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Elevate Magazine
February 4, 2025

What Could Trump’s Tariffs Mean for New Zealand’s Economy?

trump with flags

Donald Trump’s recent decision to impose tariffs on imports from Mexico, Canada, and China has sparked concerns of a global trade war, with potential repercussions reaching as far as New Zealand. While New Zealand is not directly targeted, economic experts warn that the country’s export-driven economy could still feel the effects through shifting trade flows, market competition, and financial uncertainty.

Global Trade War Threatens New Zealand’s Export Market

Trump’s new tariffs—25% on Mexican and Canadian imports and a further 10% on Chinese imports—have already triggered retaliatory measures from the affected nations. Economists fear that a full-scale trade war could slow global economic growth, ultimately reducing demand for New Zealand’s key exports, namely, dairy, meat, and wine.

Sense Partners economist John Ballingall cautioned that a downturn in global GDP would directly impact New Zealand. “When that happens, you’ll see global GDP growth go down, and that means lower demand for all of the things that New Zealand exports,” he said.

Adding to the uncertainty, some analysts suggest that New Zealand exporters may face increased competition in global markets. With Canadian, Mexican, and Chinese exporters potentially shut out of the US, they may look to flood other markets—including New Zealand’s—making it harder for local businesses to compete.

Fluctuating Interest Rates and Currency Volatility

Beyond trade concerns, Trump’s tariffs could also influence New Zealand’s financial sector. Westpac chief economist Kelly Eckhold highlighted potential implications for interest rates and inflation. “That is likely to flow over to New Zealand interest rates, although the inflation consequences are less clear,” he said.

A prolonged trade war could weaken the New Zealand dollar against the US dollar, raising import costs and contributing to inflationary pressures. This could increase mortgage rates and borrowing costs for New Zealand households.

Short-Term Gains for Some Sectors

Despite the risks, some industries may benefit from Trump’s trade policies. With Canadian dairy exports to the US becoming more expensive, New Zealand’s dairy sector could see increased demand from American buyers. Ballingall acknowledged there are possible upsides in the short term, noting that sectors like agriculture and food exports could find new opportunities.

Auckland University of Technology trade expert Niven Winchester conducted economic modelling that projects New Zealand’s merchandise exports to the US could increase by NZ$1.2 billion, with agricultural and manufactured goods among the key beneficiaries. However, this gain would likely be offset by a decline in exports to China, Canada, and Mexico, which are expected to drop by NZ$965 million.

Shifts in Trade and Policy Responses

New Zealand’s government is taking a cautious diplomatic approach. Experts suggest that openly criticising the US tariffs would be ineffective, and instead, New Zealand should focus on maintaining strong trade relationships.

“I think we have to be pragmatic,” Ballingall said. “New Zealand making a song and dance isn’t going to change President Trump’s mind about tariffs, so perhaps we’re better off taking the diplomatic route.”

Meanwhile, former US ambassador to New Zealand Scott Brown suggested that the situation could open the door for a Free Trade Agreement (FTA) between the US and New Zealand. While no official discussions have been announced, an FTA could help insulate New Zealand from the impacts of Trump’s tariff policies.

Uncertain Future for New Zealand’s Economy

Economic projections indicate a mixed outcome for New Zealand. While the country’s manufactured exports to the US are expected to rise by NZ$280 million, total agricultural and food exports could decline by NZ$648 million due to reduced demand in China. Additionally, imports from the US are projected to fall by NZ$353 million, while imports from tariff-affected nations could increase by NZ$870 million.

Trade analysts stress that New Zealand must remain adaptable in the face of these shifting global dynamics. With speculation that Trump may introduce even broader tariffs in the future—potentially up to 20% on all imports—New Zealand’s export sector could face even greater disruptions.

For now, businesses and policymakers are adopting a “wait and see” approach. As ExportNZ executive director Joshua Tan put it, “We’re pretty confident our exporters can adjust to global changes… but it’s pretty hard to break down at this point.”