KiwiSaver balances could be the first place New Zealanders feel the effects of US president Donald Trump’s new tariffs on Canada, China and Mexico, economists say, as fears mount over a growing global trade war.
Fulfilling a campaign promise, Trump’s duties of 25% on US imports from Mexico and Canada and 10% on imports from China will go into effect tomorrow.
Mexico’s president immediately ordered retaliatory tariffs and Canada’s prime minister said his country would put matching 25% tariffs on up to $190 billion in US imports.
This could just be the start, with the Republican president pitching universal tariffs of up to 20% on all imports whilst on the campaign trail last year. Trump claimed the tariffs would protect jobs in the US and counter unfair trade practices.
What are tariffs?
Tariffs are a tax on imports — typically charged as a percentage of the price a buyer pays a foreign seller. Mainstream economists are sceptical of their effectiveness.
While the latest tariffs haven’t targeted New Zealand, uncertainty has already impacted local companies exposed to North America, with additional fears of a US tariff regime expanding further.
One of the country’s largest manufacturing companies, Fisher and Paykel Healthcare, warned yesterday it forecasted costs rising over the next financial year, with its Mexico manufacturing facilities supplying 60% of its US stock by volume.
Short-term impact on KiwiSavers, funds, stocks
Day-to-day, Kiwis would be hard-pressed to notice the latest tariffs, except through exposure to the US market, Infometrics principal economist Brad Olsen says.
“The most direct impact on New Zealanders is from how companies and the markets react to these tariff changes because that will have an influence on how much money people have in their stock accounts and their KiwiSaver and so on,” he said.
“People are trying to figure out, what does this mean for bigger businesses in the US — because we know a lot of New Zealanders have got money in US companies or through US-related funds, it does have an impact on people’s KiwiSaver balances.”
Fisher and Paykel Healthcare shares fell by more than 6.5% yesterday.
“In the short term, New Zealanders are unlikely to see any real direct impact on their lives in terms of how much they’re spending, or the goods they have access to,” Olsen said.
“If there were tariffs that are levied on New Zealand in the future, that’s a whole other ball game. Then we’re a bit more in the thick of it — but, by that point, probably everyone is a bit more in the thick of it. Still a lot of water to go under the bridge.”
Talk of petrol costs spiking for US consumers also needn’t worry New Zealanders for the moment, the economist added.
AUT economics professor Niven Winchester said the impact of the tariffs would be first felt most through market uncertainty rather than consumer prices.
“KiwiSaver holders will see it in their balance this afternoon,” Winchester said yesterday.
“We had this relatively nice framework for trading, which benefits everyone, and now a big handful of sand has just been thrown in the cogs of that system.”
A silver lining for some?
Some Kiwi businesses could see short-term wins, such as beef exporters, who may gain price advantages over their North American competitors in the US market, Winchester said.
Local shoppers might also see marginally lower prices on Chinese products as manufacturers look beyond the US market and its 10% import tariffs, he added.
“Chinese producers will be willing to sell their products a little bit cheaper on other markets because they’re going to get less in the US, so there will be some small gains for consumers here — a marginal decrease in the price of Chinese goods.
“But, at the same time, US supply chains are going to be more costly due to the tariff.”
However, the economists warned that any benefits to exporters and consumers would likely be outweighed by the broader impacts of a growing trade war.
“Through those income effects, where countries like Canada, the US, Mexico and China have reduced incomes … that means they’re going to buy less of everything, including stuff shipped from New Zealand,” Winchester said.
Olsen said there might be a “little bit of that wheeling and dealing” as Kiwi exporters look to fill gaps created in the US market by rising prices for goods from Mexico and Canada.
Those would only be “around the edges” in sectors such as beef, wine and other primary industries and suppliers would have to contend with moving goods especially quickly.
The Infometrics economist said: “Tariffs are still a very bad move and a big challenge for New Zealand exporters, generally, because what we’re worried about is a wider trade war where one country starts to put tariffs on others, those countries then retaliate.
“Then everyone starts to throw tariffs around. That sort of makes us all poorer overall.
“There’s maybe some small, short-term opportunities here and there, but in the longer term, it’s wider pain.”
How would this affect rate cuts?
The uncertainty created by an expanding tariffs regime could influence how aggressively the Reserve Bank cuts interest rates this year, even as financial markets remain focused on expected cuts in the short term.
While a 50 basis point cut to the official cash rate in February still appeared likely, Olsen said the broader trade tensions could affect the timing and scale of future reductions.
“If you start to see these worries around prices coming through from the US, that could change international costs of borrowing and imported inflation,” he said.
“If that were to occur — more than what the Reserve Bank was comfortable with — it’s unlikely they’d have to lift interest rates, but they might not be cutting them back quite as much.”
He added: “For households, there’s no immediate need to go out and rush and change stuff, but keep your wits about you when you’re thinking about the future.
“Obviously, just keep in mind that there might not be sort of further continuance of cuts on cuts on cuts, when it comes to interest rates.”
— additional reporting by the Associated Press
