Blanket tariffs on Mexico & Canada (25%) & China (10%) to deliver covid-like supply shock to global economy; NZ braced for impact if tariff wars widen; Govt faces extra hit to GDP & mortgage rates
Aotearoa is a tiny fish in this international trade pond so all we can do is wait, watch, and probably swallow a few more dead rats… The good news is that we don’t export many blankets to the USA (never was good at nouns versus adjectives)!
I 'heard' somewhere that the US is now our 2nd biggest trading partner? Not sure if this is true or not but may change your mind about just how many blankets we do export to them.
China, Canada and Mexico all have a goods trade surplus with the US. But what is the situation if you add in services? I'm sure the balance will then sway the other way, and the US has the surplus, except maybe for China.
Could counter tariffs against the US include some services?
The fact that we may not be on the tariff list this month may not mean anything in a few months. We are an economy too small and fragile as to depend on the tantrums of a capricious president. So, if we had a gutsy government, we should be assuring now more stable markets in the long term, even if not so currency-based beneficial (which may not last)... but we don't have a government that will stand for principles (only saving from social programmes and benefitting landlords)
I'm interested in how the now-'accepted' economic wisdom of "low interest rates = growth" will collide with all this over the next few years. Both fiat money and global supply have grown simultaneously for the past 50 years, essentially enabling 'debt' to furnish 'growth' (that is, capitalists borrowing much more cheaply than it cost to produce, thanks to untethered fiat and developing-economy producers). Observing the way a temporary blip like COVID has turned into a prolonged cost-of-living crisis, it's clear that it is only global outsourcing that has kept inflation low for the past few decades in the face of an endless supply of new money. Now, Trump is effectively suppressing this flavour of (parasitic) 'productivity' growth, but central bank economists will remain under political (corporate lobbying) pressure, and remain determined (erroneously?) to wind interest rates downwards as a stimulation measure. Governments (like ours, but also the US, Australia, and the UK) might all claim to be focused on public spending/debt reduction, but our global economy is hopelessly debt-sufficient now, so private debt will simply replace public debt, and the money supply will continue to grow regardless. The finance-constrained economy is long dead but the productivity-constrained one is just rearing its head... All that said, Trump breaking global trade is going to force governments over the next few years to do some serious Keynesian stimulation, or we're going to find ourselves nostalgic for the "only 10% unemployment" rates of the early 1990s.
Since I was a teenager I knid of thought we'd head into a 1930s/1940s like era... I had often thought that it would happen outside of my Parents life time. Did not realize it would happen so soon.
I hope I am reading too much between the lines of what Bernard us saying.
If you impose any tax, many people will try to find a way to avoid it - and without a major ramping up of border examinations, there will be plenty of ways that traders might use to get around them.
For example, in the past when duties were much higher, some traders were falsely labelling the country of origin of their products and then shipping them through a country within an FTA - so, getting their products into the country duty-free.
Or, there were many cases of products being only lightly transformed - for example, embroidery being added to a Chinese-made t-shirt in a country within the FTA and then being shipped as the local country of origin.
Or, falsely pricing products to reduce the duty. There were many prosecutions for this in NZ in the past where a trader might ask their offshore supplier to put a false invoice in the shipment that dramatically understated the value of the product for the duty assessment.
Or with smaller traders, there were the merchandise equivalent of drug mules - people who'd carry suitcases of new garments for example through customs as personal garments to avoid the duty.
There are rules around all these things that can be applied, but there needs to be a ramping up of border inspections to support them. And with Elon bent on slashing the Govt workforce, is there any appetite to employ the thousands of customs officers they'll need?
Eloquent. Please share. Much as I loathe Trump this seems to me just the beginning of a longer disquisition. And then what is a minnow like here to do? I understand the general economic argument for free trade but not the specific. Capital moves fast. Labour, if it moves at all, very slowly. Which means we’re generally better off but not you at the sharp end. That seems wrong.
We all enjoyed pretending that the ponzi scheme called capitalism and neoliberalism that is reliant on cheap energy and cheap labour can continue to supply us with growth forever.
It was always doomed to collapse. I just never thought it would be the neoliberal in chief that will collapse it.
US beef is too fatty for burgers, they need to grind it with the lean NZ stuff. Article in herald last week. As they rebuild their beef herd they'll need lean beef from somewhere, supposedly
It's good analysis Bernard, the notes on the positives are salient but did remind a bit of the time the ODT ran a story on the good parts of climate change (funnily enough also noted it maybe good for the Otago wine industry...)
I have to say I'm surprised we haven't been having the conversation about globalisation, free trade etc since the supply chain issues arose during covid (and are still there), that along with the wheat issue with Ukraine.
I would have thought that those 2 issues alone would be enough to prompt lots of questions about what we aren't doing here in NZ (milling our own wood, making our own clothes etc).
Aotearoa is a tiny fish in this international trade pond so all we can do is wait, watch, and probably swallow a few more dead rats… The good news is that we don’t export many blankets to the USA (never was good at nouns versus adjectives)!
🙂
Maybe not blankets but an awful lot of meat and wine. Not sure you want your number two export partner to be shaping up in the way the US are.
https://www.stats.govt.nz/news/us-now-new-zealands-second-largest-export-partner/
I 'heard' somewhere that the US is now our 2nd biggest trading partner? Not sure if this is true or not but may change your mind about just how many blankets we do export to them.
here's the 2023 numbers -
China - 20% of imports in 2023
Australia - 10.8% of imports in 2023
United States - 9.74% of imports in 2023
South Korea - 7.51% of imports in 2023
Japan - 6.81% of imports in 2023
China, Canada and Mexico all have a goods trade surplus with the US. But what is the situation if you add in services? I'm sure the balance will then sway the other way, and the US has the surplus, except maybe for China.
Could counter tariffs against the US include some services?
A 25% tax on Online Advertising should be on the cards for countries hit by Trump Tariffs. Hit his big tech backers where it hurts.
The fact that we may not be on the tariff list this month may not mean anything in a few months. We are an economy too small and fragile as to depend on the tantrums of a capricious president. So, if we had a gutsy government, we should be assuring now more stable markets in the long term, even if not so currency-based beneficial (which may not last)... but we don't have a government that will stand for principles (only saving from social programmes and benefitting landlords)
I'm interested in how the now-'accepted' economic wisdom of "low interest rates = growth" will collide with all this over the next few years. Both fiat money and global supply have grown simultaneously for the past 50 years, essentially enabling 'debt' to furnish 'growth' (that is, capitalists borrowing much more cheaply than it cost to produce, thanks to untethered fiat and developing-economy producers). Observing the way a temporary blip like COVID has turned into a prolonged cost-of-living crisis, it's clear that it is only global outsourcing that has kept inflation low for the past few decades in the face of an endless supply of new money. Now, Trump is effectively suppressing this flavour of (parasitic) 'productivity' growth, but central bank economists will remain under political (corporate lobbying) pressure, and remain determined (erroneously?) to wind interest rates downwards as a stimulation measure. Governments (like ours, but also the US, Australia, and the UK) might all claim to be focused on public spending/debt reduction, but our global economy is hopelessly debt-sufficient now, so private debt will simply replace public debt, and the money supply will continue to grow regardless. The finance-constrained economy is long dead but the productivity-constrained one is just rearing its head... All that said, Trump breaking global trade is going to force governments over the next few years to do some serious Keynesian stimulation, or we're going to find ourselves nostalgic for the "only 10% unemployment" rates of the early 1990s.
Since I was a teenager I knid of thought we'd head into a 1930s/1940s like era... I had often thought that it would happen outside of my Parents life time. Did not realize it would happen so soon.
I hope I am reading too much between the lines of what Bernard us saying.
😞
If you impose any tax, many people will try to find a way to avoid it - and without a major ramping up of border examinations, there will be plenty of ways that traders might use to get around them.
For example, in the past when duties were much higher, some traders were falsely labelling the country of origin of their products and then shipping them through a country within an FTA - so, getting their products into the country duty-free.
Or, there were many cases of products being only lightly transformed - for example, embroidery being added to a Chinese-made t-shirt in a country within the FTA and then being shipped as the local country of origin.
Or, falsely pricing products to reduce the duty. There were many prosecutions for this in NZ in the past where a trader might ask their offshore supplier to put a false invoice in the shipment that dramatically understated the value of the product for the duty assessment.
Or with smaller traders, there were the merchandise equivalent of drug mules - people who'd carry suitcases of new garments for example through customs as personal garments to avoid the duty.
There are rules around all these things that can be applied, but there needs to be a ramping up of border inspections to support them. And with Elon bent on slashing the Govt workforce, is there any appetite to employ the thousands of customs officers they'll need?
Eloquent. Please share. Much as I loathe Trump this seems to me just the beginning of a longer disquisition. And then what is a minnow like here to do? I understand the general economic argument for free trade but not the specific. Capital moves fast. Labour, if it moves at all, very slowly. Which means we’re generally better off but not you at the sharp end. That seems wrong.
We all enjoyed pretending that the ponzi scheme called capitalism and neoliberalism that is reliant on cheap energy and cheap labour can continue to supply us with growth forever.
It was always doomed to collapse. I just never thought it would be the neoliberal in chief that will collapse it.
Perhaps it's a good thing.
It's something...
US beef is too fatty for burgers, they need to grind it with the lean NZ stuff. Article in herald last week. As they rebuild their beef herd they'll need lean beef from somewhere, supposedly
Any tariffs on popcorn? Sales should boom with all the shenanigans afoot...
Haha, good one!
Hoping for a load of cheap EV's and solar panels coming from China as a result of trade war.
No too the cicadas please
It's good analysis Bernard, the notes on the positives are salient but did remind a bit of the time the ODT ran a story on the good parts of climate change (funnily enough also noted it maybe good for the Otago wine industry...)
We’re through 100 now so I’m opening this one up for sharing. Many thanks to all.
I have to say I'm surprised we haven't been having the conversation about globalisation, free trade etc since the supply chain issues arose during covid (and are still there), that along with the wheat issue with Ukraine.
I would have thought that those 2 issues alone would be enough to prompt lots of questions about what we aren't doing here in NZ (milling our own wood, making our own clothes etc).
All the wood mills got sold to overseas ‘investors’ then closed down when the cost base got too high for them to bear….
Mostly as a result of price gouging by power companies.
Indeed.
Where are NZ First when we most need them ?
Benefitting from or sucking up to USA trade makes me cringe 😵💫.
loving the Cicadas ..They were deafening in the Far North too.👍