How bad is the tariff news for NZ, really?

New Zealand has been hit with a higher tariff rate than Australia on exports to the US – but economists say the situation could have been worse.

It was revealed today that New Zealand exports would have a 15% tariff applied, up from 10% announced earlier.

Australia remains at 10%.

Brad Olsen, chief executive at Infometrics, said that was a clear challenge for New Zealand.

“There is now a wedge between us and Australia.”

There were other parts of the world that previously had a higher tariff rate that were now on the same level as New Zealand, such as Europe.

“Wine, for example, under the original tariffs, we might have had a slight advantage. Now we don’t.”

But he said it was not necessarily true that the country would have been better off had it negotiated a deal.

He said New Zealand did not have a lot to “give up” in those negotiations, and it could have ended up being costly.

“I’m a little bit surprised by comments, including from the opposition’s trade spokesperson, that the Government failed to achieve a lower tariff rate.

“The comments seem to make the implication that New Zealand could have found a way to come up with a trade agreement that might have given us a lower tariff rate.

“That might be true, but we have no idea what we would have had to give up to achieve that… some of what had to be given up by other countries to get a 15% tariffs rate is consequential – Japan and other countries had to give up to half a trillion dollars of further investment into the US.”

He said the impact on New Zealand’s trading partners might not be as bad as had been expected, which should prove positive for the economy.

“It will be slightly more challenging to export to the US from a New Zealand point of view, but our trading partner activity might not be hit as bad as was feared in April. That’s probably a net benefit for us.”

Mike Jones, chief economist at BNZ, said the increase was not unexpected given indications of the past few weeks.

“It’s obviously unhelpful for NZ exports into the US, particularly how we line up with those coming from Australia and the UK, given the lower 10% baseline tariff rate for those countries.

“Beef and wine exports could be affected. It’s interesting in this context that we’ve seen the NZD/AUD exchange rate fall a little today in the wake of the announcements.”

‘Quite myopic’

Kelly Eckhold, chief economist at Westpac, said he thought New Zealand was in roughly the same position as in April.

“On one hand, the tariff is higher, so there is a bigger direct cost, but it’s a bit lower for a lot of our trading partners, so it’s better for the economy than would otherwise be the case.”

He said how the lingering elements of uncertainty played out over the coming weeks would be important.

“The legal basis of these tariffs, whether they’re going to be able to continue or need to be replaced with a different type of tariff, is an issue. And the sectoral tariffs have not yet really been negotiated.

“While I don’t think these things affect the sort of goods New Zealand trades with the US, there may be some impact on our trading partners.”

He said it seemed strange that the US was calculating tariffs based on which countries exported more than they imported.

“The concept that US authorities have had of countries ripping them off by selling more stuff to America than they’re been buying is quite myopic.

“We’re only talking about goods trade here, we buy a lot of services from the US.

“In large part, the trade imbalance is a cyclical rather than a structural story.

“In the last few years, the economy has been relatively weak compared to the US. We’re not sucking in as many imports, and the exchange rate has been lower than would normally be the case, which has encouraged export revenues.

“I would have thought trade policy metrics like tariffs would be determined on the basis of structural, not cyclical factors.

“All those things could easily be the other way around in a few years’ time.”

rnz.co.nz