Trade Wars – What Might it Mean for Kiwi Manufacturers?
Since the announcement by Donald Trump, of new tariffs on imports of steel (25% tariff) and aluminium (10% tariff) into the U.S., there has been a lot of discussion about whether this may be the start of so called “Trade Wars”, and what its potential impact on New Zealand would be. A lot of questions remain on the specific policy and critically, what the rest of the world will (or won’t) do in response.
In regards to the direct effect of such a policy, New Zealand’s metal product manufacturing sub-sector makes up just under 10% of total manufacturing. In terms of direct exports to the United States, Iron and Steel and Iron or Steel articles exports make up 1% of total exports to the country, aluminium and articles thereof represent 0.43% and metals exports as a whole account for 1.75%. So directly, any effect of this policy will be reasonably small. This does not, however, take into account the domestic use of steel and aluminium as inputs into other export products.
While the direct effect may not be major for our economy (though for individual companies selling to the U.S., it could be huge), any flow on effects may be more significant. If other countries start responding with similar tariffs, and we are included in these, it could really impact our economy – though any prediction now would simply be speculation.
New Zealand manufacturers largely operate within supply chains, creating components or parts (some of which may be made of steel) which go to the manufacturer of finished goods. If New Zealand made components make up part of a final good which is included in any new protectionist moves, we could see demand for such goods fall.
The number of free-trade agreements we have, including the new CPTPP, may inoculate New Zealand from any direct retaliatory tariffs that may face the United States from other countries.
Our current Minister for Economic Development, Environment, and Trade and Export Growth, David Parker, who recently signed the CPTPP, has formally sought an exemption from the tariffs by the United States, though we do not have an answer as yet. As a small country, there is not a lot we can do to impact what the big trading powers do in this space. Pleading exemption, however, also plays in the hands of Donald Trump. Like Australia, we’ll be seen as breaking ranks with the global alliance of nations demanding that this gross violation of WTO rules be withdrawn. It puts the American President in a position where he can ‘divide and rule’.
What our Government can do is address some of the trade issues we currently have to make sure our manufacturers are in the best possible position to thrive, regardless of what happens. For example, our own metals industry has faced challenges from the importation of non-compliant steel and other building products which are not meeting our own standards. This Government – like the previous one, has refused to intervene. Likewise, despite free-trade agreements being in place with a number of countries, many manufacturers still face non-tariff barriers which hold back growth in export markets. The Minister, David Parker, has shown a good understanding of many of these issues in the past, and an openness to work to correct such issues exporters and import competing manufacturers face - we encourage him to set his Ministries to work in these areas.