REMARKS TO LOCAL GOVERNMENT NZ RURAL AND PROVINCIAL SECTOR MEETING

by | May 13, 2025 | Speeches | 0 comments

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2 MAY 2025

STEPHEN JACOBI, EXECUTIVE DIRECTOR

IMPACT OF TRADE WARS ON NZ

My thanks to Local Government NZ for the invitation to be with you today.

As a resident of Napier I am all the more pleased to contribute to this rural and provincial sector meeting.

Whether you live in larger cities, smaller towns or rural districts, we are living in a time of extraordinary global challenge and change – some say we are at an inflection point. 

Against this rather dismal background I’d like to talk briefly about the current environment for global business, what we can expect (though nobody really knows) from this trade war (and let’s call it by its name!) and what this means for local governments here in New Zealand.

Global environment

The fact is we have been living for some time with significant uncertainty.

The root causes of this uncertainty are not just to do with decisions of the Trump Administration, but reflect signifcant geo-economic and geo-political shifts fueled by conflicts in Europe and Middle East and a game of thrones in the Asia Pacific region.

The latest IMF report paints a stark picture.

The global economic recovery was already slow: it has now been revised downwards to 2.8 percent for 2025 and 3 percent for next year.

Markets have been rattled by escalating protectionism in the form of new tariffs and by the constant back and forth including threatened and actual retaliation between trading partners.

Protectionism is not new, nor just the fault of any one country, but the current US Administration is turning it into an art form. 

The changes in trade policy either conceived, planned, announced, implemented and then suspended are so rapid and far reaching that it has been hard to keep up.

Trump’s tariff world is notable for:

  • The scale of tariffs applied thus far with 10 percent as a minimum reaching to 145 percent for China
  • Their differing legal justifictions based on national security which tend to override due process
  • The retailiation underway or threatened from trading partners
  • The unknown, still to come, including for New Zealand an investigation into wood products which could penalise us further.

Impact on New Zealand

For New Zealand reciprocal tariffs of 10 percent are a big risk for the continuity of our business with our second largest trading partner.  

It’s cold comfort that New Zealand’s average (weighted) tariff on US imports is 1.8 percent (not the 20 percent the US claimed!).

This compares to an average 4.2 percent applied by the US to New Zealand. 

If this were not bad enough, New Zealand stands to be impacted by the tariffs the US applies to other partners and by other partners’ retaliation. 

While for the time being most of the tariffs above 10 percent have been suspended (although not on China), the risk is that future increases will have negative effects on growth in those markets or that we could face competition from exports diverted away from the United States.

This is what we mean by a trade war.

The better news is that we have a network of high quality and comprehensive FTAs with a range of partners and good if uneven market access in Asia, Europe and now also the Middle East.

Our strong economic relationship with China looms large in this context.

Impact for local governments

In terms of impacts on local governments I think these are at multiple levels.

For many of your constituents these tariff issues may seem far off and removed from everyday life.

The biggest impact will be felt on the export sector and on those who produce for it especially in rural and provincial areas.

They will likely face higher costs of doing business internationally and potentially a loss of market share to competitors, leading to reduced returns and a need to lower costs back home.  

That means retrenchment, deferred investment and even job cuts.

Local authorities could be called on to offer assistance to retain businesses and employment in local areas.

The ability to increase rates and charges could be even further constrained.

Efforts to attract new investment could be made more difficult.

Certainly the need for local authorities to as open as possible to welcoming and assisting new business will be even more important.

I must emphasise – these are worst case scenarios.

The reality is that it is hard to predict what could happen and is certainly necessary not to over-react.

For business where there is risk there is also opportunity: New Zealand exporters for example could see new opportunities open up as US competition is driven away by retaliatory tariffs in third markets.

Conclusion

What is global is local – if there was ever a time when this is true, it is now.

We face an uncertain and increasingly protectionist world: we are going to have to be flexible in our response and to work hard to make the best of the trade agreements and relationships we have, negotiating new ones where we can. 

The great wave of trade liberalisation which we have enjoyed for 30 years or more is now coming to an end.

But we are not without options despite what happens in Washington. 

Local bodies, especially in rural and provincial areas which are the heartland of our export production and processing, are not immune from the fall-out.

Leadership at local as well as national levels will be required to help us confront this new reality.

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