Kiota. I'm Chelsea Daniels and this is the Front Page, a daily podcast presented by the New Zealand Herald. From tomorrow, there'll be a fifteen percent tariff on New Zealand imports four US businesses. The announcement of the arbitrary amount saw US frantically send our chief trade negotiator over to Washington in a last ditch effort to plead our case. Trade
Minister Todd McLay was also dispatched. But will that actually do any good when larger economies have already signed on the dotted line and accepted their fates.
And how should.
New Zealand be diversifying our trade portfolio to rely less on the big players. Today on the front Page, University of Auckland Emeritus Professor Jane Kelsey is with us to discs what all this actually means for Kiwi businesses and whether we need to reprioritize our trade relationships. First off, Jane, what are the chances of a minister or a negotiator this laid in the game actually being able to barter a lower tariff.
For New Zealand when we have a Q as we have of those wanting to see President Trump, we are pretty far down the list and there is very little that ministers or the Prime Minister can offer that would be of interest to Trump, which doesn't mean that he won't try to get whatever he can from them in these behind door negotiations. And that's a bit of a worry because we don't know what might in fact be offered. But one of the things that we have seen in all of the so called deals that have been made
is that one there's nothing in writing. Two there's nothing publicly disclosed. Three there is disagreement as to what in fact has or hasn't been offered. Fourth, Trump could well say ah, okay, but I want more and not honor the deal. So who knows. But the chances therefore of our minister and Prime Minister coming out with a significant deal are pretty negligible. Right.
So how significant will this fifteen percent tariff be on New Zealand businesses?
Tariffs are kind of blunt instruments. It will mean that exports from New Zealand imports into the US are higher cost for importers in the US and consumers in the US. That could affect how much New Zealand goods they buy. So it's not that New Zealand exports pay the teriffs, it's that it might affect them in the market. But at the same time, if you look at the effect of things like the exchange rate, that has a really
significant effect on the prices as well. What other countries exports are and how they might be affected are also part of this equation. So it's very hard to be specific about what the consequences would be, and when people put figures on that, you should be quite skeptical, especially because we have no idea about all of these counterfactuals.
I mean, does it make it worse for our businesses though, say, because we've got competitors like Australia in UK they've cut a ten percent deal, we've got fifteen percent. Like if I was a US based business, say if I owned I don't know, like a diner or something, would they then choose Australian beef over New Zealand beef.
There's a whole lot of differences already. Consumers have preferences and importers have preferences, and there are different qualities of products. I mean, if you just look at wine for example, that they're not directly substitutable. There's a whole lot of factors in play there, and yes, I can understand that the New Zealand wine makers have some concerns, but we
need to view those in the big picture. We also need to be clear that this is sending a message about dependency on particular markets and dependency on the export of particular products and the kind of economic model that we have been working to in this country for a number of decades that is a pretty basic export commodity model. So it's a time and a warning to rethink, not just to look at what the figures might look like.
Do we place too much importance on our trade relationships with those big juggernaut players.
There's been a lot of talk about the need for diversification, especially because of New Zealand's excessive dependency on China as a market, but also on lower value added products like export of whole logs or lower value added dairy products and so on, and so it's not simply about diversifying to other markets, but it's also about rethinking our own domestic economic model, which currently is based largely on the housing market and secondly on relatively low value added exports
to a relatively small number of countries, but we have a great difficulty generating that discussion here. There was a Productivity Commission report several years ago before the Productivity Commission was disbanded that set out a process for diversification which would flicken our domestic production, and that unfortunately seems to
have fallen on deaf ears. So you know, this, as I said before, is a kind of wake up call for us to start thinking differently, and maybe we have President Trump to think for something.
We don't want to be any worse off than anybody else. New Zealand exporters into North America. I check in with quite regularly. They're actually doing really well. Whether it's the zest breeze, whether it's the red meat guys, the wine guys are obviously our second biggest exports there as well. A lot of them are saying they're able to pass it on to the American consumer, which is what has been happening. And again a big market. Just remember three
hundred and sixty million people. If you find wealthy retailers and wealthy consumers, you can still navigate your.
Way through it.
When we say a diversification of our domestic market, what could we be doing, say to make that happen.
If we just look at a story I read this morning about a large producer that uses a lot of energy importing the products that they're going to use from Vietnam when there are local producers here, or if we look at reliance on the overseas big tech operators for running server farms and so on, when we could do that here. There are real opportunities here, and we seem
to have an aversion to taking those opportunities. At the same time, we have some problems in some of the trade agreements that we have negotiated over the years, which restrict us, for example, putting local content requirements on foreign investors. So if we look on our ports and we see all of those logs being exported whole as opposed to being processed here, there are limitations on our ability to require foreign forestry investors to process logs here for added
value as opposed to exporting whole. That's going to be reinforce by the Overseas Investment Amendment that's currently before the Select Committee, which is going to make it harder, for example, in relation to forestry investments, to set conditions such as replanting and so on on on foreign investors in forestry. We need to think about how we can address those
kind of constraints and not add to them. And that's again a conversation that there seems to be an aversion to having, but it would make a really significant difference to the value that we get from our natural resources.
The New Zealand economy is already a bit flat at the moment right Unemployment hit five point two percent in the Dune quarter and many economists are predicting a contraction or slower growth in the next quarter. Will tariffs make our recovery and the cost of living more of a struggle?
I don't think they'll make that much difference, frankly, and certainly know the difference between a ten percent and a fifteen percent, which is what Australia, for example, has got A ten percent is not going to make that much
difference in the overall picture. Whether we can stop closing down, for example, the mills that we've had in Tocata and various other places, those are the things that are affecting our job numbers and losing skilled people, good good working class, well paying jobs, and losing our people off to Australia those I think are going to have a more significant impact.
In terms of trump tarent tariffs and the tariff chat and thinking about our overseas trading portfolio, I suppose how might these tariffs influence New Zealand's trade diversification efforts with other countries, not just China, but like the EU or that Southeast Asian market.
I don't think it's going to have much impact it al I mean, there's a term called trade diversion, which means that if you stop exporting so much to one place because of tariffs, will you therefore start looking for other markets. That's a positive part of trade diversion. Sometimes it's used for more negative reasons. I don't think it's
going to have really that much impact it all. We've seen already that, you know, the EU f TA, the China f t A and so on are supposed to have had really significant impacts, but it's very hard to tell exactly what those have been as well. There's often real overstatements about what the effect of those agreements are. And frankly, my concern about the tariffs is not all of these supposed economic impacts, but what the non tariff demands that Trump might make ah and what the effects
of those are going to be. And I think it's a mistake to view the Trump use of tariffs as purely economic considerations. But even if we just look at the tariff's issue with Trump, we've seen some very high profile US economists saying, don't expect that this is ever going to go back to the way it was, say,
ten years ago. Yeah. So with tariffs, we've already seen Trump one imposing tariffs which were not all reversed by Biden, and the Trump two tariffs you can expect are not going to be fully reversed either, even though they are effectively unlawful in the World Trade Organization and breach various
of the US free trade agreements. So the notion that you have a rules based system governed by the WTO or by free trade agreements was being eroded over the last decade by Obama and then by Trump, and then by Biden, and again by Trump now saying Okay, I'm just going to break the system. And so I've referred a couple of times to a wake up call. The assumption that you can, okay, when Trump's gone, it'll all go back to the way it was is nonsense. That's
not going to happen. Already, the World Trade Organization is total and utter chaos.
And not just a WTOO, though I am hearing what you're saying, and I'm thinking about the who. I'm thinking about the UN as well. It's just as it's this chaotic kind of turn of events where you think things are happening, but what are these organizations for. Well, they're to stop these things happening.
It's like, well, but they are, Yeah, but he's actually played a different game with the WTO. He's withdrawn from those other ones, and he's effectively screwed their budgets. When the US joined the WTO, the legislation required them to do a review every five years, and they've just done that review, and they have talked about the WTO basically
being broken, but they haven't talked about withdrawing. What they're doing instead is demanding a whole lot of changes to how the WTO operates without any commitment that they stay there or that they comply with the rules. So they want no consensus based decisions anymore. They want changes to special and differential treatment, especially for China, and so on.
Along the same lines. You may remember that Trump withdrew from the TPPA or the CPTPP, and that the CPTPP without the US, and then Biden, because those agreements are so unpopular in the US, started the Indo Pacific Economic Framework IPF, which was also anti China. It's no longer called ASHIAP Pacific, It's called Indo Pacific. But Trump didn't
like that either, and it's gone into abeyance. And so what he's done instead is instead of trying to construct new instruments, he's just gone for using US leverage in this very raw sense, and not simply to isolate China, and not simply to supposedly boost the domestic economy and jobs in the US, but for the interests of some
of the companies, like the big tech companies. And in the past when a number of countries have been trying to reign in big tech, to put taxes, digital services taxes on or to constrain the monopolies that some of the Google and the big search engines and so on have, and they've been putting these domestic rules in place. Obama and Trump previously use domestic law in the US to
investigate and then put sanctions on them. Trump instead is now not going through that ritual at all and is just saying we'll slap these tariffs on you unless you repeal those laws. And that's worked with Canada, it's worked to some extent with the EU. The EU deal with Trump. Trump says they've agreed to remove all of those The EU has said no, we haven't. Trump has said yes, But the negotiations aren't finished yet. And so it gives you a sense.
I can see, yeah, I can see why and how he's using them as a tool to leverage things worldwide. Hey, and that's something that a lot of political analysis have pointed to as well.
MAGA leaders have quoted that Trump has won the trade wars against the European Union, Japan, and South Korea. And it's true that Donald Trump recognized that America has special leverage against those countries because of the size of its market as well as the security it provides to its allies. So he used that geopolitical reality at a time of rising geopolitical threats to squeeze America's closest friends to force them to make concessions. But to view these small gains
as great American victories misunderstands economics. No, one wins a trade war.
Lastly, do you think the New Zealand government has its trade priorities in check? Are they correct or is there anything that they can do.
Next?
Is there is there a country that we should we should be trading with that we're not. I noticed that we don't trade very much within many African nations. Is it because they don't have what we want? I mean LOSTO. I went down Alesto rabbit hole and I was like, right, I will, I'll buy jeans from the Soto because they've been absolutely devastated by these Trump tariffs. And is there anywhere anywhere like that that we should be pointing our attention to.
Unfortunately, we don't have a trade policy that's based on ethics, well,
that's based off support for development. We have a pretty crude commitment to the old neoclassical model of we'll focus on what we think we do best and seek export markets for those, and we will do various deals in free trade agreements or in the WTO that mean we can export more of our stuff and we'll do a trade off with you just around the terms of trade of tariffs or or labeling or quarantine standards or services and so on, and that's locked us into these supply chains,
where COVID showed us that supply chains are very vulnerable and in particular, having dependence on particular sources make us even more vulnerable. And yes, we could have an ethical trade policy, but that would require us to do a rethink. We could, as I said before, do more stuff here, but that would require us to rethink our trade policy. Ministry of Foreign Affairs and Trade and the joint position of the major parties for decades has been locked into
that model that is now clearly failing. But it is very difficult to generate an alternative debate because the institutional and political frameworks and much of the high value corporate interests in New Zealand are so deeply embedded in that model.
Thank you for joining us, pleasure. That's it for this episode of The Front Page. You can read more about today's stories and extensive news coverage at enzidherld dot co dot MZ. The Front Page is produced by Ethan Sills and Richard Martin, who is also our editor.
I'm Chelsea Daniels.
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