks the president has been announcing additional tariffs, he's extended the pause to August 1 and so we know a whole series of tariffs may be imposed at that time, although we also know the president does tend to extend those delays as well so, again, lots of uncertainty."
He said the known certainties were the US was striking some deals — including with Vietnam, eliminating all of its tariffs in exchange for a 20% tariff.
Some countries not concluding deals had the threat of additional tariffs being placed on them, including 25% on Japan and Korea, while and Brazil was being hit with a 50% tariff on the deadline.
Mr Vitalis said the concern for all nations facing a 10% tariff was this might increase to 15%-20%.
That would really concern NZ wine, red meat and other exporters, he said.
He said a lot of official engagement was being carried out in Washington to talk to counterparts and listen closely to build a picture of Mr Trump's trade direction.
"Again we don't actually know what he's going to do, but he's certainly suggesting there are going to be further increases out there."
Mr Vitalis said ministerial leaders and officials were taking a structured, calm and thorough approach to the coming challenges.
New Zealand wanted to protect its interest in the US as it was our second most important export destination, and the tension between it and China was being followed closely, he said
The option he favoured for the global trade turbulence was to negotiate new free trade agreements and expand existing agreements, as explaining the logic of global economic damage from tariffs was not working.
Another focus of New Zealand's strategy was pushing back against non-tariff barriers, worth an estimated $22.6b in the Asia/Pacific region alone, and protectionism, he said.
Dairy giant Fonterra was modelling trade implications from tariff hikes and the dynamics between the US and China.
Fonterra trade strategy manager Justine Aroll said the uncertain trading marketplace was the new normal for the co-op, which exports to 100 markets globally.
One of the silver linings was agricultural exporters were familiar with a protectionist and challenging trade environment and had built up resilience in their businesses, she said.
"Like other New Zealand exporters our product is facing the additional 10% tariff into the US and for us we are finding our way through that."
A concern was the disruption to the global dairy market, the reaction of other countries and the implication of US deals with other countries, she said.
Special agricultural trade envoy Hamish Marr said uncertainty was the new certainty.
"We have been living in a world of globalisation for many years and now it seems we are not in globalisation — we are in regionalisation."
Countries were more focused on food security and New Zealand's strong reputation would mean it was well positioned to navigate through the uncertain times, he said.
NZ International Business Forum executive director Felicity Roxburgh said governments around the world were shifting from economics to security for supply chains and critical materials, including red meat.
tim.cronshaw@odt.co.nz
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