When President Trump spoke in the White House Rose Garden to launch his wrecking-ball “fair and reciprocal tariffs”, there were some in the audience wearing hard hats.  While this was doubtless to show support for the move amongst hard-working Americans, maybe these same people were expecting the sky to fall in.  They may well be proved right.  Lamentation Day, 2 April 2025, radically alters the global order for trade, penalises fair traders like New Zealand and other close partners of the United States and may well usher in a severe economic contraction around the world.

How did we get here?

It was not as if we weren’t warned. President Trump has been nothing but consistent about his love of tariffs and his desire to rebuild American manufacturing. But, judging by the immediate reaction of global capital markets, even he appears to have outdone himself. 

To recall, on his first day in office he commissioned a wide-ranging review of US trade policy from trade agencies. Less than a month later he expanded the brief to include a detailed analysis of the barriers erected by US trade partners – not just tariffs, but non-tariff barriers, value added taxes, subsidies and currency policies.  Even before this analysis was completed the President announced (and then suspended) the imposition of tariffs on imports from Canada, Mexico and China. And then announced (and then suspended) tariffs on non-US origin content in motor vehicles and auto parts.  He did proceed to renew tariffs on China (raised to 20 percent from 10 percent initially) as well as steel and aluminium (which had not been rescinded under the Biden Administration). He also confirmed new trade investigations into wood products and copper, as well as a tariff on third countries importing oil from Venezuela.

Much of this came together on L-Day.  Using powers under the little-known International Emergency Economic Powers Act (IEEPA), possibly to avoid complex process, the President declared the “trade imbalance” a national security emergency. He imposed a slate of differing and discriminatory tariffs on all US trade partners. How the actual numbers have been arrived at appears shonky at best – a simple exercise of applying a base tariff of 10 percent to all and then applying a formula which divides the trade deficit with the country concerned (if there is one) by that country’s exports to the United States.  The resulting figure has been presented as the “tariff” the trade partner applies to the US – clearly a ridiculous assertion and what one economist has labelled “garbage economics”.  The process has given rise to some extraordinary results especially on some developing and, most appallingly, least developed countries – the list can be seen here.  To note there are a number of product exceptions which further complicate this already complicated picture.

How hard is New Zealand hit?

Who knew that our exports of hamburger beef and sauvignon blanc would contribute to a national security emergency?  When compared to others, New Zealand’s additional 10 percent tariff may well be at the lower end of pain for exporters (and US consumers), but it is pain nonetheless and there could well be more to come as other announced or planned investigations (for example on wood and pharmaceuticals) proceed.

It is outrageous to claim that we apply a 20 percent “tariff” to US exports – the figure quoted in the US Trade Representative’s National Estimates Report is 1.9 percent.  Our trade surplus is small and can easily be reversed when Air New Zealand buys a Boeing or two.  That said we have ended up in the same group as Australia and Singapore (which have FTAs with the US and a trade deficit!), Chile and the UK. Other competitors in the US market, including the EU, face even larger tariffs than we do but that too is rather cold comfort.  Impacts will vary across sectors and as these tariffs are additional they are a minimum level and will come on top of tariffs already being paid.  

WTO, it was nice knowing you …

These unjustified tariffs clearly breach international trade rules, including the World Trade Organisation’s “most favoured nation” (mfn) principle which in summary prohibits discriminating between trading partners (except in the context of comprehensive FTAs applying to substantially all trade).  In raising tariffs the United States will almost certainly break “tariff bindings”, the maximum levels for tariffs agreed in successive multilateral trade negotiations. 

New Zealand can feel rightfully aggrieved if, as seems likely, the additional tariff is applied to imports under WTO country-specific tariff rate quotas for beef and cheese: these were agreed as part of the Uruguay Round outcome and ratified by the US Congress.  China has already said it will challenge these tariffs in WTO dispute settlement and there is an option for New Zealand to join such challenges as a third party or to initiate its own disputes.  The US may pay scant attention to such litigation as they have for years now, and under successive Administrations, refused to appoint judges to the WTO Appellate Body. This does not bode well for the WTO.

Just days out from L-Day it is hard to know how this extraordinary action will pan out. Markets clearly fear a “tit for tat” trade war: in the face of actual or planned retaliation by Canada, China and the EU, the President has vowed not to alter course.  He may yet be open to negotiation. But this takes time and the economic impact in some economies will likely be severe.  There are risks and maybe opportunities for business in the resulting trade diversion as products are shifted to other markets.  The accompanying uncertainty is very bad for business.  In the US as elsewhere there is talk of higher inflation and even recession.  That is reason enough to hang on to those hard hats – watch out for falling debris!

This post was prepared by Stephen Jacobi, Executive Director of NZIBF.