US President Donald Trump says that he will impose 25% tariffs on Canada and Mexico and 10% on China, starting Saturday afternoon, New Zealand time.
The sudden move follows months of threats during the presidential campaign, but financial markets had taken the post-inauguration silence as a sign of a more cautious approach.
Reuters broke the story early on Saturday morning which was then confirmed by White House press secretary Karoline Leavitt a few hours later. AP reported Trump as saying he was considering a lower tariff on oil and possibly exemptions for specific goods.
Canada and Mexico have previously said they have prepared retaliatory tariffs and would be ready to use them. However, this would risk a wider trade war which would damage all the economies involved.
John Ballingall, a trade expert at Sense Partners, said the announcement should not come as a surprise as it was “straight out of the Trump playbook”.
“Which is, identify something that irritates him, threaten tariffs as leverage to try to get a deal of some sort, and then if a deal is not forthcoming, go through and impose the tariffs”.
“It was always my expectation that he would move on individual countries first—China, Mexico and Canada—because those are easier tariffs for him to introduce under the US legal system,” he said.
Canada and Mexico are part of the USMCA trade deal, which is set for a routine renegotiation in 2026. Trump may be hoping to use these tariffs to accelerate talks, as well as address his concerns over immigration and drug smuggling.
Ballingall said the key question now was whether these three countries were willing to negotiate or if they would call Trump’s bluff. The signals from Canada, which is gearing up for a contentious election, were that they would retaliate.
“Canadian politicians are not going to want to look like they're kowtowing to America when they're looking to find a successor to Justin Trudeau. That's another complicating factor”.
But the odds of a full-blown trade war were still low. All four countries would be aware of the economic damage tit-for-tat tariffs could do and would want to avoid escalating too quickly.
Tariffs imposed on these countries could create both challenges and opportunities for New Zealand exporters, although Trump’s fast moving policy style would make it difficult for Kiwi businesses to capitalise on any advantage.
“If the US starts introducing tariffs on Canadian, Mexican and Chinese goods, and they retaliate, then New Zealand exports become more competitive”.
Tariffs on Canadian dairy could prompt retaliatory taxes on Californian wine, giving some New Zealand exporters an edge in each market. But the exact impact and duration will be difficult to predict.
“It’s going to require a lot of very careful judgment by New Zealand exporters, not to be jumping at shadows every time there's a new tweet or a new executive order in place,” Ballingall said.
Plus, if a trade war weakens incomes or confidence, then Kiwi exporters could see softer demand despite any price advantage.
The tariff news lifted the US dollar and dragged American equity markets lower. The kiwi dollar jumped initially but soon fell, trading down 0.4% at 56.4 US cents by midday.
In a statement, New Zealand’s Ministry of Foreign Affairs and Trade said it was “aware of the signalling out of the new US administration and officials are closely monitoring”.
87 Comments
I find it curious why "drug" smuggling is used as a justification (this includes the precursor ingredients for fentanyl - many of which are used for legitimate industrial purposes), but doesn't address the issue of why people are using said drugs. Solve that issue and the demand disappears.
(my guess is that would be too hard).
It wasn't the right forum to espouse those views as we need to know what actually caused the crash. Trump showed very poor form. However, he's not wrong with his sentiment as the standards were lowered to ridiculous levels for ATC operators. I'm sure that Elon will have all ATC completed by his XAI supercomputer within Trumps term.
"However, he's not wrong with his sentiment as the standards were lowered to ridiculous levels for ATC operators."
Mainly because they were struggling to fill positions as the pay is pretty crap and the work is extremely stressful. Thus, standards got lowered trying to fill the vacant positions.
Pay peanuts, get monkeys. And in this instance, even monkeys weren't interested.
ATCs make approx double the USA average salary
"The median annual wage for air traffic controllers was $137,380 in May 2023."
https://www.bls.gov/ooh/transportation-and-material-moving/air-traffic-….
Lol, ask a Tesla owner how well their windscreen wipers work after 6(?) yrs of Elon trying to get his AI vision based system to control them. Or just look at Elon and his own timelines for projects when announced vs when they actually happened.
And you think he'll somehow get ATC AI done in less than 4? I guess that's one way to minimize emissions from aircraft, just scare the customers off.
OMG - given the number of accidents caused by Elon self-drive vehicles - I would cringe to think a similar faulty technology would be tried/used for ATC. Might happen someday, but Elon's tech is no where near ready. He's already proven that.
A bit like SpaceX that can't meet safety regulations - Elon does seem to like 'testing' technology in full operational mode before it is ready.
My guess is that the Mexico and Canada tariffs are purely in place to give the US a stronger negotiating position over these countries. Surely it's not a long term strategy, as the US has a strong incentive to nearshore production. In light of this, hefty tariffs on these countries, Mexico especially, makes little sense in the long run. Blaming it on something as ludicrous as fentanyl (although as far as I know this is a serious problem regarding Mexico at least) gives Trump the ability to roll them back whenever suited with as little explanation as possible.
The ten percent on China is the one that is more likely to stick in the long run, as that is less likely to be purely a negotiating tactic. Plus, they're gonna need the revenue, and if they want any chance of reshoring production they will need to give themselves an economic advantage over China.
He talks a lot about unfair trade imbalances with Canada and Mexico - which are more reflective of the different populations for the most part. But the US does have a very problematic trade imbalance with China - and that doesn't come down to China having a smaller population. China has simply become a production behemoth. A bit like here - you simply can't find a potato masher made-in-nz if you tried. And in terms of the high end tech stuff, like mobile phones - the lower wage for menial repetitive work in China will always win out when it comes to assembly.
The world is moving fast toward protectionism, and that’s good news for the NZ housing market with lower house prices for young Kiwis. Could US tariffs spark a second wave of inflation like 1976-1980 forcing central banks to hike rates again? Can anyone explain how Trump’s tariffs won’t be inflationary for the rest of the world? And can the rest of the world handle a stronger US dollar?
This and many other exciting questions will be answered in 2025.
The Great Depression, made heaps worst by the Smoot-Hawley Tariff Act of 1930, caused prices to fall. And fall big time.
The problem was it also caused a massive drop in production and the loss of an absolutely huge number of jobs. And even those with jobs saw their pay rates cut. This loss of jobs, and earnings, meant that even though prices fell hard for three years, there were few people with any money to buy stuff. (Except of course the billionaires of that time who eventually got the moniker "robber barons".)
It's going to happen faster than we think. Figure have a bunch of humanoid robots working in BMW factories and they have just secured a contract that will mean 100k robots for a S&P500 client over 4 years. As soon as the spreadsheet says they are more cost effective than a human, businesses will dive into them on an epic scale.
"Can anyone explain how Trump’s tariffs won’t be inflationary for the rest of the world?"
If non-US suppliers can't sell enough in the USA, even after cutting their margins to account for tariffs, they can reduce production and/or look for new markets. In existing non-US markets, and new markets they chose to develop, the supplier may well drop prices to ship surpluses that would otherwise have gone into the US. This tends to be the shorter term reaction. It all depends on the shape of the supplier's supply curve.
In the longer run, reduced production tends to be the result. And that's not good for anyone ... except PDK.
"The world is moving fast toward protectionism, and that’s good news for the NZ housing market with lower house prices for young Kiwis"
Maybe, maybe not, there is no way to know now. What is more clear is your desperation or hopium for cheaper house prices so you can get a deal.
Also, I thought this was funny:
"Phil, how many fed cuts do you expect to get? " - Bloomberg Interviewer
"Not many, if any". - BlackRock Vice Chairman
Around the 2:00 minute mark. 🤣🤣
Keep your powder dry like Buffett....asset price deflation in stocks, bonds, and real estate.
While that may seem like good advice, most people are living paycheck to paycheck in Aotearoa across all socio-economic classes. Broadly speaking, there is no dry powder. Those who are not typically have their assets tied up in 'safe' investments like those that you point out are prone to deflationary pressure.
Expect commodity and wage inflation
Commodity price inflation is relatively subdued, except for gold. As for wage inflation, not why you think this will happen. Only for particularly skillsets that are rare and / or Game of Mates related roles - higher level public sector for ex.
As for wage inflation, not why you think this will happen. Only for particularly skillsets that are rare and / or Game of Mates related roles - higher level public sector for ex.
If you're putting tarrifs on goods, you'll either have to pay your workers more to afford them, or produce them domestically.
If you're putting tarrifs on goods, you'll either have e to pay your workers more to afford them,
OK P. Who pays the increased wages? You don't need to answer because it is businesses who pay their employees. Where does it come from? It comes from business' balance sheets, not from genie lamps.
Not always. If the exporter needs the market more than the market needs the product often the tariff will be end up being paid by the exporter by way of a compensatory deduction from the invoice, the CIF price. Exactly that happened when President Clinton imposed tariffs on NZ & Australian lamb exports. That way it’s a win win for the USA, they collect the duty without any extra cost going to the consumer. Also in that example a quota was decreed which may be another angle too for Trump to introduce.Outcomes like that demonstrate how tariffs introduce a hard line between price and need for any one product.
If a business can't pass on cost increases, profits evaporate and it'll fold.
Correct P. Case in point is the craft beer industry.
Then the end user is trading with a smaller number of businesses, who can increase costs in the absence of competition.
Why would any business want to increase costs? Ideally businesses want to reduce costs.
What you probably meant to say is that businesses have greater market power in the absence of competition. Which is true. To an extent. Market power is constrained by consumer demand - willingness to pay. Like for craft beer.
"Trump’s tariffs will push the rest of the world into austerity, higher rates, tighter liquidity, and rising unemployment."
The rest of the world?
That's not what happened in the USA in the Great Depression after their trading partners responded with tit-for-tat tariffs. The USA suffered biggly !!! And unlike then, the US government's balance sheet doesn't look to flash if something similar happens now and they need to resort to Keynesian economics to pull them out of it. (On the other hand - NZ govt's balance sheet is looking pretty good.)
Canada is supposed to be a wealthy country like Aotearoa. Nevertheless, the govt is preparing to (having to) offer pandemic-level financial support to workers and businesses if the US imposes tariffs.
Officials emphasize that workers should not bear the costs of US decisions, referencing past Covid-19 responses as a model for potential aid, per CBC.
https://www.livemint.com/news/world/canada-to-offers-pandemic-level-fin…
We're both some of the wealthiest countries to ever exist.
That's not something guaranteed in perpetuity.
Sounds a zero sum game though, the entire economy will need to subsidize the impact of the tariffs. Or maybe that'll veer into the negative.
The market view is to let those exporters fail, then new, better businesses will form. Success!
OK. So iPhone ownership must be a good benchmark then. Incidentally, you refer to Japan as an economic basket case relative to the glorious Anglosphere. Japan has greater iPhone market share and ownership than both Aotearoa and Canada.
https://worldpopulationreview.com/country-rankings/iphone-market-share-…
The phone of any sort is the wealth. As the iPhone adoption rates point out, there's not a very good correlation there between owning an iPhone and being wealthy. Just as a 1/4 of Louis Vittons revenue comes from low income consumers. They're not rich, but feel that way by owning something expensive.
Japan has lower GDP per capita, lower median wealth per capita, lower wages, and significantly more government debt. Those are the stats I’d be looking at.
To be fair they probably have a brighter future than we do, but right now they seem to be significantly underperforming.
The average Nihon-jin lives in a much smaller, and even shittier quality house or apartment than does the average kiwi. Apart from quality food at very reasonable prices in Japan and the fantastic public infrastructure (both very important mind you) I don't think the average Japanese person's standard of living or financial wealth is particularly impressive.
Possibly true. Data shows that the median net worth of Aotearoans to be similar to that of Japanese when including real estate. Depends what measure / parameter you use.
Nevertheless, the median wealth of Japanese is still approx 40% higher than that of US citizens, according to Credit Suisse annual Wealth database. That means US citizens are directionally less wealthy than Japanese citizens when accounting for distribution.
Right?
A great CBC documentary on Canada’s 1990s recession. Didn’t matter how low interest rates were, high unemployment sent housing prices to rock bottom:
Canada may now realise an over dependence on the USA, even having taken that for granted. Right next door and wealthy, not hard to understand. Globilisation has supposedly opened markets up globally but the relative exporters have invariably serviced foremost the most lucrative. That lack of diversification is a many sided trap.The NZ meat industry demonstrated that with growth relying practically solely on the UK, the home country, until of course the EEC gave it membership.
So Trump increases taxes? Not on the billionaires, obviously, but on the Average Joe. Did 'Mericans vote for paying higher taxes? Don't think so. They did want billionaires to pay their fair share but neither the Dems nor the Repubs were offering that option.
Confused? It's simple. What is a tax? Government collects the money. People pay it. This is the same for tariffs. Government collects the money, while tariffed goods rise in price and people have to pay extra until they find substitutes (assuming they can). Note also that local suppliers almost always take the opportunity to increase their prices too. Capitalism at its finest. The people - Americans - pay.
The idea that a foreigner is paying 100% of the tariff is largely nonsense. Sure, the suppliers of tariffed products may temporarily reduce margins but they'll quickly look for new markets to rebuild margins. They should be able to find them without too much problem.
Edit: The Smoot-Hawley Tariff Act of 1930 created huge tariff increases on imported goods. USA trading partners responded with tit-for-tat tariffs. What do you think inflation did? 1930 -6.40%, 1931 -9.30%, 1932 -10.30%. It fell !!!! Weird, ay? But there were other things going on at the same time so ... ;-)
Two things. First if a country can weather and work around a main importer of your goods and flourish that country is NZ. Look back at the 70s when the Brits kicked us to the sideline and joined the common market then the 80s when Rodger the Dodger Douglas imposed no subsidies again our Farmers flourished yes it takes time but for all the whipping of how bad NZ is we seam to be able to adapt.
Secondly serves Canada right how long have they been underhanded to NZ dairy farmers and down right lie for many years I mite say that their farmers were playing by the rules yeah right
Always good to have bargaining chips. The Vietnamese understand this well.
There’s one other thing about Trump that Vietnam knows all too well: his obsession with his own family wealth. Was this the reason behind the announcement on October 8 that the Trump Organization, his family business, signed an agreement with Vietnamese real estate developer Kinh Bac City Development to build a $1.5 billion golf course and resort in Vietnam’s Hung Yen province, just outside Hanoi?
This development surely raises the possibility of a potential conflict of interest under the next Trump presidency – or, at least, it means the specter of self-interest will stalk his dealings with Vietnam. Hung Yen, the site of the planned resort, is the home province of To Lam and his vast and dominant provincial faction, including the new Public Security Minister Luong Tam Quang and the new Justice Minister Nguyen Hai Ninh. Through this deal, Trump’s family firm is now tied to the ascendant faction within the CPV.
https://thediplomat.com/2024/11/will-a-new-golf-course-near-hanoi-cemen…
Have a client who is now Chinese owned. They bought a NZ operation (our customer) and all but shuttered the NZ manufacturing and relocated the raw product to the land of cheap labour. As they do.
They started a trump tariff plan late last year. They are reinflating the NZ operation and staff, as a NZ labeling factory. Chinese product will route to good old NZ to be labeled NZ made, and then to the US. While essentially fraud, you cannot say Mr China is not clever. Well played even.
Hope this sort of sidestep does not ultimately pull NZ exporters into Trumps gun sights.
Good video from CBC. The experts can't decide between fixed or floating. Too many unknowns about tariffs, inflation, and their impact on the bond market.
"When Canada's lending rate goes down, why do some mortgage rates still go up?" - CBC
I don't know much about economic stuff, but I do understand humans better than most. Won't other countries just find work arounds for this, tell Trump what he wants to hear, and organise alternatives in a clever way that doesn't breach a trade agreement. I mean, really, the leaders of other democratic countries are answerable to their citizens - they don't want to be voted out because of a man who doesn't even know how to apply bronzer well. And regardless of your political viewpoint there are many politicans that are smarter than Trump. He operates from the point of view that everything in the university orbits him - so easy to manipulate and actually weaponise.
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.