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Home / Business / Companies

US/China trade war truce holds risks for NZ

Liam Dann
By Liam Dann
Business Editor at Large·NZ Herald·
6 Mar, 2019 05:25 AM4 mins to read

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US President Donald Trump (left) could meet Chinese President Xi Jinping at the end of this month. Photo / AP

US President Donald Trump (left) could meet Chinese President Xi Jinping at the end of this month. Photo / AP

The resolution of US/China trade tensions may create fresh problems for New Zealand exporters, says international trade expert Stephen Jacobi.

The threat of fresh US tariffs has been dropped and a path towards a formal truce is emerging.

The US today confirmed it is postponing "until further notice" a scheduled tariff increase on Chinese goods.

The Donald Trump administration has also talked up the prospect of a formal deal being signed, to end the trade war, as early as the end of this month.

"The devil as always is in the detail," said Jacobi, executive director of the International Business council. "It's still a volatile situation."

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"I've no doubt that the Chinese want to do a deal, and they can do a deal on market access and purchase agreements."

But other issues to do with investment, technology transfer and cyber security were much harder to resolve in the context of bilateral arrangement, he said.

That raised the risk that China could make trade-offs in areas such as agriculture which could have serious implications for New Zealand exporters.

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"The other day President Trump called for [China] to remove all tariffs on agricultural products. If they just do that for the US and not New Zealand it causes us a huge issue."

While that was highly unlikely to happen, it highlighted the danger of side effects that any deals struck bilaterally between the major powers could have for smaller nations.

"What if they do a deal on purchases of agricultural products? For example, upping their purchase of beef or dairy in preference to ours," Jacobi said. "That could be difficult."

Global research firm Capital Economics this week warned against overestimating the global economic upside of any US/China trade deal.

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Any deal was likely to involve Beijing agreeing to increase its imports from the US in specific areas such as soy, oil, natural gas, wheat, corn, into return for a roll-back of tariffs, chief economist Neil Shearing said in a report.

But the finer detail - including which products were involved - was still unclear and any upside was likely to be subdued, relative to broader economic issues weighing on global trade, Shearing said.

The bigger driver of slowing global trade growth was actually softer underlying demand, Capital Economics.

The US China talks are talking place against the back-drop of the annual People's Congress of the Communist Party in Beijing.

A lower Chinese GDP growth target for 2019 - 6 to 6.5 per cent - was announced yesterday, as well as stimulus plans, including tax cuts.

One new law that would be passed at the National's People Congress was one dealing with foreign investment rules, Jacobi said.

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That was an attempt to codify and brings some clarity and consistency to the rules about foreign investment in China, he said.

In theory that was something that would be welcomed by the US, although they were likely to raise concerns about enforcement.

"It is a good first step," he said.

Another pressing trade concern, that would not be resolved by a truce in the US China trade war, was the undermining of the multilateral World Trade Organisation (WTO) process.

The US recently blocked another set of proposed appointments to the WTO appellant body - which judges international trade disputes.

Since Trump came to power the US has blocked all appointments to the body.

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The body is meant to have seven judges but now has just three - the minimum required to judge disputes - and two of those have terms which expire at the end of the year

"The closer we get to the end of the year and the prospect of no new judges the more worrying it becomes," Jacobi said.

He noted that New Zealand has raised concerns with the WTO over the proposed splitting of UK and EU quotas post-Brexit.

"WE may need a ruling and that can't take place if the system is broken down."

Ironically the US was still using the system and has just won a dispute with China in the over agricultural subsidies.

The Chinese are expected to appeal but the prospect that there will be no judges there to rule now looms large.

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Earlier this month David Walker, New Zealand's Permanent Representative to the WTO in Geneva, was appointed chair of the dispute settlement body - effectively charging him with the unenviable task of finding a way through the current impasse.

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