US President-elect Donald Trump's stance on trade in a world where countries are putting up more barriers could be serious for New Zealand, says Reserve Bank governor Graeme Wheeler.
The RBNZ reviewed its decision to cut the official cash rate a quarter-point after Trump's unexpected win and the Republican Party's victory in the Senate and House of Representatives overnight, ultimately deciding to go ahead with the move. Wheeler told Parliament's finance and expenditure committee that long-term interest rate markets had a massive swing, initially falling 13 basis points before ending the day 20 basis points higher, as investors weighed up the prospect of looser regulation and corporate tax cuts with Trump's anti-trade rhetoric.
During his campaign, Trump has floated the introduction of high tariffs on Chinese and Mexican goods and renegotiating the North American Free Trade Agreement and Trans-Pacific Partnership at a time when global trade volumes were rising at their slowest rate since the early-1980s and G20 countries were adopting protectionist policies at their fastest pace since 2009, Wheeler said.
"That's what people need to focus on in the near-term - what is the US position on trade reform?" Wheeler said. "That potentially has significant implications for us. I think the US will need to think very seriously about its leadership in the Asia-Pacific region and what role trade and investment flows have in that because TPP was a vehicle for delivering a lot of that leadership."
In September, Prime Minister John Key noted the growing tide of protectionism around the world and said his biggest concern was that failure to ratify TPP could open the gates for even tighter regimes.
The TPP trade and investment pact between New Zealand, the US, Japan, Canada, Mexico, Chile, Peru, Australia, Malaysia, Vietnam, Singapore, and Brunei would eclipse that deal, covering 36 per cent of the world's gross domestic product and 40 per cent of New Zealand's exports. However, its far-ranging provisions on policy formation and investor-state dispute mechanisms have been criticised as undermining nations' sovereignty.
The New Zealand government has a goal of lifting exports to 40 per cent of gross domestic product and were sitting in the March at about 31 per cent of the country's GDP, up from about 28 per cent in 2008, the year before the current National-led administration took office.
Law firm Chapman Tripp expects the government will be assessing how it can work with the incoming US administration and will probably be considering other ways to boost trade with the TPP looking unlikely to be ratified.
"This will have New Zealand considering Plan B. That includes the Regional Comprehensive Free Trade Partnership and potential bilateral deals with India, the European Union and the United Kingdom," it said in a note. "These are all still some distance off, especially in the current global environment, which is no doubt why Trade Minister Todd McLay has spoken recently instead about New Zealand needing to refocus its efforts on making the most of existing trade deals."
ExportNZ said Trump's election signalled a lost opportunity to reduce trade barriers to local products if the TPP is knocked back and that New Zealand would also lose out if the US stops its firms from outsourcing overseas and introducing tariffs.
"Even though Trump has labelled free trade agreements and the TPPA as 'horrible' and 'disastrous', it's unclear as to exactly what his objections are," executive director Catherine Beard said. "Also, it remains to be seen how much these statements were merely political rhetoric."
Bank of New Zealand head of research Stephen Toplis said the two areas New Zealand should focus on from the election is what Trump's anti-globalisation stance will mean for world trade, and what impact his fiscal policies will have for US inflation, bond yields, and the US currency.