Speaker 1: Hilda. I'm Chelsea Daniels and this is the Front Page,
Speaker 1: a daily podcast presented by the New Zealand Herald. Donald
Speaker 1: Trump's Liberation Day has felt more like a blood bath
Speaker 1: for the world economy. The US president last week announced
Speaker 1: what he called reciprocal tariffs on almost every country on Earth,
Speaker 1: as well as some islands uninhabited by human life. New
Speaker 1: Zealand was not as impacted as most, with just a
Speaker 1: ten percent tariff on our goods imported into the US,
Speaker 1: but the European Union has had a twenty percent bump
Speaker 1: on tariffs, while China has received an additional thirty four
Speaker 1: percent tariff. More than fifty countries have reportedly sought talks
Speaker 1: with the US to ease these tariffs. But as trillions
Speaker 1: of dollars are wiped from the US stock market, what
Speaker 1: does this all mean for New Zealand? They on the
Speaker 1: front Page. We're sorting through the numbers with Enzied Herald
Speaker 1: Business Editor at Large Liam Dan. Liam. First off, can
Speaker 1: you explain to those who are unaware what a tariff
Speaker 1: actually is? Sure?
Speaker 2: Yeah, I mean a tariff's just an a tax really
Speaker 2: at the border on goods coming into your country, and
Speaker 2: it's one of the oldest forms of taxation in the
Speaker 2: history of world or human economics. And yeah, it's paid
Speaker 2: by the importer at the border and adds costs to
Speaker 2: imported goods, raises money for the government, and imparts an
Speaker 2: advantage to locally produced goods.
Speaker 1: And what direction does it go in, because that's one
Speaker 1: of the confusing aspects of this, right, Trump is actually
Speaker 1: making goods more expensive to US consumers.
Speaker 2: Yeah, absolutely, he argues that foreign countries will pay. I mean, technically,
Speaker 2: you know, it's absolutely the case that the US importer pays.
Speaker 2: They have to fill out a form and it goes
Speaker 2: to US customs. But what I think Trump means is
Speaker 2: that he believes the foreign countries trying to sell the
Speaker 2: goods will bear the cost, which means that if they
Speaker 2: want to get the goods, and they'll have to lower
Speaker 2: their prices or the prices will be too high and
Speaker 2: no one will buy them. So and that respect, it
Speaker 2: could cost us, and it could cost other countries. If
Speaker 2: we want to sell the same amount of wine into
Speaker 2: the US, maybe our prices will have to come down
Speaker 2: and will have to wear the cost. That's not clear,
Speaker 2: you know, Like New Zealand sells a lot of Hamburger beef.
Speaker 2: All our leftover the poor male dairy cows or the
Speaker 2: ones that you know because they're male, they become hamburger beef.
Speaker 2: They go off to the US to become hamburgers, and
Speaker 2: the US needs that. They have a shortage of that
Speaker 2: kind of beef, and they've been taking a lot of
Speaker 2: New Zealand and Australian beef for basically for hamburgers. And
Speaker 2: if they still need that, you know, they're going to
Speaker 2: have to take it and pay the tariff, and the
Speaker 2: consumers there will pay the cost. Yeah, it could be split,
Speaker 2: but it's hard to know for sure, but yeah, there
Speaker 2: will be there. Expecting costs to go up for US consumers.
Speaker 1: Trillions of dollars have been white of the value of
Speaker 1: the US stock market in response to the tariffs already.
Speaker 1: How rare is this market reaction?
Speaker 2: Well, this is pretty bad. I don't know how it's
Speaker 2: going to go in the next few days, whether you know,
Speaker 2: there's so much relying on what comes out of the
Speaker 2: White House. But this is a serious, serious meltdown. This
Speaker 2: is like, you know, brings back feelings of the GFC.
Speaker 2: There was a big meltdown when COVID hit a really
Speaker 2: massive sell off for a few days. But then, of
Speaker 2: course the government came in with stimulus, and the same
Speaker 2: with the GFC. Eventually the government comes in and the
Speaker 2: Federal Reserve comes in to support things. In this case,
Speaker 2: the government does not coming to the rescue. The US
Speaker 2: government is the reason that this has happened. So yeah,
Speaker 2: but it's historic. This is an historic sell off. This
Speaker 2: is a global market meltdown. The world has changed, you know,
Speaker 2: a little be in the history books.
Speaker 1: And in terms of what this mimics in years gone by.
Speaker 1: I mean, you mentioned the GFC. During the GFC, markets
Speaker 1: essentially crashed by more than what we're seeing at the moment.
Speaker 1: What will indicate GFC levels within the next few days.
Speaker 2: Yeah, it's interesting because the GFC was a huge demand shop.
Speaker 2: It's the fear that takes hold really that causes the problem.
Speaker 2: The tariffs are supposed to create costs for US consumers,
Speaker 2: which means that there's inflationary issues, which means interest rates
Speaker 2: are likely to stay higher in the US, their dollar
Speaker 2: would go higher. All of that stuff was predicted as
Speaker 2: an inflationary problem, but the fear and shock when it
Speaker 2: happened meant that the opposite has happened. The US dollar
Speaker 2: has fallen in relative terms. US bond yields have fallen,
Speaker 2: and there's a lot of fear about recession in the
Speaker 2: US now and that is overwhelming the other bad stuff.
Speaker 2: So there's two lots of bad stuff here. And the
Speaker 2: demand side bad stuff is what's really we've seen in
Speaker 2: the past few days. Whether that stabilizes or who could say.
Speaker 2: But you know, if we see more retaliation the Chinese
Speaker 2: have responded, if we see Europe respond with more tariffs,
Speaker 2: you know, then you have to go back to the
Speaker 2: nineteen thirties to get a comparison with what's going on.
Speaker 2: I mean, this is sort of you know, the last
Speaker 2: time the US did something like this was something called
Speaker 2: the Smoot Hawley Act in nineteen thirty when they thought,
Speaker 2: as a response to the big stock market crash of
Speaker 2: twenty nine that putting tariffs on everything was going to
Speaker 2: be a solution. And that's famously been talked about and
Speaker 2: almost you know, universally accepted as a failure in economics,
Speaker 2: and you know, kids are taught about it in schools.
Speaker 1: Well, Ferris Bueller, isn't it in that movie?
Speaker 2: Yeah, that's right. There's a famous scene in the first
Speaker 2: Bueller's Day Off for those who are of a certain
Speaker 2: age and love that movie, where the class is sitting
Speaker 2: on their board as all hell and the teacher pretty
Speaker 2: much explains the Smoot Hawley Act.
Speaker 3: In nineteen thirty, the Republican controlled House of Representatives, in
Speaker 3: an effort to alleviate the effects of the anyone, anyone
Speaker 3: Great Depression past the anyone anyone the tariff Bill, the
Speaker 3: Holly Smooth Tariff Act, which anyone raised or lowered, raised
Speaker 3: tariffs in an effort to collect more revenue for the
Speaker 3: federal government. Did it work? Anyone anyone know the effects?
Speaker 3: It did not work, and the United States sank deeper
Speaker 3: into the Great Depression.
Speaker 2: US kids all over, they've all been taught this. Trump
Speaker 2: says that's wrong. He has a different view on that,
Speaker 2: and his advisors have a different view. They think the
Speaker 2: problem was that the tariffs were taken off from the
Speaker 2: first place in nineteen oh nine, I think he said,
Speaker 2: and that the Smooth Hawley Act was too little, too late,
Speaker 2: and they should have kept the tariffs on. So he's
Speaker 2: HARKing back to the great days of the late nineteenth
Speaker 2: century when US had very high tariffs and low income
Speaker 2: tax what they called the Gilded Age when there was
Speaker 2: a it was a great time for billionaires. JP Morgan
Speaker 2: and all that sort of stuff. He's literally saying that's
Speaker 2: what they want to get back to, those great days
Speaker 2: of America. Yeah, there's a little bit of skepticism. That
Speaker 2: would be an understatement. But so there is a lot
Speaker 2: of lot of fear and panic through US markets about
Speaker 2: what is actually happening.
Speaker 1: And what does such a loss mean at a consumer
Speaker 1: level or is this only a concern for investors at
Speaker 1: this stage.
Speaker 2: Yeah, I mean, look, we've been through crashes before. It
Speaker 2: looks horrible when you look at your KEII saver, and
Speaker 2: it might you know, we're going to have some volatility
Speaker 2: and it might might get worse. You know, there's no
Speaker 2: question that there is a risk that things could get
Speaker 2: worse for consumers, like until you know, in New Zealand
Speaker 2: it's we sort of buffered a little bit. Our share
Speaker 2: market is down as well, but it's not our direct
Speaker 2: The direct tariffs on New Zealand were seen as manageable
Speaker 2: by economists. The issue for US is what happens to
Speaker 2: Asia and China and the economies there. And I guess
Speaker 2: to some extent the US, So it's the demand. So
Speaker 2: are people still going to want to buy as much
Speaker 2: of our stuff? Are they going to want to travel here?
Speaker 2: So it's a risk for tourism. Already we've seen in
Speaker 2: New Zealand shares fall a lot. There's a risk that
Speaker 2: it does hit tourism, so that that fragile recovery tourism
Speaker 2: is just starting to sort of add value to the
Speaker 2: New Zealand economy again sort of since COVID and that's
Speaker 2: at risk. We're lucky we sell food. You know, it
Speaker 2: never goes out of fashion, but it's still you know,
Speaker 2: when you saw the tariffs were huge on countries like
Speaker 2: Vietnam and you know, a lot of Thai land, a
Speaker 2: lot of Southeast Asian countries. China's going to take them
Speaker 2: on a trade war. There's all sorts of side effects.
Speaker 2: So it's too soon to say for sure exactly what
Speaker 2: this will mean. There might be some weird upsides for
Speaker 2: New Zealand, but overall, the hit to the global economy
Speaker 2: is going to be felt here. So you know, if
Speaker 2: global demand is down and global growth is down, New
Speaker 2: Zealand's going to feel that, and that's going to make
Speaker 2: our recovery much harder to sustain.
Speaker 1: And it's interesting as well. I mean, there might be
Speaker 1: some people out there saying, look, what happens in the
Speaker 1: US stays in the US, and we're in a good position.
Speaker 1: But if you look back to the eighties, I noticed
Speaker 1: that when Wall Street crashed that iconic twenty percent, I
Speaker 1: think dead in the end, and it was the worst
Speaker 1: crash ever recorded on Wall Street. The New Zealand Stock Exchange,
Speaker 1: didn't it then not only crash twenty percent, but continue
Speaker 1: to crash up to fifty sixty percent in the months
Speaker 1: that followed.
Speaker 2: Yeah, that's true. It was a very different stock market
Speaker 2: in New Zealand at the time. We had we were
Speaker 2: in a stock market bubble ourselves at the time, and
Speaker 2: we had a lot of very speculative investment companies and
Speaker 2: so forth on the market in New Zealand. Now our
Speaker 2: market is much more of a sort of a slightly
Speaker 2: boring reflection of the economy. It's got some big retailers,
Speaker 2: it's got some we've seen, you know, some companies are
Speaker 2: affected by tariffs. Fisher and pikel Healthcare as one of
Speaker 2: our biggest companies, and that's affected by tariff's But that
Speaker 2: gets priced and it hasn't been booming, it's fair to
Speaker 2: say our New Zealand and inziet X anyway. So yeah,
Speaker 2: it's coming off in response. There's a bit of fear
Speaker 2: in markets generally when things crash, but there isn't a
Speaker 2: reason for it to just just absolutely go through the
Speaker 2: floor in the same way as there was in the
Speaker 2: nineteen eighties. A lot of it's more directly tied to
Speaker 2: how our economy is going. So those retailers are struggling
Speaker 2: until humors get out and spend again. So that's not
Speaker 2: great news. If there's just just the amount of uncertainty
Speaker 2: and that the damage it does to confidence. All of
Speaker 2: this is not great news in that sense.
Speaker 1: So why is Trump doing this? What's his argument for
Speaker 1: all of it?
Speaker 2: He seems to genuinely believe that this is a way
Speaker 2: to get back to a world where US manufacturing is dominant.
Speaker 2: So obviously, when you take the tariffs away, it's much
Speaker 2: cheaper to build, you know, the labor is much cheaper
Speaker 2: in Vietnam or China or whoever to build build the
Speaker 2: cars and build the phones, and sew the clothes and
Speaker 2: make the Nike sneakers. So the US has effectively exported
Speaker 2: out a lot of manufacturing jobs. He's talking about bringing
Speaker 2: them back, and I suppose that appeals to his base
Speaker 2: in some of those towns and cities that have been
Speaker 2: really hammered by the globalization process and seeing the factories
Speaker 2: shut down. Yeah, I'm personally at skeptical. You know, a
Speaker 2: lot of his supporters are saying, yeah, we want the
Speaker 2: factories back, and we want this. I'm not sure that
Speaker 2: young Americans want to be back in a factory working
Speaker 2: for the kind of wages. You know, the kind of
Speaker 2: wages that Americans would expect to get paid for factory
Speaker 2: work are not going to mean that it's very hard
Speaker 2: for their goods to be competitive, even with the tariffs,
Speaker 2: because you know, just such a huge difference between America
Speaker 2: and the places where they are making this stuff now
Speaker 2: in America, the previous economic model had been to control
Speaker 2: the IP, the intellectual property on Wall Street. It sort
Speaker 2: of controls the financial markets of the world, you know,
Speaker 2: and Silicon Valley is it's the tech giant of the world,
Speaker 2: and it's kind of through all. You know, they're big companies.
Speaker 2: They own the IP and all the money come the
Speaker 2: dividends all come back but the yeah that the jobs
Speaker 2: haven't been there. That's Trump's theory, I guess, is to rebuild.
Speaker 2: He's talking about rebuilding US manufacturing, bringing car making back
Speaker 2: to Detroit, all that kind of stuff.
Speaker 1: Well, I kind of imagine that the late eighteen hundreds
Speaker 1: and then the boom time that we're talking about would
Speaker 1: have been an amazing time for worker riots.
Speaker 2: Yeah, it wasn't was it was rough right, it was,
Speaker 2: you know, like they didn't have all the labor laws
Speaker 2: that came about through the years of the early twentieth century.
Speaker 2: And that's sort of the kind of world that you're
Speaker 2: in with some of these other probably poorer countries that
Speaker 2: have much cheaper labor. So yeah, it's very hard to
Speaker 2: see the US getting back to that. And as a plan,
Speaker 2: it even even it looks like a fairly long term plan.
Speaker 2: So politically, there's going to be some real issues with
Speaker 2: you know, the idea that they tank the US economy
Speaker 2: in the short term. Even if he's able to keep
Speaker 2: selling or he will keep selling this longer term dream
Speaker 2: of rebuilding manufacturing, it just would take a considerable amount
Speaker 2: of time to do that, and you know, the political
Speaker 2: cycles pretty short these days. It's going to be a
Speaker 2: real test of Trump's popularity. Put it that way, and.
Speaker 1: I mean has put a tariff on the Herd and
Speaker 1: McDonald Islands, which is only inhabited by penguins and seas
Speaker 1: and Norfolk Island has received a twenty nine percent tariff
Speaker 1: despite claiming to have no export relationship with the US.
Speaker 1: These mistakes, if you can call them mistakes, don't really
Speaker 1: instill you with too much confidence to they sure.
Speaker 2: I mean a look, to be fair, I've heard that
Speaker 2: the White House has come back and said, look, they
Speaker 2: did that because they want to make sure that in
Speaker 2: this case Australia, which has the sort of the Australian territories,
Speaker 2: doesn't use them as a loophole because they are separate territory.
Speaker 2: And I don't know, like the idea that Australia would
Speaker 2: funnel all its steal exports through you know, Norfolk Island
Speaker 2: or something. It just seems a bit crazy to me.
Speaker 2: But that's that's what the White House says was the
Speaker 2: reason for that. The way that the tariffs are worked
Speaker 2: out shocked a lot of people, and that's part of
Speaker 2: what's causing some of the sort of uncertainty and chaos.
Speaker 2: So they're called reciprocal tariffs, but they literally aren't reciprocal.
Speaker 2: New Zealand has an average tariff on American goods of
Speaker 2: about one point nine percent or something, and on the
Speaker 2: chart that Trump had it said we had a twenty
Speaker 2: percent tariff. They worked it out just by looking at
Speaker 2: the trade balance with the countries and countries that had
Speaker 2: a trade deficit with the US. So we have what
Speaker 2: the US would call a trade deficit with them. We
Speaker 2: sold more stuff to America than we bought last year,
Speaker 2: so about nine billion dollars worth of goods went to America. Well,
Speaker 2: that was our surplus, and so they just do the
Speaker 2: maths on that.
Speaker 4: Tomorrow, the United States will implement reciprocal tariffs on other nations.
Speaker 4: It's been a long time since we even thought of that.
Speaker 4: We used to think about it a lot. We didn't
Speaker 4: think about it for many decades, and you see what's
Speaker 4: happened for nicians that treat us badly. We will calculate
Speaker 4: the combined read of all their tariffs, non monetary barriers,
Speaker 4: and other forms of shooting. And because we are being
Speaker 4: very kind, we're kind people, very kind. You're not so
Speaker 4: kind when you got ripped off, you my auto worker friends.
Speaker 1: How long could it roughly take for Trump to restart
Speaker 1: some of the industries that he wants to restart in
Speaker 1: the US, like manufacturing. You can't just move an entire
Speaker 1: business to the US overnight, can you.
Speaker 2: Well, this is the issue. It takes time to build
Speaker 2: the factory, even if companies move very quickly to try
Speaker 2: and you know, like if Nike wants to repatriate at
Speaker 2: shoe factories or something like that, that's going to take
Speaker 2: a lot of time and shifting and changing to the
Speaker 2: global supply chains. And it's also kind of you know,
Speaker 2: would you you know, the Trump administration has a habit
Speaker 2: of negotiating changing policy. Things can change overnight. You know,
Speaker 2: at what point does the policy become clear and certain
Speaker 2: enough that these companies can trust that it's worth making
Speaker 2: these big moves. So yeah, look, probably quite a long time,
Speaker 2: and probably a longer time than you know, this current
Speaker 2: political cycle. So for example, you know, use has got
Speaker 2: midterms next year already, there'll be a huge amount of
Speaker 2: intense focus on the economy on Wall Street in the
Speaker 2: coming months, and it would be hard to see how
Speaker 2: you'd get the upside from a policy like this, even
Speaker 2: if it worked for several years.
Speaker 1: What do you think New Zealand will or should do
Speaker 1: in response to all of this. Do we just need
Speaker 1: to stop buying American products or perhaps look at alternative
Speaker 1: trading partners, which I know that they're already doing.
Speaker 2: Yeah, I think we have to stay a little calm.
Speaker 2: We are we actually are sitting in a pretty good
Speaker 2: spot with the tariffs themselves. You know that they're not
Speaker 2: going to kill trade with the US, so you know,
Speaker 2: there is a little bit of keep calm and carry on.
Speaker 2: We certainly aren't going to try and accelerate things and
Speaker 2: have escalate things and put on our own tariffs because
Speaker 2: A that would be a risk of coppying more flat
Speaker 2: back from the US, and B it just doesn't fit
Speaker 2: with the way our economy works. And we sort of
Speaker 2: a bipartisan agreement on the idea that we're a low
Speaker 2: tariff economy, we're an open, free trading economy. And look,
Speaker 2: the government is already very focused on you know, both
Speaker 2: both both labor and national over the years, very focused
Speaker 2: on finding new new trade partners. You know, you've seen
Speaker 2: Christopher lux and talk a lot about India, and boy,
Speaker 2: that's you know, that's that's got huge potential and I
Speaker 2: really hope they can progress that. In fact, this might
Speaker 2: help them progress that because India has got big problems
Speaker 2: with huge tariffs going on into the US, so they
Speaker 2: might be looking around for friends. There may be opportunities
Speaker 2: there to expand trading partnerships like the CP TPP and
Speaker 2: other other you know trading you know, multilateral trading agreements
Speaker 2: we're in. We've got our free trade agreement with China.
Speaker 4: Yeah.
Speaker 2: Look, you know, New Zealand is quite good at this stuff.
Speaker 2: We have really great trade officials and diplomats that do
Speaker 2: this stuff. We've got it being quite flexible. I mean,
Speaker 2: it's it's it's tough. It's going to be a really
Speaker 2: tough time, but I think we are well placed to
Speaker 2: sort of find a pathway through it.
Speaker 1: And looking towards the next few days or even weeks,
Speaker 1: what should we be be looking out for when it
Speaker 1: comes to the next global financial crisis? I mean, what
Speaker 1: are the warning signs, what are the red flags that
Speaker 1: will be popping up?
Speaker 2: Well, it's all going to play out in real time
Speaker 2: on currency markets, equity markets, commodity markets. I would say
Speaker 2: that the big ones for New Zealand will be we'll
Speaker 2: start to see you the dairy auctions, the commodity prices
Speaker 2: are going to be an issue. So if it starts
Speaker 2: to affect global demand for commodities, that could mean less
Speaker 2: money coming into New Zealand. But then again, you know
Speaker 2: it is food, so that's that we've got that going
Speaker 2: for US. I am concerned about what it might do
Speaker 2: to tourism and the short term for consumers. You know,
Speaker 2: when you look at things like oil, oil price is
Speaker 2: absolutely crashed in the last two or three days, so
Speaker 2: you're going to be paying less to fill up the tank.
Speaker 2: The New Zealand dollar is actually up in relative terms
Speaker 2: against the US dollar, and the US barrel price of
Speaker 2: oil has fallen to sort of levels we haven't seen
Speaker 2: since you know, the darkest days of COVID, So that's
Speaker 2: you know, US sixty sixty three dollars a barrel I think,
Speaker 2: or you know, around sixty dollars a barrel. So yeah,
Speaker 2: some of these things are sort of deflationary, weirdly in
Speaker 2: the first instance, or disinflationary, so you know, the economists
Speaker 2: expect it. It should also start to create inflationary pressure
Speaker 2: in other places, you know, as other countries put up Tariff's,
Speaker 2: you know, So you've got basically two forces pushing against
Speaker 2: each other, these deflationary forces, you know, the demand side,
Speaker 2: which is the shock that you know, consumers might stop
Speaker 2: spending because of all the uncertainty, and that's dominating at
Speaker 2: the moment. And then you've got the inflationary side, the
Speaker 2: supply side, which is what we know that Tariff's kind
Speaker 2: of do in the long run, which is pushed costs up.
Speaker 2: So you know, these two competing forces is say, both
Speaker 2: not great things, and at the moment it's it's the
Speaker 2: sort of recessionary demand side stuff that's dominating.
Speaker 1: Thanks for joining us, Liam, great, no, happy to be here.
Speaker 1: That's it for this episode of The Front Page. You
Speaker 1: can read more about today's stories and extensive new coverage
Speaker 1: at enzdherld dot co dot nz. The Front Page is
Speaker 1: produced by Ethan Sills and Richard Martin, who is also
Speaker 1: a sound engineer. I'm Chelsea Daniels. Subscribe to the Front
Speaker 1: Page on iHeartRadio or wherever you get your podcasts, and
Speaker 1: tune in tomorrow for another look behind the headlines.