New Zealand could end up being hurt by the growing trade war between China and the United States. Photo/File.
New Zealand could end up being hurt by the growing trade war between China and the United States. Photo/File.
America can't win a trade war with China.
Seriously, if Donald Trump's trade scrap becomes one of consumer attrition – which nation would you put your money on?
Which nation's population looks more capable of suffering through price hikes, product shortages and job loses for the greater good of theirbeloved President?
Its hypothetical question of course and frankly New Zealand better hope it stays that way because the last thing we need is to be forced to pick a side.
The final fallout from the current stand-off is still far from certain and that has been reflected in share market trading – with Wall Street plunging on each new tariff move and rebounding just about as fast in the absence of fresh news.
The optimists are betting on a relatively benign outcome and assuming that this is classic Trump brinkmanship.
In other words, there's a popular view that Trump knows a real trade war isn't good for America. That he is just creating the perception of one just to please his nationalist base.
This scenario assumes that at some point he reaches a negotiated solution with the Chinese.
It's worth noting that Trump's China tariffs came with a 60-day window, allowing some prospect of the US softening the final blow.
It's still possible we'll see a result that allows both sides to save face - with enough of a concession from China to allow Trump to tub-thump his way into the US mid-term elections claiming a trade war win.
It doesn't affect New Zealand in the slightest, but we are seeing the same sort of tactic from the White House on immigration.
New Zealand could end up being hurt by the growing trade war between China and the United States. Photo/File.
Trump can't get Congress to fund his Mexican wall so he's sending the National Guard down to the border. To do what exactly – who knows? But it looks like action.
Anyway, that's a best-case scenario and one that has some market traders looking through the recent market slump.
But serious concerns remain, both for markets and trading nations like New Zealand.
There is a risk that Trump's brinkmanship backfires. If China doesn't back down – and so far it hasn't – then he may be forced to escalate things further as he chases his political result.
There is also a risk that his motives are actually genuine - and therefore much crazier and more damaging to the global economy.
Either way, both these scenarios could see an escalation of trade wars to levels which would start to hurt the US and Chinese economies, with a flow-on to global trade and growth.
That would be bad news for New Zealand but ultimately most of the direct pain would fall on consumers in the US and China.
That brings us back to the war of attrition.
If the American consumer is expected to bear the brunt of that alone then I don't like Trump's chances.
If the rest of the world – Europe, Japan, the UK, Canada and Australia - fell into line behind the US then it might be a fair fight.
But there is no sign of that happening. In fact, Trump has antagonised America's other major trading partners to the point of making enemies of them too.
That leaves China with plenty of alternative markets and leeway to push back hard against the US.
The deeper risk for New Zealand – one highlighted by local trade commentators like the International Business Forum's Stephen Jacobi – is that this all ends up undermining the authority of the World Trade Organisation.
As it stands, China is taking the US to the WTO over the latest tariffs. What happens if it wins its case but America ignores the ruling?
At that point, the formal structure of global free trade will break down and it really could become every nation for itself.
That's a scenario that a tiny nation like New Zealand, with its whole economy reliant on exports and having almost no political clout, just can't afford.
It's also another reason to be thankful for the free trade deals we already have in place - including the CTPP - and to crack on with proposed deals in regions like Europe.
