Trade picture looks murkier in wake of US midterms
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.