Bad news for NZ as pro-trade Trump adviser quits

White House chief economic adviser Gary Cohn, speaking here to reporters during the daily press briefing, has resigned. AP picture

Local hopes that US President Donald Trump will back down from policies that could start a trade war have faded as Gary Cohn, the White House economic advisor most opposed to his tariff plan, resigned.

Cohn, the director of the National Economic Council, had been the leading internal opponent to Trump's planned tariffs on imports of steel and aluminum.

He had made a last-ditch effort to push Trump to reverse his course.

But this morning [NZT], Trump reiterated that he will be imposing the tariffs, saying the policy would be administered in "a loving way" and the world would come to "like us better".

Local trade experts have warned that New Zealand's export-led economy is at risk, even though direct sales of aluminium and steel to the US are only worth around $60 million.

"It escalates very quickly and New Zealand could get caught in the cross-fire, especially if they start to target agricultural products," New Zealand International Business Forum executive director Stephen Jacobi said.

But the big issue that could do lasting damage was the extent to which the US could undermine the World Trade Organisation (WTO) dispute resolution processes.

Numerous countries would be likely to dispute the US tariffs almost immediately if they were implemented.

The process would be long and slow and even if they ruled against the US it may be unwilling to accept a negative decision, further weakening the WTO's authority, Jacobi said.

The strength of the WTO disputes process was vital to a small trading nation like New Zealand, he said.

Even our numerous free-trade agreements, such as the China FTA and the CTPP, relied on the WTO to resolve disputes.

So while those agreements might be expected to buy New Zealand some respite from a trade war, they could be undermined by the US actions.

"It has always been the nightmare scenario with Trump, that they [the US] do something, people take action, they refuse to implement them and we've got a big problem. Its like watching a slow-motion train wreck."

Auckland University associate professor of political science Stephen Hoadley also highlighted a secondary risk to New Zealand if a trade war dented growth among our major trading partners.

Australia in particular will see major mining companies hit by tariffs. The ASX-200 stock exchange fell almost half a per cent on the news of Cohn's departure.

US Analysts see Cohn's resignation as a victory for rival Whitehouse economic advisor Peter Navarro - an outspoken critic of China and advocate of protectionist trade policies.

Hopes to soften Trump policy now rest with Republican representatives in Congress.

Republican House Speaker Paul Ryan has published his strong opposition to the tariffs proposal.

However, as the President currently has executive powers over trade policy, the Republican Party would effectively need to go to war with the White House on the implementation of tariffs.

In a statement, Cohn said it was his honor to serve in the administration and "enact pro-growth economic policies to benefit the American people".

Trump praised Cohn despite the disagreement, saying Cohn has "served his country with great distinction".

- Additional reporting AP