It was hard to sleep on Wednesday night. Donald Trump’s so-called reciprocal tariffs took effect that afternoon and the bond market was reacting poorly.
Long-dated yields were surging at record-breaking speeds, despite a similar sell-off in the stockmarket. The US$29 trillion market, which underpins the entire global financial system, was showing signs of stress.
“BE COOL! Everything is going to work out well,” the United States President posted on his own social media platform at about 1.30am, New Zealand time.
This attempt at reassuring the market, in all caps, did not work. Within hours, Trump had announced a 90-day pause on the ‘reciprocal’ tariffs to stave off the risk of financial crisis.
“I thought that people were jumping a little bit out of line. They were getting a little bit yippy, a little bit afraid,” he told reporters, when asked to explain the pause.
Markets rallied out of sheer relief but it was short-lived. Trump had kept the 10% baseline tariff in place and also hiked the base rate for Chinese imports to a staggering 145%.
While some compliant US allies—such as Japan and South Korea—were no longer being unfairly targeted by the White House, the average tariff on imported goods was still higher than any other time in the past century.
Trade stops
Sean Keane, a top strategist at JB Drax Honore, said it doesn’t matter if the China tariffs were 125% or a thousand percent because “trade stops, largely” in either case.
“The genie is out of the bottle and it can’t easily be put back in. Global fund managers … are going to rethink concentration risk in US assets and dollars,” he said in an interview with Madison Malone.
“What we saw [on Wednesday] was the selling of bonds as people tried to realise cash and move out of the United States, to get to safety, and that was very alarming.”
Since the tariff policy was announced: 10-year bond yields have climbed above 4.5%, the US dollar has fallen more than 3% against its trading partners, and the benchmark stock index has dropped some 7%.
Investors aren’t just shifting their money around the American financial system, some are withdrawing it entirely. This loss of confidence isn’t just due to the tariff policy itself, but also the sheer incompetence of its architects.
The White House relied on a flawed economic theory, miscalculated its own formula, sent mixed messages about its goals, announced incorrect tariff rates, and then backtracked on some elements while doubling down on others.
Sitting in stasis
This has frustrated Prime Minister Christopher Luxon, who has plenty of personal insight into how corporate chief executives will be responding to the constant confusion.
“Part of the problem is the instability and uncertainty,” he told reporters on Thursday after waking up to news of the 90-day pause.
“The danger is that everybody's just sitting there in a state of stasis. [Businesses] not wanting to invest, consumers not wanting to purchase or buy, because they don’t know what’s happening next”.
Luxon wants economic growth to kick into gear and foreign investors to pump capital into New Zealand. That might not happen without clarity on how it fits into the new global supply chain.
But the Prime Minister didn’t wait for certainty to suddenly appear. He jumped on the phone with the leaders of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) nations and the European Union to pitch them a new rules-based trading bloc, which could facilitate free trade between about 30% of the global economy.
Stagflation
By chance, the Reserve Bank was the first central bank in the world to react to the tariff drama, and it agreed with Luxon that it was all bad news for economic activity.
Demand for New Zealand exports were likely to fall as weaker global growth and trade uncertainty reduced investment and spending, it said.
The Monetary Policy Committee mostly thought this would mean less inflation and weaker economic growth prospects, and that there was likely scope to lower interest rates further.
It is a different story in the United States, where individual central bank officials have been emphasizing the risk of inflation and suggesting they wouldn’t vote to cut interest rates.
Online betting platform Polymarket sees a 65% chance that the US will enter a recession this year, which could mean a repeat of the ‘stagflation’ last seen in the 1970s.
It’s always about China
Kelly Eckhold, the chief economist at Westpac NZ, praised the Reserve Bank for not overreacting to the troubled markets. Particularly since the tariff policy was softened just hours later.
“There is really no script out there for how to think about current events,” he said in a video on Friday.
“The biggest downside risk NZ faces is with the exchange rate. The reality that some tariffs are here to stay and our biggest trading partner, China, is likely to be at the center of those”.
Donald Trump’s policy was supposed to be part of a wider competition between the United States and China to determine who gets to have the most influence in the Indo-Pacific.
Stunting China’s export-based economy was likely intended to prevent it from building enough strength to directly challenge the Western alliances. But it may have backfired.
End of an empire?
Martin Whetton, head of financial markets strategy at Westpac Group, said the United States had lost, or at least diminished, its credibility as a financial safe haven and global reserve.
The era of “exorbitant privilege” it had enjoyed since the end of World War II ended this week as investors questioned the credibility of the US administration.
“No other market has had this reserve status in the modern era, and those who had it previously, saw their empires crumble,” he wrote.
The fact that anxious investors didn’t rush to buy treasuries and dollars to protect themselves suggested the US had “flippantly” given up its place as the global financial hegemon.
Superpowers don’t last forever. Great Britain controlled the world for about a hundred years prior to the world wars. Then it became stretched too thin and had to retreat.
By the 1970s, it had lost its status as a world power and joined the European Economic Community in an effort at revitalisation. This pulled the rug from under New Zealand, which had established itself as a farming colony for a British Empire which no longer existed.
What happens if—or when—the United States loses its global dominance? You can hear that question being whispered in the bond market, and it keeps me up at night.
57 Comments
'This loss of confidence isn’t just due to the tariff policy itself, but also the sheer incompetence of its architects.'
Maybe, but it was coming anyway. In some form, if not this one.
'Luxon wants economic growth to kick into gear and foreign investors to pump capital into New Zealand. That might not happen without clarity on how it fits into the new global supply chain.'
Try re-writing that properly. 'Luxon wants an already-overshot species to go further into overshot territory (from already overconsuming the planet, to overconsuming it more). Translated: madness. Edit - and people don't 'in' vest; they put a hose in and suck out profit. Properly described, that is an 'out' vest. A removal. He's asking for us to be raped.
The US hegemony was 100% destined to run it's course. (Tainter 1988, Diamond 2005, Catton 1980). Why lose sleep over an inevitability? We benefited from being on the coattails of that run, now we appear to be heading into the next - inevitable - phase.
That will traverse the resolving of too many people chasing a dwindling supply of materials, so war(s) are inevitable.
https://degrowthuk.org/2025/04/04/prospects-for-degrowth-2025/
'Faced with economic stagnation the elites are panicking. Wild eyed in the control room, they thrash around seeking to fix the unfixable, pushing all the buttons, pulling all the levers, to no avail, just making things worse. They try the old mantra “growth”, repeated endlessly, and given a priority above all else7. They roll back environmental and social protections8: pulling out of agreements on climate mitigation, desperately promoting a building boom9, directing expenditure to the military10, promoting non-solutions such as nuclear power, hydrogen11 and carbon capture and storage12, all in the name of GDP growth, for they know no other god.'
Time we looked ahead, not behind.
Since the tariff policy was announced: 10-year bond yields have climbed above 4.5%, the US dollar has fallen more than 3% against its trading partners, and the benchmark stock index has dropped some 7%.
I almost feel guilty gawking here from our little islands in the Pacific. I can't imagine what already stressed families are feeling in the US. I can see nothing but inflation skyrocketing there at the same time as credit tightens.
Decades of summer (easy credit) eventually give way to winter (bond vigilantes).
I almost feel guilty gawking here from our little islands in the Pacific. I can't imagine what already stressed families are feeling in the US. I can see nothing but inflation skyrocketing there at the same time as credit tightens.
Aotearoans have a false sense of security and likes to cling on to ideas of how we're different and largely unexposed and immune to external events and profiles.
I think this is reflective of our general immaturity as a nation and culture.
? Your examples of "general immaturity as a nation and culture" are ... ?
Going deep into debt when interest rates were super low to buy "investments" that don’t generate any real returns.
Your examples of "general immaturity as a nation and culture" are ... ?
No time for an essay David so let's keep it focused on what Kate is saying. Yes, I believe Kate is correct when we're able to suggest that the US hoi polloi will suffer from inflation (monetary debasement) and credit constraints. But if there is any suggestion that we are somehow isolated is wrong-headed given that we prescribe to similar playbooks and dogma. Even saying this would get you the sideway looks at the water coolers and BBQs. It's just as bad within the institutions and such views are avoided to not upset the 'harmony'. The immaturity is that we don't take self criticism and reflection seriously - we tend to rely on comparisons with the outside. Case in point: the Aotearoa backslapping about Covid death counts was nauseating. It was similar to the whole 'punching above our weight' emotional gratification while ignoring many pertinent factors.
No time for an essay David
Doesn't have to be an essay, just evidence. A story about what'd happen at a bbq or water cooler isn't evidence.
Where is the army of citizens that think we're immune from wider international issues?
"general immaturity as a nation and culture" would be cancelling the fighter wing in exchange for 2 days of welfare payments and expecting to bludge off Uncle Sam when it comes to defence. That there is an is the army of citizens that think we're immune from wider international issues.
profile,
This government proposes to spend/invest and Additional $9bn on defense over a period of years. Where exactly will that money come from-and the final cost will much higher- when we cannot adequately fund our failing health service?
In the event of an invasion-and just how likely is that?-we could not defend ourselves, so it seems that the sole justification for this spending is that this would guarantee that someone else would come to our defense, presumably Australia or the US. In my view, this is just nuts. we need stuff to patrol our waters for drugs and illegal fishing, for humanitarian and climate events, but not for military purposes and certainly not when we have so many needs right here.
But if there is any suggestion that we are somehow isolated
Never meant to imply we are isolated from the effects of Trump's actions, it's self-evident that no nation on earth is unaffected.
That said, I do think we will likely suffer lesser inflationary effects, but perhaps similar credit tightening effects.
Just a guess though.
And I suppose I do suffer from a bit of NZ exceptionalism. This is a beautiful country - in many ways like no other due to our geographical isolation. I do wish we managed our fisheries/oceans better and that we upped our capacity to patrol our EEZ better as well.
Never meant to imply we are isolated from the effects of Trump's actions, it's self-evident that no nation on earth is unaffected.
I hear you. I think what I said about "immaturity" is our Achilles heel. I remember Paul Theoroux in Happy Isles of Oceania suggesting Pakeha Aotearoa in particular suffers from an inferiority complex that is both self effacing but insecure at the same time.
That said, I do think we will likely suffer lesser inflationary effects, but perhaps similar credit tightening effects.
I think our inflation as as bad as or worse than that of the US. And that is evident in the Ponzi and broad measures such as h'hold debt to GDP / income. We need to snap out of the idea that the CPI is an accurate measure of inflation.
A fierce determination to champion GROWTH
even when it is obvious that all our problems stem from GROWTH.
Immaturity has nothing to do with age.
Aotearoans have a false sense of security and likes to cling on to ideas of how we're different and largely unexposed and immune to external events and profiles.
They are?
We're only a couple years since being fairly seriously effected by a global pandemic that most Kiwis would rather forget.
You have a very busy imagination.
Your comment is a self-defeating oxymoron.
Bears out his point, methinks. They don't want to remember - and therefore to learn from.
If we'd been a mature-thinking nation, we'd have rejected Roger Douglas, in 1984 (and as with those not Trump insiders. we were blindsided).
If we'd been a mature-thinking nation, we'd have had the overshoot/self-sufficiency debate, and gotten on with preparing.
Yes, a majority still vote for growth - some of the reason being that they're told by others that it is (a) good and (b) possible sans devastating repercussions.
They don't want to remember - and therefore to learn from.
This is most people. There's nothing unique to Kiwis in that regard.
You're right in that part of the answer involves a shift in human consciousness, from being inwards focused, to outwardly focused. I'm just a bit too sceptical most of us are capable of that, without needing to be under emergency situations.
If we'd been a mature-thinking nation, we'd have had the overshoot/self-sufficiency debate, and gotten on with preparing.
100% Power. Not reaching out to your limits, but countries like China and Vietnam have food security policies that are taken very seriously.
Aotearoa has no explicit food security policy for the people. Correct me if I'm wrong. How can you be a developed country and not even have food security policies? And housing, energy? This is the lowest rung on the hierarchy of needs.
Yet we put higher importance on using the right pronouns. That's unserious if you ask me.
Some of us have a mature approach to food security. My better-half was a founding - and is a continuing - member of this:
https://www.ourfoodnetwork.org.nz/
But I list the number of civic leaders who get the issue:
There, listed.
You need a food security policy when there's significant risk
China doesn't make enough food to feed itself. 10s of millions of it's people starved to death in recent history. It needs a food security policy
If we need to run a high redundancy policy for everything, in case the world turns to shit, we wouldn't be running a consumer economy
Every nation needs a food-security policy.
Food is energy, and right now we're eating our way through fossil fuels. Haber Bosch accounts for about half of all food produced.
I read this article when it first surfaced. Note the date, and your comment that I was getting excited?????
https://www.resilience.org/stories/2003-10-02/eating-fossil-fuels/
Read it all. Actually, Kate needs to, too.
Every nation needs a food-security policy.
It's pretty simple
We produce enough food for 40 million (and a lot of it's "luxury" calories)
If it turns to custard, and we can't feed 5 million
You won't want to be alive.
Bull--it.
We don't produce food for 40 million - stop regurgitating spin, please.
We perhaps produce components of food which passes 40 million mouths - which isn't the same thing.
And we do that by turning fossil (fuel) calories into food ones. Badly, as the link I put up somewhere this thread, makes clear.
Ex fossil fuels, and ex soil degradation, NZ will have trouble feeding more than 2 million. You seem to have default-setting of late, where you diss-to-dismiss. That 2 million sentence stands - and is why we need to have a population discussion and a food one. Yesterday. Yes, I'd want to be alive - and I'd want to be teaching non-draw-down food production, teaching energy efficiencies, teaching adaption thinking. Your statement was a cranial facilitation to avoid, I suggest.
We don't produce food for 40 million - stop regurgitating spin, please.
We perhaps produce components of food which passes 40 million mouths - which isn't the same thing.
And we do that by turning fossil (fuel) calories into food ones. Badly, as the link I put up somewhere this thread, makes clear.
That's because our agricultural production is based on maximum financial yield (i.e how much the end product is worth), not calories or nutrition. If we were using the same area for caloric yield, we are fine. The country handled 10s of millions of sheep using not much better technology than a horse and a sheepdog.
Interim pain for sure, but assuming the country managed social order half decent we can feed the 5 million. A bunch of them would be relocating though, to make up for the loss of fossil energy.
Just say 'I was wrong'.
Feeding 40 million is a calorific count, not a monetary one.
:)
The last part I agree - and once wrote an article headed: The Coming Exodus. But 5 million, ex soil degradation, is a big ask.
Just say 'I was wrong'
I know fair amounts about agriculture. Like the processes, and the nature of how a lot of it's being done in NZ. Both from being a producer, and having a lot of clients in primary industry.
Some of its high value, but also high energy use, with complex machinery and processes. That'd be gone fairly quickly, as much of it's value is derived from global demand. Much of those areas, are in the best places for sun, water, and soil quality.
A lot of the sorts of things we can live off, can be transitioned into processes we can accomplish via more human or animal inputs.
But it's your imaginary scenario. If that involves things being turned off like a switch, I'm not sure if there's any redundancy we could likely have.
Pa1nter,
I am dubious about the oft repeated claim that we produce enough food to feed 40 million. Can you produce good evidence to back that claim?
It's claimed by NZ Trade and Enterprise.
Although journalists also ask/answer this question every 6 months or so from the looks of it. This one from RNZ seems fairly concise:
https://www.rnz.co.nz/news/whoseatingnewzealand/446357/who-s-eating-new…
NZ's main exports are agricultural and will likely remain so forever. So we don't need to worry about PDK's apocalypse. We can even run diesel engines on animal fat.
Haven't reads it yet - will do shortly. Yes, I see it was written in 2003. I've been railing against our use/dependence/addiction to synthetic nitrogen for years - and it was reinforced with my students in many a lecture as well.
https://www.interest.co.nz/opinion/102433/katharine-moody-government-op…
One lecture I wrote in 2022 (same year as you came in as a guest speaker), I'll email to you, as you may not have seen it, but I think you'll approve :-)!
Cheers, Kate
What is your aversion to nitrogen? Without it there would be more jungle cleared and more expensive food. Plenty of alternative options to make all the ammonia we need for the do gooder market segment.
"...By utilizing all most currently idle shipyard capacity where feasible—and perhaps building some new capacity or modernizing old shipyards—we could essentially decarbonize the fuels sector by midcentury if the cheap, zero-carbon nuclear pours energy into generating synthetic fuels.
...The cost of the end-products from these vessels was competitive with the long-term average costs for their fossil fuel-based counterparts—even without carbon-taxes or fees that would increase their competitiveness even further. Ammonia could be produced below $250/ton ($290 for the multi-product platform), and jet fuel at below $85/barrel."
https://thebreakthrough.org/journal/no-18-fall-2022/the-future-of-nucle…
What is your aversion to nitrogen?
Synthetic nitrogen. I think I've explained it in that article linked to?
You want to ban it, rather than just manage it better, as the UN suggests. A rather radical position with massive land degradation and starvation risks. Though the way population growth is plummeting we may not need it in a couple of generations.
As I understand those practicing regenerative agriculture in NZ, the objective is to transition to nitrogen fixing grasses/plants. You're quite right - it can't happen overnight - but already many landowners are converting as the locally manufactured synthetic fertilizer will be retired as the offshore gas supplies dwindle. Unless there is another source that comes online in the next 10 years or so.
Hence, a 'ban' in legislation could simply be a new law that targets conversion by a certain date; with incremental steps (e.g., 'x' percentage of pasture must be converted by...).
https://pureadvantage.org/insight-into-regenerative-agriculture-in-new-…
"Unfortunately, if you remove fossil fuels from the equation, the daily diet will require 111 hours of endosomatic labor per capita; that is, the current U.S. daily diet would require nearly three weeks of labor per capita to produce."
You'd have to think it was a prime example of our immaturity as a nation and as a culture, that we have avoided addressing this.
I took it on myself, somewhere between that article and now, to push the media into addressing the truth of our predicament - so far with negligible results. So I call them immature too, in the clinical sense. I listen to Corin Dann, and hear the indoctrination you'd have expected at a Billy Graham rally; I hear unquestioning belief.
What's really the point.
The sort of life people should be living
Is so far detached from how they're living as to be not worth reconciling.
Not reconciling; transitioning.
"Unfortunately, if you remove fossil fuels from the equation, the daily diet will require 111 hours of endosomatic labor per capita; that is, the current U.S. daily diet would require nearly three weeks of labor per capita to produce."
The average hunter gatherer works some 15-20hrs a week to survive.
Which is what people would be without fossil fuels.
There is no policy that'd be relevant between one scenario and the other.
So nothing happened in those centuries between the hunter gatherer lifestyle and the industrial revolution?...a few million (billion?) farmers may have had something to say about that.
The Inca managed to feed millions and they didn't even have the wheel let alone fossil fuels.
What happened to the Incas?....I understand their society collapsed due to environmental impacts after around a century.
Inca decline was mostly caused by the Spanish conquest. You may be thinking of Mississippian culture which was in decline even before the European arrival. They appear to have not used nixtamalization for processing maize to make it more nutritious. Modern humans will take advantage of huge amounts of useful information going forward that will help with adapting to changing resources.
If you were a serf, you worked pretty hard to break even.
If you were working your family plot, you'd work hard sometimes and less other times
But not 111hrs for a days worth of food.
Agriculture in the 1800s employed approx 75% of the workforce in the U.S....111 hours for todays level and variety of foods is probably not a bad estimate.
111 hours of endosomatic labor per capita
Endosomatic is barely even a word. This is so much nonsense. This is implying that there is absolutely no fuel, or even energy, left at all and you are wandering around a field, naked and without any tools.
I read somewhere that all these calculations and theories regarding EROEI etc would never pass peer review. With this statement you can clearly see why.
Endosomatic is used used in the context of human energy....ask yourself how successful you may be providing your daily calories if all you had was your physical labour and no (non organic) fertiliser.....and then consider what time you would have left for all your other activities....and assuming you had land to produce this food.
And then consider how you would cope with crop failure for whatever reason, as they have a habit of doing from time to time.
I just need a herd of sheep. Everything I need right there.
However, it is a silly "thought experiment" as there are billions of tons of coal from which fertilizer can be made plus many other ways of making fuel/energy from wood gas to hydro and nuclear etc.
If you ignore the energy involved, to obtain and morph.
Which is what EROEI is - the energy return on energy invested.
Which you already stated you ignore.
As you do entropy.
As you do anything detrimental to your narrative.
And why tap into a finite resource? It's a dead-end trip, the only variable being time. Why not do the 'then what' first, and keep your powder dry?
If you ignore the energy involved, to obtain and morph.
The problem is, we're playing out fantasy scenarios. A sort of "what would you do if the zombies came", but for fossil fuels
For instance, do they run out all at once, or gradually over time?
You can work your way into steampunk, but it won't happen overnight.
Remove (or reduce) the amount of fossil fuel available and the systems that support everything begin to fail....you can farm your sheep, but what are you going to do about everything else? Lamb chops will only take you so far.
You'd have a much less diverse diet.
And and much less secure one.....we dont tend to survive very long without food.
Trade a few lambs to a neighbor who's growing vegetables but make sure you grow some mint for the sauce.
EROEI calculations are the new preppers nuclear winter.
Sigh
Dissing-to-dismiss (mentally).
Yet another clear-cut example.
And for the record, the nuclear war threat is as pertinent now, as it has even been, considering the mentality of one button-proximate finger. And all the gear is decades old...
I do this maths all the time.
15hrs a week.
Of course Zachary Smith 'read somewhere'.
Self-reinforcing is always thus.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.