Key says Trump uses tariffs largely for leverage - but has fears for NZ film industry

Sir John Key at the Icehouse Ignite '25 Growth Summit in Auckland.

Donald Trump said in mid-April “there is a chance” that revenue from tariffs could replace Federal income tax.

Does the second-time US President truly see tariffs as a long-term mechanism? Or are they a negotiating ploy?

If you want to get inside the President’s head, read his 1987 book The Art of the Deal – “or ask ChatGPT to summarise it for you”, Sir John Key told the Icehouse Ignite ‘25 Growth Summit in Auckland.

“His main point is: in any negotiation, to win, you need leverage. So how do you get that leverage? The answer is he puts a massive tariff on you,” Key said.

At first, the strategy wobbled.

“The markets tanked and he had no option but say ‘I‘ve overcooked it’,” Key said.

The former PM, who has skin in the US game via owning a home in Hawaii and sitting on the board of $US125 billion market cap cyber-security firm Palo Alto Networks, said he knew Trump had overstepped when his builder complained about US$200,000 being wiped from his 401K retirement plan (the rough equivalent to KiwiSaver).

Many tariffs were delayed. The former Prime Minister said the consensus is that Trump will now largely keep tariffs on hold, “except with China”.

“If you look at what’s happened over the last 10 or 11 days, the stock market, the bond market, exchange rate markets – all of them are up and through the roof.

“So the smartest people on Wall Street are telling you they [the tariffs] are not coming back.”

Film threat

Up until this week, Trump’s tariff push had exclusively focused on physical manufacturing – ignoring the likes of software, internet search and online advertising, credit card payments, private equity, rideshare, social media, artificial intelligence (AI) and other areas where US firms enjoy global domination.

That changed this week as Trump ordered a “100% tariff” on movies made outside the United States, saying Hollywood is “being devastated” (which might be true in production work, even if the US film industry has a huge trade surplus with the rest of the world overall).

As Prime Minister, Key dramatically expanded incentives for shooting movies in New Zealand and ushered in the so-called Hobbit law that defined film production workers as independent contractors.

“Our Cabinet was, for the most part, actually opposed to the film subsidies,” Key said.

“Their argument was: ‘We stopped subsidising everything from car manufacturers down many years ago.’ But the problem is, movies are one industry where you can‘t compete unless you have subsidies.

“Warner Bros desperately wanted to make The Hobbit movies in New Zealand because [Sir] Peter [Jackson] wanted to live in New Zealand."

Key said there are practical issues, given the multinational nature of many film productions.

“I have no idea how they would apply it or what they’d apply it to. You’re punching at shadows.

“But let’s assume they could apply it. The other tariffs have been sort of incidental [for New Zealand].

“But for the movie industry, it does seem closer to home.”

He added: “I’m not worried about a high level of wholesale tariff on New Zealand. I think we might be able to negotiate that 10% down. But I am really worried about individual sectors.”

The US tariff push was another reason to press ahead on a free-trade deal with India. He was confident a free trade agreement (FTA) would be signed,but also saw agriculture initially being set aside, given the political power of the rural sector in India, whom he compared to deal-blocking French farmers.

Does Key stand by his pre-election support for Trump?

In the run-up to the US election, Key said he thought Trump would and should win. His Democrat rival Kamala Harris was too left-wing.

“Donald Trump is driving very much an America First and a more isolationist kind of view ... So that probably doesn‘t help New Zealanders much,” Key told RNZ.

“But on balance, I think he’s probably better for the economy.

“He’s likely to embrace a bit more market. He’s likely to have less red tape and he’s certainly going to have lower taxes. So that bit is good.”

Key said he stuck by those comments. The tariff chaos and disruption was largely short term.

And Trump had made unsung progress – with the help of his deputy chief of staff Chris Liddell – in reducing regulations and “making the US economy generally trade in a quicker, more efficient way” during his first term, Key said.

Lamb’s tale

Key said he saw no logic in New Zealand being slapped with a blanket 10% tariff.

“We haven‘t had tariffs for decades. I don‘t know his calculation. I think he [Trump] is basically saying we have GST, but if you sell a product to California or another US state, you’ll also pay a sales tax.

“[But] the other interesting thing about tariffs is they’re all on a relative basis. So, for instance, if they continue tariffs on the UK at 20% and New Zealand at 10% then New Zealand lamb going to the US is actually cheaper than Welsh lamb.”

More jobs lost from slowdown than created by tariffs

Not withstanding his overall support for Trump, Key said tariffs could backfire for the US economy.

He said the Trans-Pacific Partnership (TPP) was “overwhelmingly positive” for jobs, income and investment as he signed the 11-country free trade pact in 2016. Trump pulled the US out within days of taking office for his first term in January 2017.

That was no surprise to Key.

Trump had always been pro-tariff.

“If you go back and look at videos of him over the last 40 years, he has always been saying ‘America gets ripped off’.”

While Trump “does have a point” about some elements of world trade being unfair, tariffs are “bad for global growth, bad for consumers and bad for the economy”, Key told the Ignite audience.

After his speech, Key told the Herald tariffs would create jobs for some Americans.

“There’s no question there will be a certain amount of manufacturing that moves back to the United States.

“But the question is: do you lose more jobs because the US economy slows down?

“And I think that’ll be the next phase of how this plays out.”

NZ confidence

In terms of the local scene, Key told the Ignite audience: “Any economy is a confidence game and I think confidence is starting to return.”

Kiwi confidence was tied to house prices, which he saw rising as interest rates fell.

“I’m not some sort of Pollyanna; I’m not saying everything is going to be roses in two months’ time.

“Whether the economy will be stronger or weaker in 18 months ... I think it’s going to come right because those factors are there, notwithstanding a very challenging global environment.”

Chris Keall is an Auckland-based member of the Herald‘s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.