Economy Hub: D-Day for Trump trade war

The first round of US tariffs - on $50 billion worth of Chinese goods - comes into effect on Friday night (NZT) and with it fears that we'll see the start of a full blown trade war.

China has vowed to respond with retaliatory tariffs and US President Donald Trump has said he will escalate the tariffs to $200 billion worth of Chinese good if they do.

Local trade consultant Stephen Jacobi said he was hopeful that in the short term the dispute wouldn't a direct impact in New Zealand exports which (other than some steel products) were not in the firing line.

"Generally speaking we're not going to get caught up in the tariffs the US is applying to China because we have a different export profile," said Jacobi, who is executive director of the NZ International Business Forum.

But if the scope of the tariffs widened then New Zealand could be affected - either through intermediary goods sold into the US or China for further processing or because markets were disrupted more broadly.

Perversely if China's retaliation included tariffs on US dairy, meat and wine then we could actually get a bit of a trade boost.

Longer term though a trade war posed a risk to the recovery of the whole global economy, he said.

"We want more trade, more business, more investment to be done."

Bloomberg news reports that talks to avoid a trade war have stalled in part over US demands that China reduce state support for high-tech industries.

While China has signalled a willingness to buy more American goods to balance out the deficit, it has refused to trade away what it views as an essential part of its economic future.

Adding to concerns this week was a leaked report suggesting Trump had asked his officials to look at pulling the US out of the World Trade Organisation (WTO) altogether.

"This discussion is very worrying," Jacobi said. "To depart from the WTO would be a shocking blow to the global economy."

Pulling out of the WTO was not something a President could do unilaterally and any move would require approval from the US congress.

But it was a worrying signal, Jacobi sad.

"And signals matter."

The US was already undermining the WTO's trade disputes process by stalling on the appointment of new judges, he said.

That was system that small countries like New Zealand relied to resolve issues of trade conflict.

Yesterday German Chancellor Angela Merkel raised the spectre of the global financial crisis as she warned of potential fallout from a trade war with the US, saying tariffs on European cars would be "much more serious" than levies on steel and aluminum.

Addressing the lower house of parliament in Berlin, Merkel said the global response to the market meltdown a decade ago showed that cooperation works better than one-sided measures.

Faced with President Donald Trump's threat to target US imports of cars from Europe, German and French government officials plan to meet next week in Paris to coordinate strategy.

"The international financial crisis, which ensured that we now act in the framework of the G-20, would never have been resolved so quickly, despite the pain, if we hadn't cooperated in a multilateral fashion in the spirit of comradeship," Merkel said on Wednesday. "This has to happen."

- additional reporting Bloomberg