What will a Donald Trump presidency mean for New Zealand business?

Monday, 11 November 2024

Donald Trump is set for a return to the White House and he has big plans for his second term in office.

One of the president-elect’s policies could be particularly bad news for New Zealand business, experts say.

A self-declared “tariff man”, Trump campaigned on a policy of hefty tariffs, including a 60% tariff on goods from China, and 10% to 20% tariffs for other countries.

But what is a tariff and why does Trump’s plan have experts worried? Here’s a breakdown.

What are they?

Tariffs are taxes imposed by one country on goods imported from another.

They’re used to restrict imports by making foreign products less attractive to importers, who have to pay the tariff, and consumers, who have to pay more to cover the importer’s added cost.

So, why do they matter to exporters?

Because when importers in the country that imposed the tariff don’t want to buy their products, exporters lose out.

They either have to lower their prices in order to entice the importers to keep buying it, even with the tariff, or they have to find somewhere else to peddle their wares.

But if importers lose, exporters lose, and consumers lose… who wins?

It’s a “bigger picture” situation. Governments use tariffs to raise revenue, protect domestic industries, and sometimes as a way to make their country’s point.

In his first term, Trump slapped a 25% tariff on steel from everywhere except Mexico and Canada in an attempt to boost domestic manufacturing. According to the New York Times, these tariffs helped create several thousand jobs in the domestic steel industry.

And outgoing president Joe Biden provided a recent example of tariffs being used as an extension of foreign policy.

The US opposed Russia’s invasion of Ukraine in February 2022 and in April that year, Biden suspended normal trade with Russia.

Two months later, he raised the tariff on Russian imports not barred by that suspension to 35%, tightening the economic screws and sending a message to the Russian president.

What does any of this have to do with us?

That may be true, but New Zealand is an exporting nation and the US is one of our key markets. In fact, data from the Ministry of Foreign Affairs and trade shows it was New Zealand’s fastest growing major market last year, expanding by 16%.

In the year to March 2024, it overtook Australia as our second largest export market at $14.6 billion. About $6b of that comes from services, particularly travel and tourism.

The remainder comes from goods, including wine, dairy products and meat.

The US is New Zealand’s number one export destination for wine, worth $797 million last year.

And while dairy exports to the US hit a high of $1.2b in 2023, meat was the real star. Exports of meat and edible offal (waste not, want not) to the States grew by 15% last year to a high of $2.2b.

Those aren’t small numbers. How might Trump’s tariffs affect them?

Infometrics chief forecaster Gareth Kiernan said a 10% tariff could undermine the gains New Zealand has made in terms of exports to the US in the last few years.

“It would create an incentive for US consumers and businesses to purchase American-made products,” he said.

Craigs Investment Partners director Mark Lister said any new tariffs would hit local manufacturers and producers, and could push inflation up.

While the Reserve Bank would keep lowering the official cash rate (OCR), if inflation was generally a bit higher globally, New Zealand would be affected.

That could mean the OCR and mortgage rates didn’t fall as low as some people expected or hoped, he said.

Trump’s win would also strengthen the US dollar and weaken the New Zealand dollar, which could be both good and bad.

Exporters generally benefit from a lower Kiwi dollar, but in this case those benefits could be offset by Trump’s planned tariffs, Lister said.

A lower currency could also reduce New Zealand’s global buying power.

“It’s going to cost us more for fuel and stuff we import and that could mean inflation doesn't come down as as quickly as we’re hoping,” Lister said.