New Zealand Faces 15% US Tariff, But Economists Say the Impact Might Be Manageable

New Zealand has found itself in a tricky position after the United States announced a 15% tariff on its exports to the US. This rate is higher than the 10% applied to Australia, raising concerns among New Zealand's exporters and policymakers. However, economists are offering a nuanced perspective, suggesting that while the news is not ideal, the situation might not be as dire as some fear.

A Wedge Between New Zealand and Australia

Brad Olsen, CEO of Infometrics, noted that the 15% tariff creates a significant gap between New Zealand and Australia, which remains at the lower 10% rate. This discrepancy could affect New Zealand's competitiveness in key export sectors, such as wine and beef. However, Olsen also pointed out that other regions, like Europe, had previously faced even higher tariffs, and New Zealand is now in line with them.

Trade Negotiations and the Cost of Lower Tariffs

Olsen cautioned against assuming that New Zealand could have negotiated a lower tariff without consequences. He suggested that to achieve a lower rate, the country might have had to give up significant economic benefits, such as allowing more American investment in New Zealand. This is a trade-off that other countries, like Japan, have had to make in exchange for lower tariffs.

Uncertainty and the Road Ahead

Mike Jones of BNZ said the increase was not unexpected, and the impact on exports might be less severe than initially feared. He noted that the New Zealand dollar has fallen slightly in response to the news, which could affect the competitiveness of exports. However, the broader economic outlook for New Zealand might still be positive, given that some of its trading partners are not facing as high a tariff burden.

A Cyclical Trade Imbalance

Kelly Eckhold of Westpac raised questions about the rationale behind the US's tariff calculations. He argued that the US's approach, which focuses on trade imbalances based on goods, overlooks the significant services trade that New Zealand has with the US. Eckhold suggested that the trade imbalance is more cyclical than structural, and could reverse in the coming years as global economic conditions change.

A Call for Caution and Strategy

While the 15% tariff is a challenge, economists agree that New Zealand should focus on adapting and preparing for the long-term implications. The key lies in leveraging the country's strengths in agriculture and innovation, while also exploring new markets and trade agreements that can offset some of the US tariff impact.