Trade pic­ture looks murkier in wake of US midterms

The Dominion Post - - Business -

The United States midterm elec­tions were sig­nif­i­cant for New Zealand’s trade prospects but the pic­ture has just be­come more clouded.

New Zealand, a trade-de­pen­dent na­tion, needs fewer tar­iffs and freer trade. That need has been com­pro­mised by US Pres­i­dent Don­ald Trump’s moves to re­verse tar­iff re­duc­tions, pull out of the Com­pre­hen­sive and Pro­gres­sive Agree­ment for Trans-Pa­cific Part­ner­ship (CPTPP), and en­gage in brinkman­ship with China.

Trade watch­ers would have been hop­ing for a midterm re­sult that low­ered the threat of an all-out trade war, but the threat re­mains.

The split US Congress re­sult­ing from the midterms has in­creased the po­lit­i­cal con­fu­sion over trade.

Repub­li­cans are tra­di­tion­ally more sup­port­ive of free trade but this is mod­er­ated by a voter base of man­u­fac­tur­ing work­ers want­ing trade pro­tec­tion. Democrats are tra­di­tion­ally cooler on trade but this is mod­er­ated by a voter base of large city pro­fes­sion­als with a more in­ter­na­tional out­look.

These nu­ances have brought twists and turns on two key trade deals for the US – the North Amer­i­can Free Trade Agree­ment (Nafta) and CPTPP.

Nafta – the free trade agree­ment be­tween the US, Canada and Mex­ico – was the land­mark deal in the 1990s that soured many US views on trade. Passed jointly by for­mer Demo­crat pres­i­dent Bill Clin­ton and the Repub­li­cans, NAFTA has since been blamed for de­stroy­ing man­u­fac­tur­ing jobs by let­ting US com­pa­nies move fac­to­ries to Mex­ico.

In the 2016 US pres­i­den­tial elec­tion, can­di­dates Hil­lary Clin­ton and Trump both called for Nafta to be rene­go­ti­ated.

Last month Trump pulled off that rene­go­ti­a­tion and Nafta – now called the United States–Mex­ico– Canada Agree­ment – is now some­what bet­ter for all par­ties.

But the deal still needs to be rat­i­fied and it’s not clear that the now di­vided Congress will agree.

CPTPP also has a com­pli­cated back­ground in US pol­i­tics. For­mer pres­i­dent Barack Obama’s sup­port for the deal went fur­ther than most other Demo­crat rep­re­sen­ta­tives.

Hil­lary Clin­ton sup­ported it as sec­re­tary of state but op­posed it as pres­i­den­tial can­di­date. Trump cam­paigned against it as pres­i­den­tial can­di­date, a stance mutely sup­ported by the rump of the Demo­crat party that shifted left fol­low­ing the 2016 elec­tion.

Then Trump with­drew from the deal af­ter be­com­ing pres­i­dent, but has re­cently hinted at a de­sire to re-join it.

It’s im­pos­si­ble to tell whether the US will in­deed seek to re-join CPTPP, but it seems very un­likely un­der Trump. New Zealand might have to wait it out for a fu­ture US ad­min­is­tra­tion.

The de­ci­sion mat­ters a lot, be­cause a fur­ther open­ing of the huge US do­mes­tic mar­ket through CPTPP would be a great boost to New Zealand’s ex­port earn­ings.

Also crit­i­cally im­por­tant to New Zealand is the threat of a trade war, a threat that has in­creased sub­stan­tially dur­ing the Trump pres­i­dency. New tar­iffs are now es­ti­mated to be im­pact­ing more than US$300 bil­lion (NZ$442 bil­lion) worth of trade world­wide.

One area where there is US bi­par­ti­san sup­port is on Trump’s tough stance on trade with China – a stance that is mak­ing New Zealand ex­porters very ner­vous.

The midterm elec­tions have brought a trade en­vi­ron­ment that is no less con­fus­ing and no less un­der threat than be­fore.

AP

US Pres­i­dent Don­ald Trump with­drew from the CPTPP af­ter as­sum­ing of­fice, but has re­cently hinted at a de­sire to re-join it.

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