Estimating the effects of tariffs on different countries' GDP is a difficult thing to do, because there are so many flow-on effects. Overall, the strongly held view by economists is they will lower world productivity. However, as a consequence of the Trump tariffs, and the retaliatory moves by other countries, there are winners & losers, even though the average effect on GDP is going to be negative. So how does NZ come out of all of this?
It turns out the best estimates in the country come from Professor Niven Winchester at the Auckland University of Technology. He has used a global model of the production, trade & consumption of goods & services known as a "computable general equilibrium model" to evaluate the impact of the Trump tariffs on countries throughout the world, including New Zealand. And it turns out that NZ's GDP per capita will rise by around $US 400. That's about $NZ 700 per person. Let's hand it to Niven. What a genius.
In the media that have so far reported his estimates, there is no intuition given as to why NZ is expected to do so well out of the Trump Tariffs. So here is my best guess. Of course, the tariffs may hurt things like our beef exports to the US, though they are not particularly large. And NZ has a low US tariff rate, kindly set by the White House at only 10%. However what is probably happening is that many countries will find it harder to sell their products into the US market, since Americans may be facing higher prices for them now. So demand from US consumers will drop for many such goods. To the extent overseas producers try to increase sales by selling more into markets like the NZ one, then we will become more spoilt for choice and pay lower prices. Even better, since NZ agricultural sales into the US push up our local food prices (since free trade means prices are similar everywhere - its called the "law of one price") then to the extent that market gets harder, the cost of food may even come down in this country. Instead of us having to pay New York city prices for our rack of lamb, we can pay a price that better reflects how NZ produces enough food to feed 40 million people, and so exports most of it. Less money for our agricultural industry, but a better deal for Kiwis at the supermarket. An oversupply of food in NZ. How wonderful.
All in all, New Zealanders should celebrate the Trump tariffs and stay out of the trade war that is breaking out. Who can argue with Niven's “computable general equilibrium model”. It may even be powered by AI. So yes, we've all got a lot to be grateful for - grateful to our friends, the Americans. (And please spare me hate mail for not coming to the enlightened position about how evil The Donald is, and how he wants to blow up the world).
New Zealand The World's Biggest Winner from the Trump Tariffs
Effect on GDP per capita
In the media that have so far reported his estimates, there is no intuition given as to why NZ is expected to do so well out of the Trump Tariffs. So here is my best guess. Of course, the tariffs may hurt things like our beef exports to the US, though they are not particularly large. And NZ has a low US tariff rate, kindly set by the White House at only 10%. However what is probably happening is that many countries will find it harder to sell their products into the US market, since Americans may be facing higher prices for them now. So demand from US consumers will drop for many such goods. To the extent overseas producers try to increase sales by selling more into markets like the NZ one, then we will become more spoilt for choice and pay lower prices. Even better, since NZ agricultural sales into the US push up our local food prices (since free trade means prices are similar everywhere - its called the "law of one price") then to the extent that market gets harder, the cost of food may even come down in this country. Instead of us having to pay New York city prices for our rack of lamb, we can pay a price that better reflects how NZ produces enough food to feed 40 million people, and so exports most of it. Less money for our agricultural industry, but a better deal for Kiwis at the supermarket. An oversupply of food in NZ. How wonderful.
All in all, New Zealanders should celebrate the Trump tariffs and stay out of the trade war that is breaking out. Who can argue with Niven's “computable general equilibrium model”. It may even be powered by AI. So yes, we've all got a lot to be grateful for - grateful to our friends, the Americans. (And please spare me hate mail for not coming to the enlightened position about how evil The Donald is, and how he wants to blow up the world).
New Zealand The World's Biggest Winner from the Trump Tariffs
Effect on GDP per capita
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Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.
6 comments:
It is a complex scenario but I will be surprised if NZ ends up better off. The media don't mention that the US has no Federal sales tax but low level State sales tax. The NZ consumer is still hit with a 15% sales tax by the NZ Government. I can see Trump's point of view that there is a tax imbalance with other countries effectively benefiting from low sales taxes in the US.
Very droll Robert. I did check the publication date. Did you write this a few days prior?
Computer model! Is that a bit like a climate change model?
Genius indeed.
Yeah. Nah.
I’m just an amateur economist, barely able to manage a household budget. But I would have thought the outcome of the Trump tariffs would be a kind of zero-sum game.
Americans will pay more for imports and there will be considerable inflation in that country (surely additional taxes are by definition inflationary?)
To the extent that importers and foreign suppliers can afford it, there may be some pricing adjustments - but not to the extent of 30 - 40%, the upper end of the tariffs range.
Similarly, American buying decisions may adjust - but bearing in mind what will be widespread inflation, discretionary purchasing is highly likely to slump.
So less global trading activity, falling sales volumes, squeezed margins, everyone hunting for alternative markets (like they haven’t been doing that already?).
And good ol’ NZ enjoys a higher GDP per head? Doesn’t make sense.
The guy’s a genius for sure.
Yeah. Nah.
Possibly the US could view our 15% gst on all US imports as equivalent to their tariffs? Seems that way to me
I can understand how NZ might be better off in some cases, but from a slightly different angle. If there are a number of countries exporting, say, beef into the US, with the new tariffs ours will be 10% dearer but some other countries will be 20% or more dearer. If we assume the US producers will see this as an opportunity to raise their prices, NZ prices will be less competitive than US produced beef but more competitive that other countries exports . So our share of total US beef imports would increase and there may even be room for a slight increase.
So Trump tries to garrot global trade with comprehensive tariffs, but don’t worry, the ‘computable general equilibrium model’ says that this will be good for New Zealand. One of the immediate threats of this storm of tariffs, its prime objective to protect U S industry, is uncertainty itself. How do you factor that into any calculation, computer generated of otherwise? Perhaps no country, maybe city states excepted, has a greater stake per capita than this one in free trade. We have not been perfect in the past but now have a genuine reputation for the upholding of free interstate commerce. Indeed, global trade has never been as free as it is, or was, and the growth of trade in the last 30 years or so proves it. Trump stands to upend this. The idea that we will be better off because others are harder hit holds no logic to me.
Not fussed with Prof MacCulloch's view of Trump, but I think the guy's just a failed businessman with a talent for PR. Not sure if he'll blow up the world, but NZ's best advantage there is that Trump probably doesn't know where we are. (I'm currently in Oz, and the internet is awash with penguin jokes about how they're dealing with tariffs on Heard and MacDonald Island....)
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