However, that may not be where New Zealand’s tariff travails end, if history and the experience of other countries is any guide.
In recent days, Trump has turned his attention to the international pharmaceutical industry, suggesting it was time to apply tariffs to pharmaceuticals because America “doesn’t make anything” in terms of drugs and medicines. He has particularly singled out Ireland, telling the country’s Prime Minister at the White House recently that "all of a sudden Ireland has our pharmaceutical companies, this beautiful island of five million people has got the entire US pharmaceutical industry in its grasp."
America is currently Ireland’s major export market, receiving around 28% of all its exports. Around two-thirds of Ireland’s exports to America are pharmaceutical products, manufactured by American companies operating under licence in Ireland. The Irish economy is therefore especially vulnerable to any new tariffs (potentially as high as 25%) Trump may impose on pharmaceuticals.
New Zealand has no pharmaceutical manufacturing industry to speak so therefore is not vulnerable to tariffs in this way. But it does have the government’s drug procurement agency, PHARMAC, which America has long regarded as anti-competitive in relation to American products entering the New Zealand market.
PHARMAC was established in 1993 to arrange the purchase and supply of the medicines New Zealanders need. Its centralised approach and tough, single price negotiating stance has infuriated pharmaceutical companies the world over, arguably driving those that were operating in New Zealand at the time to move offshore. While PHARMAC has also been the recipient of constant local professional and political criticism for its hard-line approach, it has gained grudging recognition for the part it has played in keeping the country’s overall medicines bill under reasonable control.
However, America has been one of PHARMAC’s most constant and vehement critics, frequently citing its existence – let alone its operation – as a significant barrier to wider trade liberalisation between the two countries. On more than one occasion America has called for the paring back of PHARMAC’s role as the price of any form of freer trading arrangement between the two countries. To their credit, successive New Zealand governments, have always resisted that pressure.
While PHARMAC does not appear to have been raised during the recent tariff discussions, it seems, given the recent comments about Ireland, only a matter of time before it is. With its preference for substituting cheaper generic drugs for brand-name drugs where feasible, PHARMAC could well be viewed by the Trump Administration as an impediment to the profitability of the American pharmaceutical industry in just the same way it views Ireland’s pharmaceutical manufacturing industry.
And if tariffs are to be imposed on Irish pharmaceutical exports to America, as seems highly likely, New Zealand should prepare for some sort of tariff imposition to blunt PHARMAC’s impact on the profitability of American pharmaceutical companies supplying to the local market. Because there is no New Zealand based pharmaceutical industry to speak of, any response from America will likely be retaliatory across a range of unrelated sectors but aimed at putting domestic political pressure on the government to bring PHARMAC to heel, the way America wishes.
In a word, it would be a case of good old-fashioned bullying, a trade practice America has frequently relied on over the years. In the late 1990s and early 2000s, New Zealand liberalised considerably its laws regarding parallel importing. Parallel importing is the practice of allowing the legal importation of genuine branded goods into a country without the consent or authorization of the brand owner or the official distributor in that market. Parallel imported goods are often cheaper on the retail market than the same goods supplied by the brand owner or official supplier. America lobbied the government of the day and individual politicians extremely hard against parallel importing, which it saw as detrimental to American brand owners, but to no avail.
Many of the arguments now being run by the Trump Administration that American manufacturers have been “ripped off” by cheap imports for years, which is why protective tariffs are now required, are very similar to those raised 25 years ago when parallel importing was an issue. In the current climate, there is no guarantee they will not be raised again insofar as New Zealand is concerned.
Against that backdrop, therefore, and given what seems to be a fast-moving international situation any sense of relief here that New Zealand has escaped the worst of the tariff impositions would be unwise. The recent tariff announcements seem unlikely to be the end of the matter. Trump likes to boast of the number of countries that have apparently approached the White House in the wake of the tariff announcements seeking new more- America friendly trade agreements instead of tariffs.
This makes it clear his wider agenda is to reshape the entire global trading structure away from the free trade emphasis that has dominated international trade discussions since the late 1980s. Trump not only wants to protect American manufacturers from competitive imports, but also to skew the entire global trading system in favour of America’s interests.
New Zealand was a leader in the global free trade movement of the late 1980s and early 1990s. As Trump tries to force the pendulum back the other way, we will not be able to avoid being caught up in the consequences of a struggle that has only just begun.
Peter Dunne, a retired Member of Parliament and Cabinet Minister, who represented Labour and United Future for over 30 years, blogs here: honpfd.blogspot.com - Where this article was sourced.
America is currently Ireland’s major export market, receiving around 28% of all its exports. Around two-thirds of Ireland’s exports to America are pharmaceutical products, manufactured by American companies operating under licence in Ireland. The Irish economy is therefore especially vulnerable to any new tariffs (potentially as high as 25%) Trump may impose on pharmaceuticals.
New Zealand has no pharmaceutical manufacturing industry to speak so therefore is not vulnerable to tariffs in this way. But it does have the government’s drug procurement agency, PHARMAC, which America has long regarded as anti-competitive in relation to American products entering the New Zealand market.
PHARMAC was established in 1993 to arrange the purchase and supply of the medicines New Zealanders need. Its centralised approach and tough, single price negotiating stance has infuriated pharmaceutical companies the world over, arguably driving those that were operating in New Zealand at the time to move offshore. While PHARMAC has also been the recipient of constant local professional and political criticism for its hard-line approach, it has gained grudging recognition for the part it has played in keeping the country’s overall medicines bill under reasonable control.
However, America has been one of PHARMAC’s most constant and vehement critics, frequently citing its existence – let alone its operation – as a significant barrier to wider trade liberalisation between the two countries. On more than one occasion America has called for the paring back of PHARMAC’s role as the price of any form of freer trading arrangement between the two countries. To their credit, successive New Zealand governments, have always resisted that pressure.
While PHARMAC does not appear to have been raised during the recent tariff discussions, it seems, given the recent comments about Ireland, only a matter of time before it is. With its preference for substituting cheaper generic drugs for brand-name drugs where feasible, PHARMAC could well be viewed by the Trump Administration as an impediment to the profitability of the American pharmaceutical industry in just the same way it views Ireland’s pharmaceutical manufacturing industry.
And if tariffs are to be imposed on Irish pharmaceutical exports to America, as seems highly likely, New Zealand should prepare for some sort of tariff imposition to blunt PHARMAC’s impact on the profitability of American pharmaceutical companies supplying to the local market. Because there is no New Zealand based pharmaceutical industry to speak of, any response from America will likely be retaliatory across a range of unrelated sectors but aimed at putting domestic political pressure on the government to bring PHARMAC to heel, the way America wishes.
In a word, it would be a case of good old-fashioned bullying, a trade practice America has frequently relied on over the years. In the late 1990s and early 2000s, New Zealand liberalised considerably its laws regarding parallel importing. Parallel importing is the practice of allowing the legal importation of genuine branded goods into a country without the consent or authorization of the brand owner or the official distributor in that market. Parallel imported goods are often cheaper on the retail market than the same goods supplied by the brand owner or official supplier. America lobbied the government of the day and individual politicians extremely hard against parallel importing, which it saw as detrimental to American brand owners, but to no avail.
Many of the arguments now being run by the Trump Administration that American manufacturers have been “ripped off” by cheap imports for years, which is why protective tariffs are now required, are very similar to those raised 25 years ago when parallel importing was an issue. In the current climate, there is no guarantee they will not be raised again insofar as New Zealand is concerned.
Against that backdrop, therefore, and given what seems to be a fast-moving international situation any sense of relief here that New Zealand has escaped the worst of the tariff impositions would be unwise. The recent tariff announcements seem unlikely to be the end of the matter. Trump likes to boast of the number of countries that have apparently approached the White House in the wake of the tariff announcements seeking new more- America friendly trade agreements instead of tariffs.
This makes it clear his wider agenda is to reshape the entire global trading structure away from the free trade emphasis that has dominated international trade discussions since the late 1980s. Trump not only wants to protect American manufacturers from competitive imports, but also to skew the entire global trading system in favour of America’s interests.
New Zealand was a leader in the global free trade movement of the late 1980s and early 1990s. As Trump tries to force the pendulum back the other way, we will not be able to avoid being caught up in the consequences of a struggle that has only just begun.
Peter Dunne, a retired Member of Parliament and Cabinet Minister, who represented Labour and United Future for over 30 years, blogs here: honpfd.blogspot.com - Where this article was sourced.
5 comments:
Many current MP's and ex governmental types write eloquently about free trade agreements betwen nations .
When do they name a NZ free trade agreement between nations that is completely "open " without limitation of volume , timing , reciprocity , value , or quality?.
The new EU - FTA has amongst other issues the requirement of the Paris Accord. The much heralded Indian FTA discussion has not signalled complete free trade of agricultural products.
Similarly the Trump tarriff media verbage never mentions in China / US trade tarriffs the associated protective terms of trade , parallel impositions and exports via other nations that are anything but "free trade. "
Even NZ aluminium from Tiwai Smelter has an export price / quality advantage, being classified as "green" aluminium sourced from Hydro Power and not fossil fuelled power .
What exactly is your point Basil? Are you somehow defending Trump's tariff disaster on the grounds that there was never any free trade between nations in the first place, so Trump is justified in trashing the existing order?Because if you are, that's an extremely dangerous outcome for New Zealanders who,
depend utterly on the maintenance of a stable, rules-based international trading order for their prosperity. Dunne is alerting us to only one of the possible triggers for Trump's retribution. Pharmac is clearly anti-American in Trump's eyes. Our anti-nuclear policy will be another reason for him to vent his spleen, and it will not help when he finds out we are part of 5-eyes. Our imposition of GST on American imports alone will drive up tariffs on our exports once he is informed of the full perfidy of our actions and we will hear the American farm lobby cheering him on to chants of "Remember the USS Buchanan". Is that what you want Basil? If so just come on out and say so.
Anon 10:02 . US is part of Five Eyes . President Trump has bigger fish to fry than Pharmac and NZ . The phrase "free trade" is a misnomer globally.
NZ has had a GST regime long before President Trump gained head office the first time. Your Trumps tariff disaster statement is subjective of course.
At least America has a leader that undertakes what he stated pre election.
If you are unaware of Trump's attitude towards Value Added Taxes then you have not been paying attention Basil. He regards VAT as an anti-American conspiracy and part of the mythical "ripping off" process which justifies the imposition of so-called reciprocal tariffs. And yes, my comment on Trump's tariff disaster was subjective but was based on weeks of expert comment from folk who know exactly what they are talking about. Folk like Jerome Powell, the Chairman of the Federal Reserve. Folk like the Editorial Board of the Wall Street Journal, normally a stalwart Trump supporter. There is a tsunami of credible criticism out there. And who is Trump relying on? People like Peter Navarro, an academic nobody, a convicted felon and a Trump arse licker who is on record as stating his job is to "provide the underlying analytics that confirm Trump's intuition on trade". And that kind of sums up the lack of rigour that is being applied to Trump's whole tariff program, designed largely by Navarro. You have a perfect right to your own subjective opinion Basil, but if you want to be taken seriously, try basing your comments on the facts, not the ramblings of an economic moron who can't tell a tariff from a trade war, let alone how a value added tax works.
Thanks Jonesy. Sums it up perfectly.
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