By Guy Trafford
Any casual observer could be excused for being somewhat confused at the moment regarding the future of international trade.
On one hand the CPTPP has been signed and if only half the predicted benefits are gained agricultural producers good returns are going to continue well into the future.
However, on the other Trump is creating all sorts of uncertainty putting tariffs on imported steel and aluminium.
On the surface the biggest loser of Trump’s plans may be the US with the backlash from countries that export to the US going to be swift. On the surface one may feel some sympathy for those workers in the ‘steel belt’ who have seen their jobs disappear over the last decades.
Countering this argument are the new jobs that have sprung up and prospered due to access to cheaper resources to produce competitive products that have access to markets previously unavailable.
What Trump has done is diametrically counter to the trend the rest of the international community is working towards which is a freeing up of trade by reducing tariffs, roll out the CPTPP.
The freeing up of trade, be it slow, spreads income throughout the globe and allows developing countries access to markets otherwise denied them and results in their living standards improving. Potentially, opening up their countries markets for other exporters and everybody benefits. What has happened with China and other Asian countries in the last decade or so are good examples of this. Trump’s actions, no doubt designed to shore up his lagging support from his voting base are a headwind against this trend. Not only does it risk starting trade wars which nobody will benefit from, but it also does nothing to improve relationship between countries at the diplomatic level.
How the US extracts itself from this is going to be difficult at least until the current power brokers are removed. This may not happen until November 3rd, 2020 and a lot of damage could occur between now and then.
American producers even those who support Trump must be flummoxed, do they gear up steel mills etc. based on the new policies knowing that in two or three years’ time they may be reversed?
New Zealand’s biggest risk is from downturns occurring in markets we trade into, including the US.
The CPTPP improving access into other markets is likely to be the best counter we can hope for.