FOLLOW UP

If you read the previous post you might be wondering what Trump's shenanigans mean for New Zealand.

Trump wants, mostly for his own ego, a strong US Dollar only he hasn't a clue how to get and maintain this. His pissing about with tariffs, rather cluelessly, might give him what he wants though.

His tariff war with (initially) Mexico, Canada and China and later the EU will be complicated and will cause "a little pain" to American consumers. The tariffs, paid by importers will be passed on to consumers unless, for marketing reasons the importer decides to absorb some of it in the form of lower mark-up and diluted profit. The 25% (or 10% additional in the case of China) will also have the importers mark-up added to it so the consumer will ultimately be paying more than the tariff percentage on the landed cost.

The result will be that prices on imports into USA will rise by quite a huge amount with only the strong US Dollar keeping the lid partially on them. Generally, an outcome should be that imports will be reduced with consumers looking for cheaper alternatives that will come from American made brands and Chinese, Canadian, Mexican and EU brands and products that may in future be produced in USA after foreign manufacturing facilities are created to bypass tariffs.

All good as you, or Trump and his cronies might think but higher prices on imported goods (and American made ones that have imported materials subject to the extra tariffs) will add to inflation. If you studied economics at university you'll remember that reserve banks, in this case the US central bank will maintain interest rates at a higher level in order to hold down inflation. This will have detrimental effects on homeowners and business owners with mortgages who will have to tighten their belts more and live on less.

A stronger US Dollar will of course increase the landed costs of US-made exported goods and commodities even before recipient countries apply extra punishment tariffs on US products.  It will become more difficult for US manufacturers to compete on the world market and many will probably lay-off workers, reduce production and close down plants, factories and farms.

Maybe Trump didn't do 101 Economics at Fordham University and Wharton Business School at The University of Pennsylvania and, if he did probably failed miserably (which we will never know because he arranged years ago to have his school and university records shredded or hidden).

The MAGA red hat wearing Trump supporters in the mid-west and manufacturing states are likely to be among the hardest hit by Trump's silly plan. Lower income earners and those on benefits will find it even harder to live. Of course those with money will have the benefit of that strong dollar to import things themselves, travel more cheaply and purchase more overseas real estate. Hey! it can't be all that bad.

So, what does this mean for New Zealand?

Our exports to US will be subject to 10% tariff on top of the trade restrictions/quotas and tariffs already in place. 

"With 16% growth in 2023, the US was New Zealand’s fastest growing major market. At NZ$14.6 billion, the US surpassed Australia to become New Zealand’s second largest export market in the year ending March 2024.

New Zealand’s goods exports to the US grew 5.8%, primarily driven by growth in the value of primary sector exports, with notable growth in dairy (23%) and red meat (15%). Goods trade for 2024 appears to be continuing this growth trajectory with trade up 14% in the first quarter from 2023.

New Zealand exports to the US trending upwardsNew Zealand-US bilateral trade has continued to trend upwards over the past year. The US surpassed Australia to become New Zealand’s second largest export market in the year ending March 2024, behind China and ahead of Australia and Japan. In the year ending March 2024 New Zealand exported NZ$14.6 billion in goods and services to the US and imported NZ$11.4 billion, representing a trade balance of NZ$3.5 billion and a total trade value of NZ$25.8 billion."

        New Zealand Foreign Affairs and Trade 

Nice but ... the other side of a strengthening US dollar is that the New Zealand dollar will decline, maybe to record levels. This is good for our exporters but disastrous for importers and consumers silly enough to want to put petrol in their cars, to buy the latest Apple products and who have a liking for French Champagne!

 

Should we get more proactive in looking for new trading partners? Of course we should even if the dollar wasn't weak and especially since it is. It's clear that Trump's policies will only make it harder for exporters to hold existing and to gain new markets in USA. We need to increase our efforts in Canada, China and the EU and maybe have another crack at Mexico. 

Geopolitically, if Trump's America is going to shit on us and not be helpful with defence security except at a horrendous price, why shouldn't we create our own (and not via ANZUS, AUKUS or other US influenced pacts) agreements with the emerging superpowers of China, Japan, Indonesia etc. and strengthen our position with Canada, Australia and (if they ever get their stupid Brexit thing sorted) the UK?

Luxon: "Hi. Do you remember us?"