Luxon did protest too much on the weekend. Sure, the credulous party faithful were willing to believe him as he continued to lay the blame for the state of the economy on what Labour did, or didn’t do three, four or six years ago – but at some point, the man has to look in the mirror. Last year, things were going to be better in 2025. Now, good times are allegedly waiting just around the corner. Maybe next year? Maybe 2027, if you re-elect him?
Luxon’s core claim that Labour left the economy in a terrible, awful no good mess somehow evaded the notice of all of the international credit rating agencies, who were still giving Labour top marks for managing the economy here and also here and here as well on the eve of the 2023 election.
Moreover, the subsequent inflationary bubble/cost of living crisis was the direct result of the subsidies and industry supports that got us through the pandemic, and that corporate NZ was demanding at the time should be bigger, and should be kept in place for longer. Luxon is very keen for all of that to go down the memory hole.
But in passing…I wonder which Covid wage subsidies and which sectoral suppport schemes for business does Luxon think were mistakes that he would not have made? On balance, the surge of inflation seems to have been a relatively small price to pay for keeping so many firms afloat, and for saving so many jobs and household incomes. One shudders to think what would have happened if a National government had been in power during Covid.
But more to the current point, the coalition government has since done a worse job than any other Western democracy of enabling the economy to recover from its post-Covid inflationary bubble. By dint of its cutbacks to government-led activity, National has prolonged and deepened the recession. Thanks to the random job losses that National has imposed, retailers are suffering and households – made fearful of losing their incomes – continue to be gunshy about spending. There is no end in sight.
Where’s the beef?
Reportedly, us having 15% tariffs slapped on our exports to the US came as a total shock. If so, Finance Minister Nicola Willis and Trade Minister Todd McClay must have been asleep at the wheel. The simple truth is that we run a trade surplus with the US. Meaning: we sell them more than they buy from us. The Aussies by contrast, are running a trade deficit with the US, and have been duly rewarded by Trump for doing so.
Looking at those two sets of contrasting figures should have warned our government to expect to be treated differently. In Trumpland, any country that runs a trade surplus with the US is a Bad Country that is ripping the US off. How “bad” have we been? Pretty bad, in Trumpian terms :
In May 2025, United States exported $319M and imported $528M from New Zealand, resulting in a negative trade balance of $209M. Between May 2024 and May 2025 the exports of United States to New Zealand decreased by $85.6M (21.1%) from $405M to $319M, while imports increased by $30M (6.03%) from $498M to $528M.
In a sense then, New Zealand is a victim of its own success. Yes, we are now operating in the US market at a 5% competitive disadvantage to Australia. But the new tariff situation isn’t entirely bad news for our beef exporters. Brazil has long been a major supplier to US fast food restaurant chains of ground beef – the US is Brazil’s second biggest market for beef – but it has just been hit with 50% tariffs, mainly because Trump disapproves of how the Brazilian courts are prosecuting his old pal, Jail Bolsonaro.
Australia will have a 5% head start, but there may also be some potential for New Zealand beef exporters to capitalise on Brazil’s misfortune. The risk is that Brazilian beef will be sold at a bargain price to other countries, depressing global prices.
In the meantime, our emissaries are now heading to Washington to plead our case, but with very few negotiating cards to play. The fatuous free market zeal we displayed in the 1980s and 1990s is once more coming back to bite us. Because New Zealand unilaterally removed its own tariff barriers back then, we have little left to bargain with in our trade talks with other countries. Why should they offer us anything, when we’ve already given them everything they might want for free?
Out of Balance
New Zealand makes much of its diplomatic balancing act between China on trade, and the US on defence and security. Yet as the current Trump tariff episode shows, our dependency on the US for trade (and for foreign investment funds) is highly significant. The NZ/US Council executive director Fiona Cooper pointed this out in a speech she gave in March..
”Over the last 12 months, the US has overtaken Australia to become New Zealand’s second largest export market after China….The US is New Zealand’s largest market for beef and wine, no doubt including a lot of fine Marlborough wine. It is an important market for many other products including other meat, dairy, honey, casein, fish, fruit and wood, as well as mechanical appliances, medical instruments, electrical machinery, pharmaceuticals and aluminium and steel products.
In addition, she noted, “The US is also a fast-growing market for New Zealand services exports, which were worth nearly $7 billion in the year to September 2024. The US is now our largest services market, taking nearly a quarter our total services exports.” (Those services dollars are being driven upwards by the numbers of US tourists coming to New Zealand. We’re mounting ad campaigns to attract more of them.) All signs therefore, would suggest that our booming goods and services trade with the US is badly unbalanced, at least on the terms Donald Trump uses to view the world.
Chances are, we will probably continue to run a trade surplus with the US – and will remain in Trump’s bad books – until Air New Zealand buys a few more planes from Boeing and/or until via AUKUS, we start buying large amounts of expensive weaponry from the likes of Lockheed Martin, Raytheon and General Dynamics. That would be a bad idea for other reasons.
Footnote One: Some of Trump’s headline tariff rates are highly deceptive. The 35% headline tariff rate on Canada for instance not only exempts some of the stuff the US wants and needs (eg Canada’s energy exports) but also much of the trade carried out under the CUSMA trade agreement (between Canada, the US and Mexico) that’s due to be reviewed next year. In the meantime, Canada’s real tariff barriers with the US are not 35%, but average out in single digits. In other words Canada too, has some real trade advantages over us in US markets.
Footnote Two: Brazil has far more reason to feel aggrieved than we do. After all, it runs a trade deficit with the US – normally treated by Trump as a sign of virtue – but has been hit by a 50% tariff because of its “persecution” of Bolsonaro. Yet as with Canada, Brazil’s headline rate is rife with exemptions on stuff that the US wants and needs, including fresh orange juice. Overall 45% of Brazil’s exports will be exempt, but the rate will still hit two of Brazil’s main exports to the US very hard: beef and coffee.
As mentioned above it is hard to predict what the impact will be on global prices for beef and coffee, as Brazil seeks to find other markets. Increasingly, Brazil’s alternative market for its oil, soybean and beef exports is China. Already only 12% of Brazil’s exports get shipped to the US, while 28% is being sold to China. Ironically, Trump’s mood swings on tariffs are serving to make China look like the sensible adult in the room on global trade, and the preferred buyer of first and last resort.
In itself that’s an added reason for us not to join an AUKUS military pact targeted at China. Crafting our diplomatic efforts in order to earn imaginary brownie points in Washington looks like being an increasingly futile exercise.
Footnote Three: All of the evidence on US trade exemptions suggests that New Zealand’s best fallback negotiating strategy with the Trump administration – if we can get in the door at all – would be to argue for an exemption, probably for beef exports. We seem unlikely to get relief from the headline 15% rate, given that this seems to be the bottom line penalty for every country running a trade surplus with the US.
Footnote Four One of the stranger items on the Trump tariff enemies list has been the harsh 20% rate levied on Taiwan. This comes amid signs that US support for Taiwan may be waning. It seems only yesterday that the US was giving every sign that any Chinese aggression against Taiwan would be met with the full force of US military might…but now, maybe not so much. Taiwan is suddenly being pushed out at arms’ length.
For example: on top of those 20% tariffs, there has been this:
Washington blocked Taiwan Premier Lai Ching Te’s request to visit New York next week during a planned overseas trip to Taipei’s Latin American allies. The Trump administration is also considering a downgrade to bilateral defence talks, which it postponed in June.
The reason for the sudden cooling? Well, Premier Lai has been talking about leading his faction-ridden minority government into declaring independence from China, a gambit likely to trigger an even more furious response than usual from China. Parts of what China sees as its sovereign territory cannot be allowed to secede at will. That’s the kindest interpretation of the US switcheroo, as an attempt to rein in Premier Lai.
It is also a useful reminder that the US is an unreliable defence ally, and that its priorities and commitments in the Asia-Pacific region can change at a moment’s notice according to its own domestic perceptions and priorities. In sum that’s yet another good reason for New Zealand not to join AUKUS, a nuclear pact that would be under the effective operational command of the Americans.