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16 Apr 2018

Trump vs China - What does it mean for New Zealand

The looming trade war between the United States and China will have an effect well beyond the two countries' borders, with New Zealand likely to be caught in the middle. While not directly involved, trading nations like New Zealand could be adversely affected by the rise of protectionism, and the general undermining of the World Trade Organisation. While American and Chinese consumers will take most of the heat, the war of attrition between the two trading giants will also affect global markets and the principles of international trade.

United States President Donald Trump recently proposed $50 billion of tariffs on Chinese goods, with China shooting back 11 hours later with a list of their own proposed duties on $50 billion of American imports. In a situation that is fast becoming tit-for-tat, President Trump then directed trade officials to identify tariffs on another $100 billion of Chinese imports. While no-one knows what will actually eventuate, this ongoing trade issue continues to threaten multilateral trade systems and economic globalisation.

A number of experts have come out against President Trump, noting that trade restrictive measures such as these violate the most fundamental principles of the World Trade Organisation (WTO). President Xui has said that economic protectionism will backfire on the U.S, with the proposed tariffs amounting to a direct confrontation of unilateralism against multilateralism, and protectionism against free trade. According to National Retail Federation President and chief executive Matthew Shay, Mr Trump should "stop playing a game of chicken with the US economy... This is what a trade war looks like, and what we have warned against from the start."

The Chinese economy is heavily dependent on exports, and nearly 20 percent of its exports go to the United States. China sold US$506 billion (NZ$695b) in goods and services to the US last year, with the US only selling US$130b (NZ$179b) to the Chinese. However, while China has more to lose economically in an all-out trade war with the United States, they are also much bigger and more resilient. According to Evan Medeiros, managing director at the Eurasia Group and a former senior adviser to Obama on Asia, "Within the next 12 months, China can withstand much more than the US can withstand... The Chinese aren't constrained by the rule of law or a representative democracy."

Regardless of what happens, economic globalisation is a major driving force for economic growth across the world. The economic prosperity and development of New Zealand relies on openness and inclusiveness, represented by trade and investment. As a founding member of the General Agreement on Tariffs and Trade (GATT), and a member of the WTO since it was created, New Zealand will be affected by any trade war. The New Zealand-China Free Trade Agreement (FTA) has tripled from $8.6 billion in 2007 to $26.1b in 2017, with a stable global market the foundation of this two-way agreement. A tiny nation like New Zealand with little to no political influence could easily get caught in the middle, and with so much of its economy reliant on exports, the effects could be greater than expected.

Image source:  Michael Leslie/shutterstock