The only person of influence he spoke to last week was Ursula von der Leyen, the president of the European Commission (EC).
She is reported as saying that she was “keen to look at how the CPTPP and EU could work together to strengthen global free trade”.
She was being diplomatic. The EC is not going to agree to swap selling cars to the United States for importing New Zealand butter.
One must sympathise with Foreign Minister Winston Peters, who was giving a speech in the US, that military language, “trade war” and the “need to fight” can come across as “hysterical” and “short-sighted”.
The real fight last week was between Trump and the bond market. The bond market won. Trump was forced into a U-turn.
The 90-day pause is face-saving. It is impossible to hold separate trade negotiations with 90 different nations in 90 days.
Trump’s 145% tariffs on all Chinese imports lasted less than a week. You cannot separate an Apple user from their phone.
Trump’s tariffs are nuts.
It seems neither Trump nor Luxon understands international trade. I know the Beehive reads this column, so I will explain.
The US trade deficit is not only not a problem, it is essential for world trade.
The US dollar has been, since 1944, the world’s reserve currency. International trade is done in US dollars. Central banks hold their reserves in US dollars. The resulting demand for US dollars is enormous.
Countries acquire the US dollars they need by running a trade surplus with the US. They then hold their US dollars in the safest investment, US treasury bonds.
It is hugely advantageous to America. It is why the US Government can run deficits of trillions of dollars funded at very low interest rates.
America’s biggest export is US dollars. Dollars created at the click of a button.
It works – or did until last week.
If Luxon wants a more authoritative source, I recommend he read John Maudlin’s March 29 financial newsletter, Thoughts from the Frontline.
Only when Luxon has a workable proposal for an alternative global reserve currency should he be offering to lead the fight for free trade.
Trump is going backwards so fast that by the time you read this, he may have made more backdowns.
At the time of writing, it has not been determined who the treasuries sellers were. Share traders likely liquidated their assets to meet margin calls.
It served as a demonstration of the bond market’s power.
Some figures. The US Government debt is US$35.46 trillion ($60.4t).
Despite Elon Musk’s efforts, it has increased by more than US$1t since Trump became President.
On April 4, the interest on 10-year treasuries was 3.99%. It rose last week to exceed 4.5%. The cost of servicing the US Government debt massively increased.
It gets worse. In the US, loans, including company borrowing, mortgages, car loans and credit card debts are benchmarked against 10-year treasury yields.
As a property developer, Trump understands the effect of increasing interest rates.
There would have been full-blown panic in the White House.
As I write this, 10-year treasuries are 4.482%. Trump needs to get the rate below 4%.
The biggest holder of US treasuries is Japan, which is this week discussing tariffs with America.
The next biggest is China.
No wonder the Chinese are letting the market negotiate for them.
Winston Peters’ advice is wise: “To wait for the dust to settle before making choices we may later regret.”
New Zealand has escaped with a tariff the Trade Minister says we can live with.
The desire by New Zealand politicians to “punch above our weight” has come at a huge cost, as Anzac Day reminds us.
Prime Ministers do become addicted to overseas visits. It is an escape from the 24/7 pressure at home. No Prime Minister has become addicted faster than Luxon.
There is no evidence that success overseas translates into votes.
The public wants the Prime Minister to lead at home, tackling our daily problems.
Missing the biggest parliamentary debate of the year is not leadership.
