Inside Economics: What Trump’s tariff truce means for NZ, why steak prices are rising ... plus the big sector struggling to recover

Steak prices are set to rise as beef exports boom. Photo / Getty Images

Welcome to Inside Economics. Every week, I take a deeper dive into some of the more left-field economic news you may have missed. To sign up for my weekly newsletter, click here. If you have a burning question about the quirks or intricacies of economics send it to liam.dann@nzherald.co.nz or leave a message in the comments section.

Trump’s tariff truce

Someone wise once said the definition of happiness was banging your head against a wall and then stopping.

And so it is with US tariff policy.

As of Tuesday, global markets are celebrating the agreement with China.

After six weeks of quite vigorous and painful headbanging, a tariff truce has been reached.

Instead of 145% tariffs on Chinese imports, the US will now charge just 30%, and the Chinese will charge 10% on US goods.

Technically, Fitch Rating estimates the US effective tariff rate (ETR) for China remains at 31.8%, reflecting duties imposed on China prior to April 2 plus a 10% baseline tariff imposed on most countries.

This is down from 103.6%.

Japan, Mexico, Canada and Germany, which have the next-highest exports to the US, have ETRs exceeding 10.5%.

Fitch estimates the US effective tariff rate is now 13.1%, a notable decline from 22.8% prior to the statement.

So, to stick with the analogy, the headbanging hasn’t really even ceased; it’s just proceeding less violently.

Yet it still comes as a relief.

These are roughly the same-sized trade barriers that panicked markets on Liberation Day at the start of April.

Context is everything, I guess. And Donald Trump is a master of imposing his context on the world.

It doesn’t change the harsh reality of what tariffs will do to domestic pricing in the US, and tariffs are still going to slow global growth.

What it does do is take the most catastrophic scenario off the table or, more literally, out of the forecasts of the world’s economists.

So what about New Zealand?

Should we be celebrating here? Well, I guess we can look at our KiwiSaver accounts again in a few days, and they might be close to where they were six weeks ago.

Local economists have been cautious about making big assumptions about the trade war.

For most, the base-case scenario included some sort of resolution to the China/US standoff.

On that basis, I don’t think the resolution will change the immediate outlook.

Perhaps the biggest upside is that the relief sentiment running through markets may be infectious.

If the worst fears of trade war apocalypse aren’t hanging over us, perhaps we’ll see a bit more confidence return to both the consumer and business outlook.

There’s already been a bit of revival of positivity in the past week or so.

I tried to cheer myself up in my column on Sunday by looking at some of the economic bright spots.

Meanwhile, Westpac chief economist Kelly Eckhold took a decidedly upbeat tone in the bank’s latest Economic Overview, released yesterday.

“2025 has started pretty well,” Eckhold wrote.

“We have seen ample signs that the recovery that we expect to take hold in 2025 is in fact beginning to take hold.”

He is forecasting GDP growth to rise to 2.7% in 2025 and 2.8% in 2026.

The strong growth for 2025 captures the rebound from the recession in the middle of last year.

The annual average growth rate is projected to be just 1.1%, although it rises to 3% in 2026.

The most heartening news about our economic outlook in the past couple of months has been that commodity prices for our key exports – dairy and beef – have held up through all the tariff turmoil.

Dairy prices were up 4.6% across the board in the latest global dairy trade auction.

That prompted ANZ economists to revise up their farmgate milk price forecast for the 2024-25 season (from $9.85 to $10.00/kg milksolid) and the 2025-26 season forecast (from $9.00 to $10.00/kg milksolid).

This is expected to inject an extra $10 billion into the economy in the next two years (above and beyond the usual billions that dairy brings in).

Beef bucks tariff pain

Meanwhile, beef prices are also soaring.

New Zealand red meat exports during March achieved record values for any month, with sales worth $1.26 billion, according to the Meat Industry Association.

Values were up 34% compared to March 2024.

Record beef prices are making headlines around the world now.

The Financial Times (FT) has reported that the US cattle inventory has reached its lowest level in more than 70 years.

“A years-long drought in the American west has dried up grazing lands and US ranchers have been steadily shrinking their herds, creating a shortage that has raised the price of calves and ultimately other beef products,” the FT says.

That is raising inflation fears for US consumers and won’t be great news for steak and burger lovers in New Zealand either.

We’re already seeing plenty of media headlines about soaring, exorbitant local prices for butter and cheese.

But on balance, New Zealand is overwhelmingly the net winner from high dairy and beef prices.

This commodity price cycle could be just the circuit breaker the economic recovery needs.

Rates relief

In another relatively upbeat economic note, BNZ’s Mike Jones highlights the “primary sector cash that is now flowing strongly”.

He also points out that the majority of “positive cashflow from falling mortgage rates is yet to filter through, but will do so over the coming 6-12 months”.

Advertised one-year fixed mortgage rates were about 2.4 percentage points below the peak, but the average rate being paid by borrowers (as at February) was only 0.2 percentage points below the peak, he wrote.

BNZ, there’s a cash flow of roughly $2.2b going back into mortgage-holders’ pockets in the next six months.

“A good chunk of the extra cash may well go on paying the bills. But it should at least steady the unsteady recovery in retail spending seen since August,” he said.

Jones also expects to see the OCR cut three more times – to 2.75% – adding to the positive momentum of the recovery.

“We remain of the view that the fledgling recovery is going to need a little more help,” he said.

“And, as the Finance Minister made clear again last week, there’s not a lot of room for additional fiscal support [in the Budget]. So it’s going to be the Reserve Bank and interest rates doing the work in the first instance.”

Recovery from the bottom up

A commodity export-led recovery is the right sort of recovery because the starting point is more foreign cash flowing into the country.

If we were relying on a house price boom or the Government delivering a big-spending Budget, we’d really just be borrowing our way out of the mire.

But it does mean that it will take longer for the recovery to be felt in cities like Auckland and Wellington that aren’t so directly connected to the rural economy.

The property and construction sectors are big drivers of the Auckland economy and they are both struggling to get traction right now.

The residential property market has had a good start to the year on the listing front – there has been no shortage of sales activity. However, demand is still short of supply and prices have barely moved.

New data from Quotable Value New Zealand shows home values rose just 0.10% in the three months to April to a new national average value of $914,504, which is 1.33% lower than the same time last year.

The Auckland region was down 2.89% year on year, and 0.08% over the past three months; the Wellington region dropped 4.11% year on year, and 0.50% over the quarter to April.

Christchurch and Hamilton bucked the trend. Christchurch home values rose 1.35% year on year and 0.88% in the April quarter. Hamilton was up 0.36% year on year and 0.12% over the past three months.

Concrete facts

Meanwhile, on the construction front, things are looking tough.

The sector was technically still in recession in late 2024 as the rest of the economy grew again.

The GDP data showed construction fell 3.1% in the December 2024 quarter and has been declining since the March 2024 quarter.

Hard data: The construction sector has been struggling. Photo / 123RF

This week, we got data for the volume of ready-mix concrete poured in the first quarter of 2025.

This is a good barometer for the construction sector, given that concrete is involved in almost all construction.

Informetrics economist Matthew Allman noted that, while volumes rose 1.4% in the quarter to 939,000 cubic metres, the quarterly volume was still “the second-lowest since mid-2014 (behind last quarter, excluding lockdowns)”.

“Volumes have been under 1 million cubic metres for six consecutive quarters, following three full years above 1 million (excluding lockdowns, all figures seasonally adjusted).”

The trend in concrete volumes remained largely negative, he said.

“The case for a significant turnaround in the near term is weak, given lower residential and non-residential consent numbers seen over 2024.”

Construction activity was largely lagging the rest of the economy, which had started to turn around over the past six months.

Stats NZ’s Selected Price Index upgrade

Stats NZ says it will begin publishing indexes for electricity and gas as part of the monthly selected price indexes (SPI).

It launched the monthly SPI release in November 2023.

The SPI already includes the entire food and alcoholic beverages and tobacco groups, together with rental price indexes, parts of the transport group, and the accommodation services sub-group.

The idea is to provide a more timely indicator for inflation and the cost of living (the full consumers price index comes out only quarterly).

The addition of electricity and gas indexes means the monthly SPI now covers 46.5% of the consumers price index (CPI) basket, up from 45%.

It’s a small step, but wouldn’t it be nice to see Stats NZ keep adding to the selected price indexes?

We could eventually work our way to getting a full set of CPI inflation data every month, like they do in the US.

The April 2025 SPI, scheduled for release on May 15, will be the first to include the indexes, which will be part of the housing and household utilities group.

Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.