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The prospect of new trade tariffs under a second Donald Trump presidency has sparked widespread concern across global markets. At this stage, New Zealand remains exempt from the initial wave of proposed tariffs. However, in saying that, indirect effects could have significant repercussions for the nation’s economy, especially in its trade-dependent sectors.
Niven Winchester, a Professor of Economics at Auckland University of Technology writing for The Conversation, has provided critical insights into these potential impacts using an economic model. Winchester’s findings offer a nuanced view of the situation, suggesting optimism for certain sectors with stark warnings for others.
The noise surrounding Trump’s proposed trade policies continues to intensify, and experts across the spectrum warn of broader challenges for New Zealand in an increasingly fragmented global trade environment.
Findings of Economist Niven Winchester’s Economic Model
Writing in The Conversation this morning, Winchester discussed his economic findings, which employed a comprehensive global production and trade model to simulate the effects of Trump’s proposed tariffs: a 25% tariff on goods imported from Mexico and Canada and an extra 10% tariff on Chinese imports.
According to Winchester’s projections, these tariffs would cause sharp declines in the national incomes of Canada (down 4.7%), Mexico (down 7.1%), and China (down 0.8%). The disparities in impact are linked to the extent of these countries’ reliance on U.S. markets—over 75% of exports from Canada and Mexico are destined for the United States.
For New Zealand, however, the aggregate economic impact appears minimal. Gains in some sectors, such as manufactured goods, are expected to offset losses in agricultural exports. However, a closer look at bilateral trade flows reveals significant shifts.
New Zealand’s exports to the United States are forecast to rise by NZ$1.2 billion annually, largely due to U.S. consumers seeking alternatives to goods from targeted countries. This increase is split evenly between agricultural products, primarily meat, and manufactured goods, including machinery and equipment.
Conversely, reduced incomes in Canada, Mexico, and China are expected to shrink New Zealand exports to these countries by NZ$965 million. The majority of these losses will stem from decreased demand in China, a market that accounts for approximately 25% of New Zealand’s exports. The agricultural sector, particularly dairy, is poised to suffer the greatest setbacks, with total agricultural exports projected to decline by NZ$648 million.
On the import side, New Zealand is likely to see a NZ$353 million reduction in imports from the United States as tariff-induced price increases dampen demand. Simultaneously, imports from targeted nations, particularly China, are expected to rise by NZ$870 million as these exporters redirect goods to alternative markets. The net effect: New Zealand’s total imports are anticipated to decrease by NZ$259 million.
Opportunities and Risks for New Zealand’s Trade Sector
The modelling suggests that New Zealand might see both potential benefits and risks. One of the more optimistic scenarios is the increased market share for New Zealand products in the United States; with tariffs making goods from China, Mexico, and Canada less competitive, New Zealand exporters stand to gain a foothold in a lucrative market.
However, Winchester’s findings also point to broader vulnerabilities. “The modelling finds tariffs will have minimal aggregate effects on New Zealand,” he writes, “but will significantly affect bilateral trade for some goods.”
The primary sector, New Zealand’s economic backbone, faces a particularly uncertain future. While meat exports to the U.S. are expected to increase, the decline in dairy exports to China—a key trading partner—poses a serious challenge.
The Broader Economic Picture and Challenges Beyond the Tariffs
Beyond Winchester’s analysis, other experts have warned that the impact of Trump’s tariffs must be understood within a larger, more systemic context. Charles Finny, a former trade negotiator, describes the situation as “grim.” He emphasised that while New Zealand is currently exempt from the proposed tariffs, there is no guarantee this will remain the case.
“There is a strong possibility that we’ll have either a 10% or a 20% tariff imposed upon us,” Finny said. He added that New Zealand’s competitive position could be further undermined if key allies, such as Australia, secure exemptions.
Inflation and Interest Rates: Secondary Effects of Trade Policies
A recent report by BMI, a unit of Fitch Solutions, raises further concerns. It predicts that Trump’s trade policies could indirectly drive inflation in the U.S., prompting the Federal Reserve to halt interest rate cuts or even raise rates. Should this occur, the Reserve Bank of New Zealand (RBNZ) may be forced to follow suit, despite the country’s currently fragile economic recovery.
“Such actions would lead to higher borrowing costs, potentially stifling growth and increasing economic uncertainty,” the report states. With New Zealand households burdened by one of the highest debt-to-GDP ratios among developed nations (91.3%), even modest rate increases could have outsized impacts on consumer spending and investment.
Systemic Issues in the Global Trade Framework
Jane Kelsey, Emeritus Professor of Law at the University of Auckland, urges New Zealand to look beyond the immediate challenges posed by Trump’s tariffs. She identifies a deeper, systemic issue: the unravelling of the global free trade system.
“The international trade regime, and the neoliberal model of free trade in general, now face an existential crisis that New Zealand cannot ignore,” Kelsey writes. She attributes much of this decline to U.S.-centric policies, which have systematically undermined institutions like the World Trade Organization (WTO).
Kelsey argues that successive New Zealand governments have placed excessive reliance on free trade agreements, failing to address underlying issues such as weak innovation and an over-reliance on low-value-added commodities.
“New Zealand’s export share of GDP has not changed meaningfully over the past few decades, despite more than two-thirds of New Zealand’s exports being covered by free trade agreements,” she notes. “The primary problem is not a lack of markets, but rather firms’ [limited] export capability.”
Conclusion
Trump’s proposed tariffs may seem, at first glance, to offer New Zealand a silver lining in the form of increased U.S. market share. But as Winchester’s modelling and expert commentary make clear, the risks may far outweigh the rewards.
Ultimately, from declining demand in key markets like China to potential inflationary pressures and systemic failures in global trade institutions, New Zealand faces a host of challenges that require careful navigation as we head towards Trump’s second term.