Trade picture cloudy after midterms

by | Nov 12, 2018 | Trade In The News

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BusinessNZ CEO Kirk Hope gives his assessment of the implications for trade of the recent US mid-term elections.

As published by The Dominion Post – 8 November 2018.

The US midterm elections were significant for NZ’s trade prospects but the picture has just become more clouded.

New Zealand, a trade-dependent nation, needs fewer tariffs and freer trade.

That need has been compromised over the last two years by President Trump’s moves to reverse tariff reductions, pull out of CPTPP, and engage in brinkmanship with China.

Trade watchers would have been hoping for a midterm result that lowered the threat of an all-out trade war, but the threat remains.

The split Congress resulting from the midterms has increased the political confusion over trade.

It’s a subject where there isn’t a clear divide between the parties.

Republicans are traditionally more supportive of free trade but this is moderated by a voter base of manufacturing workers in rust belt states wanting trade protection.

Democrats are traditionally cooler on trade but this is moderated by a voter base of large city professionals with a more international outlook.

These nuances have brought twists and turns on two key trade deals for America – NAFTA and CPTPP.

NAFTA – the North American free trade agreement between US, Canada and Mexico – was the landmark deal in the 1990s that soured many US views on trade.

Passed jointly by Democrat President Bill Clinton and the Republicans, NAFTA has since been blamed for destroying manufacturing jobs by letting US companies move factories to Mexico for cheaper labour.

In the 2016 election candidates Clinton and Trump both called for NAFTA to be renegotiated.

Last month President Trump pulled off that renegotiation and NAFTA – now called USMCA – is now somewhat better for all parties: the US will be able to export more dairy to Canada, and Canada and Mexico will get some tariff protection on their auto exports – but the deal still needs to be ratified and it’s not clear that the now divided Congress will agree.

CPTPP – the Pacific rim trade deal that includes New Zealand – also has a complicated background in US politics.

President Obama’s support for the deal went further than most other Democrat representatives.  Hillary Clinton supported it as Secretary of State but opposed it as Presidential candidate.  Donald Trump campaigned against it as Presidential candidate, a stance mutely supported by the rump of the Democrat party that shifted left following the 2016 election.  Then Mr Trump withdrew from the deal immediately after becoming President, but has now recently hinted at a desire to re-join it.

It’s impossible to tell from that confused history, or from the recent midterm results, whether the US will indeed seek to re-join CPTPP, but it seems very unlikely under President Trump.

New Zealand might have to wait it out for a future US Administration to want to re-join the CPTPP.

The decision matters a lot to New Zealand, because further opening the huge US domestic market through CPTPP would be a great boost to New Zealand’s export earnings.

Also critically important to New Zealand is the threat of a trade war, a threat that has increased substantially during the Trump Presidency.  New tariffs are now estimated to be impacting more than US$300 billion worth of trade worldwide.

One area where there is US bipartisan support is on President Trump’s tough stance on trade with China – a stance that is now affecting the trade prospects of many other countries and is making New Zealand exporters very nervous.

The midterm elections have brought a trade environment that is no less confusing and no less under threat than before.

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