Long story shortest in Aotearoa’s political economy this morning:
Donald Trump just detonated a neutron bomb under the globalised economy, but this time the Fed isn’t cutting interest rates to rescue markets because Trump’s 1910-level tariffs will both slow US growth AND increase US inflation.
But we may benefit through high global dairy and beef prices, European wines being tariffed more than ours, and cheaper stuff from China they can’t sell elsewhere. Also, the US bond yields that partly determine our fixed mortgage rates, have fallen nearly half a percentage point in the last week, in anticipation of Fed cuts.
Elsewhere, the Government will release its second ‘quarterly action plan’ this morning, including ‘action number one’ of delivering a Budget on May 22 that will ‘boost economic growth, control Government spending and invest in infrastructure.’ The Government is actually currently reducing spending growth and reducing less in infrastructure, both of which are slowing economic growth.
Also reported by others this morning: Developers are licking their lips over Kāinga Ora’s massive housing land sell off. Compass has $210 million worth of contracts with the Government. And Auckland Transport plans to spend more on roads and less on public transport. (See more below in my Pick ’n’ Mix)
(There is more detail, analysis and links to documents below the paywall fold and in the podcast above for paying subscribers. If we get over 100 likes from paying subscribers, we’ll open it up for public reading, listening and sharing, although we’d love it if you subscribed to join The Kākā’s community and support making this journalism public. Students and teachers who sign up for the free version with their .ac.nz or .school.nz emails are automatically upgraded to the paid version for free. Our special offers right now are: $3/month or $30/year for under 30s & $6.50/month or $65/year for over 65s who rent.)
Donald Trump nukes decades of globalisation in trade
US President Donald Trump has detonated a neutron bomb under the global economy. His ‘Liberation Day’ reciprocal tariffs ranged from 10% on exports from New Zealand, Australia and the UK, to 34% for China (taking Trump’s extra tariffs this year to 54% and lifting average total tariffs on China’s imports to 76%1), 46% for Vietnam, 49% for Cambodia, 29% for Norfolk Island (which is part of Australia), and 10% for the penguin-only Heard & McDonald Islands.
The rates were calculated by dividing trade surpluses with the United States by the country’s exports to the United States, and then halving that, with a 10% floor. Economists said they would fail their students for submitting that formula for tariffs in an exam, although economists also found ChatGPT suggested the formula when asked how to formulate a global tariff policy that set an even playing field for the United States.2
If enacted in full, the tariffs would increase the United States’ average tariff rate from 2.5% to 22%, which would be the biggest tariff increase since Herbert Hoover’s Smoot Hawley Act of June, 1930, which worsened the Great Depression, and take them back to levels last seen in 1910. To give you an idea of the scale of the reorganisation of global supply chains needed in response, Nike produces 50%3 of its shoes and 28% of its clothes in Vietnam. About 40%4-45%5 of the parts used in US-assembled cars come from overseas.
US business leaders who spent billions to get Trump elected were shocked and US stock values fell on Thursday and Friday by the most in percentage terms since March, 2020 (10.5%6), and the most ever in value terms (US$6.6 trillion7). It was the fourth-worst two-day fall in history, behind the October 1929 crash that led to the Great Depression (25%), the October 1987 crash (22%) and the March 2020 Covid crash (21.5%). It was bigger than the 9.5% fall that popped the Dotcom bubble of 2000.
The US Federal Reserve Chairman Jerome Powell said on Friday night the tariff shock was worse than expected and was likely to slow US economic growth, but also increase inflation, which meant the Fed would be cautious before cutting interest rates again. Investors and traders expecting another application of the ‘Fed Put’ to bail them out were dismayed.
China retaliated by imposing its own tariffs of 34% on US imports, which means components (for say an iPhone) imported from the United States will cost 34% more, and then be re-exported back to the United States with 54% added. An iPhone 16 Pro Max, with a 6.9-inch display and 1 terabyte of storage, which currently retails for US$1599, could cost nearly US$23008 (NZ$4,114), up 43%, if the tariffs were passed on to consumers.
But not everyone’s a loser. Some might win, including us.
However, the effects of the Trump tariff shock could be helpful, perversely, for some, including New Zealand’s exporters to the United States and our importers from China. Our main goods exports to the United States are meat and wine. Americans still need our lean grass-fed beef to mix with their fatty feed-lot-fed beef in their burgers because climate change has thinned their grass-fed herds.
Demand and prices are high globally in a commoditised market and New Zealand will be able to shift some around. Also, China now tariffs US beef imports, which were worth US$1.6 billion last year9, at a rate of 54% and it just suspended10 imports from its seven largest beef suppliers in Brazil, Argentina, Uruguay and Mongolia while it investigates dumping by them (New Zealand is quietly checking11 to make sure we don’t get pinged too). US beef exports to China have already collapsed from 2,000 tonnes a week to 54 tonnes last week after Beijing didn’t renew the registrations of US meatpacking facilities that expired last month.12
New Zealand’s wine exports will also look (relatively) cheaper than now-even-higher-priced competing wines from Europe being tariffed at a rate of 20%. Also, Trump has not put tariffs on services exports such as tourism and software-as-a-service, which will become relatively more attractive to US consumers as a result. Last year 370,000 Americans13 visited New Zealand for an average of 10 days each and spent about $4,745 each per trip, making the US the second largest source of tourism revenue14 at $1.75 billion last year (after Australia). That’s almost as much as beef exports to the United States last year.15
And, luckily for us, New Zealand’s timber exports to the United States are exempt.16
Quote of the day
Someone needs to disable caps lock and ! on Trump’s phone
“This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates. He is always ‘late,’ but he could now change his image, and quickly. Energy prices are down, Interest Rates are down, Inflation is down, even Eggs are down 69%, and Jobs are UP, all within two months - A BIG WIN for America. CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!” Donald Trump on Truth Social before Powell’s speech on Friday night.
“GREAT JOB NUMBERS, FAR BETTER THAN EXPECTED. IT’S ALREADY WORKING. HANG TOUGH, WE CAN’T LOSE!!!
“TO THE MANY INVESTORS COMING INTO THE UNITED STATES AND INVESTING MASSIVE AMOUNTS OF MONEY, MY POLICIES WILL NEVER CHANGE. THIS IS A GREAT TIME TO GET RICH, RICHER THAN EVER BEFORE!” Donald Trump on Truth Social after better than expected US jobs growth numbers (from March) and the second day of a 5% slump in the S&P 500.
Number of the day
Arbitrary & pointless tariffs that create US inflation & hurt poor countries
3,500 acres (1,416 hectares) - The amount of land in the United States (in Hawaii) capable of growing cacao trees, which produces the cocoa for chocolate. Côte d'Ivoire has 11.8 million acres under cultivation and provided half of US cocoa imports in 2023 worth US$378 million. Offshoring the Ivorian chocolate industry to the US is not possible so the new 21% tariff on imports Côte d'Ivoire is pointless, other than as a tax on consumers that will increase chocolate prices.
Chart of the day
US tariffs back to the future of the Great Depression
Video of the day
Paul Krugman talks with Zachary Carter, a biographer of Keynes
The best of the rest this morning
My Pick ’n’ Mix at 6 am on Monday, April 7
Food poverty investigation by BusinessDesk-$’s Cecile Meier: Compass gobbles up rich Govt contracts worth $210m this year
Housing news by NZ Herald-$’s Ben Leahy: ‘Goldmine’: Developers brace for $500m state home sell-off
Transport and climate news by NZ Herald’s Simon Wilson: AT’s new targets: More spending on roads, less on public transport and cycling
Geopolitics news via Bloomberg (gift): Vietnam Offers to Remove Tariffs on US After Trump’s Action
Housing and construction explainer by Stuff’s Erin Johnson What it takes to demolish a bad building. If it’s less than 4 storeys tall, it doesn’t need consent. So why is it so hard to demolish a bad building?
Good electricity price news by BusinessDesk-$’s Ian Llewellyn: Chance of winter energy crisis reducing
Poverty news by RNZ’s Rachel Helyer Donaldson: 'Gambling by stealth' - Iwi leaders call for halt on gambling law reform
Environment news by RNZ’s Joe Shaw: Plastic wrap producers targeted under proposed 'Green Farms' scheme
Good news by RNZ’s Graham Smith: 'We haven't had a power bill in five years': the Wairarapa couple living off-grid
An interview with Shamubeel Eaqub. On RNZ’s Saturday Morning: New club of countries to emerge from Trump tariff turmoil - economist
Journal of record for the week to April 6
Politics, government, the economy & geopolitics
Stats NZ released data on Māori business activity, reporting that the total value of earnings by employees of Māori authorities was up 15% in the December 2024 quarter compared with the December 2023 quarter. Māori authority exports were up 16% over the same period, and filled jobs for Māori authorities were up 2.4%.
Inland Revenue began public consultation on proposals to simplify the fringe benefit tax system in order to reduce compliance costs. Under the proposals, fewer vehicles would be subject to FBT.
Poverty, health, education, justice & crime
Cabinet agreed to enable medicines to receive Medsafe approval in less than a month if they have already been approved by at least two recognised overseas jurisdictions. Recognised countries currently include Australia, the US and UK, Canada, the EU, Singapore, and Switzerland.
Te Whatu Ora Health New Zealand released performance data on its health targets for Q2 2024/25. Data showed reduced wait times for cancer treatment and in emergency departments, as well as improved child immunisation rates.
Workplace Relations and Safety Minister Brooke van Velden announced that complying with WorkSafe Approved Codes of Practice (ACOPs) will be sufficient for businesses to meet their health and safety obligations.
NZCTU President Richard Wagstaff said Brooke van Velden's changes to health and safety legislation are "driven by ACT Party ideology" and will exempt small businesses from best practice health and safety.
The Business Leaders' Health and Safey Forum argued that Brooke van Velden's health and safety reforms focus on reducing critical risks, but won't do enough to reduce NZ's high workplace injury and fatality rates.
ACC Minister Scott Simpson announced changes to performance monitoring and assessment processes for the ACC's Accredited Employers Programme.
Housing, transport & infrastructure
Stats NZ reported that the number of homes consented in NZ in February was down 7.4% compared with February 2024.
Land Information Minister Chris Penk announced that the final stage of the Government's overhaul of the Public Works Act will introduce additional compensation and incentive payments for public land acquisition, and will enable acquisition to support infrastructure recovery during states of emergency.
In a speech commenting on the cancellation of the iRex ferry project, Deputy Prime Minister Winston Peters announced that two new Interislander ferries will enter service by Christmas 2029 and have rail decks for up to 40 rail wagons.
Minister of Transport Chris Bishop announced that construction on a Road of Regional Significance project to improve State Highway 2 in Lower Hutt will start this year. The project will include a new interchange and bridge, improved walking and cycling infrastructure, and a relocated Melling Train Station.
Climate, environment, air, land & water
Elecnor began work on a Waikato solar farm expected to bring electricity to roughly 35,000 homes when complete. The 182 hectare farm, a joint venture between Harmony Energy and Clarus subsidiary First Renewables, is expected to be ready to operate by late 2026.
The Government will allocate $41.5 million from the Regional Infrastructure Fund to two projects to improve Northland's water security. Regional Development Minister Shane Jones said the Otawere and Kaipara pipelines will expand water access in Northland and open up 1600 hectares of productive land.
A survey on ethical investment by Mindful Money and the Responsible Investment Association Australasia found roughly 75% of respondents want their KiwiSaver to be invested ethically and believe fund managers should commit to net zero emissions by 2050. Half of respondents were concerned about 'greenwashing' and other misleading claims about ethical investments.
The Kākā’s diary for the week to April 11, and beyond
Monday, April 7
PM Christopher Luxon is expected to hold a post-Cabinet news conference at 4pm in the Beehive Theatrette.
Health Coalition Aotearoa hosts an event on the influence of lobbying on NZ democracy at the University of Auckland from 5.30 pm.
RBNZ releases residential mortgage statistics for March 2025, and housing market statistics for the December 2024 quarter.
Tuesday, April 8
The New Zealand Institute of Economic Research will release its Quarterly Survey of Business Opinion for the March quarter.
Stats NZ releases data on greenhouse gas emissions in the December 2024 quarter, as well as an 'Our Environment 2025' stats series.
Parliament meets from 2pm. Meetings of Parliament are livestreamed on the Parliament website.
Wednesday, April 9
RBNZ will review the OCR.
Stats NZ releases its household labour force survey for the March 2025 quarter.
Parliament meets from 2pm. Meetings of Parliament are livestreamed on the Parliament website.
Thursday, April 10
The Treasury will give an online presentation on its upcoming 2025 Long-term Insights Briefing at 10.30 am.
Stats NZ releases statistics on families, households, and housing from the 2023 Census.
Parliament meets from 2pm. Meetings of Parliament are livestreamed on the Parliament website.
Friday, April 11
Stats NZ releases glacier volume data, UV intensity data, and wildfire risk data to 2023.
Beyond April 11
Apr 15 - RBNZ Chief Economist Paul Conway gives an online speech on RBNZ forecasting from 9.30 am.
3 June - New Zealand Media and Entertainment holds its AGM. Shareholders will vote on 10% stakeholder James Grenon's board takeover bid.
3 May - Australia will hold a General Election.
7 May - RBNZ releases its half-yearly Financial Stability Report.
12 - 14 May - The Environmental Defence Society hosts a conference on NZ's energy transition at the Grand Millennium Hotel in Auckland.
22 May - The Government releases Budget 2025.
17 Jun- The New Zealand Institute of International Affairs holds its 2025 conference.
25 - 27 June - The New Zealand Association of Economists holds its annual conference at Victoria University of Wellington's Pipitea Campus.
Many thanks to Eilish Grieveson for compiling and editing these Journals of Record items. My apologies for not putting them out yesterday. I’ll try to get them out on a Saturday this coming weekend.
Podcast or video of the day
Substack essential today
Cartoon of the day
Timeline-cleansing nature pic of the day
Ka kite ano
Bernard
Livemint: History repeats! US stock market plunges on China retaliation tariffs - a look at biggest market crashes in past
BusinessDesk-$’s Riley Kennedy: The NZ product (timber) exempt from new US tariffs – for now
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