WEBVTT - Kelly Eckhold: Donald Trump's tariffs are just the beginning

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<v Speaker 1>You're listening to the Weekend Collective podcast from News Talks,

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<v Speaker 1>i'd be.

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<v Speaker 2>After saying he would prefer not to have to impose

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<v Speaker 2>and post tariffs on China, Donald Trump hasn't posed tariffs

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<v Speaker 2>on Mexico, Canada, and China. China came out the best

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<v Speaker 2>of the three with a ten percent rate on all imports,

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<v Speaker 2>while Mexico and Canada with a twenty five rate across

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<v Speaker 2>most imports. This will likely mean an increase in prices

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<v Speaker 2>for US customers, but maybe there's some potential for New

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<v Speaker 2>Zealand to also step up it's explores and fill the void.

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<v Speaker 2>I don't know. We'll find out right now because Westpac's

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<v Speaker 2>chief economist Kelly Erekhold is with me now and Kelly,

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<v Speaker 2>good afternoon.

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<v Speaker 3>Good afternoon.

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<v Speaker 2>So is this the start of a trade war? Fast

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<v Speaker 2>moving feast, doesn't it?

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<v Speaker 3>It is very fast moving, been pretty well signaled, and

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<v Speaker 3>it does seem like we're going to have a good

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<v Speaker 3>few months of t for tat going on in the

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<v Speaker 3>space as all sides work out where they want to

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<v Speaker 3>end up.

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<v Speaker 2>What does it mean for New Zealand? I guess let's

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<v Speaker 2>start with exporters. Are there opportunities that come out of

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<v Speaker 2>this or is it all bad news?

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<v Speaker 3>Well, I think it's probably bad news in general, if

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<v Speaker 3>only because of the increased degree of uncertainty that there

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<v Speaker 3>is out there the movement. The actions that the US

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<v Speaker 3>has announced today are probably just the start of a

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<v Speaker 3>broader campaign. You're highlighting Canada, China, and Mexico because those

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<v Speaker 3>are the three biggest trading partners of the United States.

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<v Speaker 3>The European Union is probably next on the block, and

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<v Speaker 3>it's probably a case of needing to work their way

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<v Speaker 3>down their list of priorities in terms of working out

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<v Speaker 3>what happens next.

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<v Speaker 2>Yeah, because I did see an opinion piece saying that

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<v Speaker 2>maybe if it's more expensive to buy goods from Mexico

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<v Speaker 2>than we could fill that void. But that's ignoring, that's

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<v Speaker 2>pretending that nothing else happens, isn't it.

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<v Speaker 3>Well it is. I mean, keeping in mind that our

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<v Speaker 3>biggest bought items are things like dairy meat in sort

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<v Speaker 3>of white wall logs, etc. I mean, the goods that

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<v Speaker 3>aren't going to go as easily into the United States

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<v Speaker 3>now are probably going to go into other markets, and

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<v Speaker 3>those are likely markets that will also be selling into

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<v Speaker 3>as well. So I mean there is a bit of

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<v Speaker 3>an issue of competition there. And I'll also say is

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<v Speaker 3>there's probably a few exporters in New Zealand that are

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<v Speaker 3>probably getting caught up with this. You know, for example,

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<v Speaker 3>Fisher and Pipel has manufacturing facilities in China and Mexico

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<v Speaker 3>for servicing that US market.

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<v Speaker 2>What about consumers and in terms of the availability of goods,

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<v Speaker 2>does it mean that we might be able to get

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<v Speaker 2>things cheaper because there's less demand elsewhere?

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<v Speaker 3>Well, there certainly could better case, But I think the

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<v Speaker 3>thing I'd highlight is that the exchange rates are unlikely

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<v Speaker 3>to remain unchanged here in the face of this. In

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<v Speaker 3>Trump's first imustration when he did tariffs, what tended to

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<v Speaker 3>happen is the US dollar appreciated to mean that the

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<v Speaker 3>actual net impact on US consumers of the tariffs is

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<v Speaker 3>pretty modest. But correspondingly, that means that it hits usked

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<v Speaker 3>because it costs US more.

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<v Speaker 2>What did you think of, Look, this is a slightly

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<v Speaker 2>trivial sort of taken, but what did you make of

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<v Speaker 2>Canadian politician Christia Freeland said there should be one hundred

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<v Speaker 2>percent tariff on all US wine, beer and spirits and teslas.

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<v Speaker 3>Yeah, I mean, it's a brave cool I mean, obviously

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<v Speaker 3>it could be advisable to turn down the temperature rather

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<v Speaker 3>than increase it at this stage. It is possibly a

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<v Speaker 3>bit cheeky as well. You might be aware that China

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<v Speaker 3>Canada has its own issues with trade restrictions. They limit

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<v Speaker 3>the ability of US and New Zealand dairy products to

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<v Speaker 3>go into Canada because they have quotas. So you know,

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<v Speaker 3>there's a bit of pot calling the kettle black here

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<v Speaker 3>to some extent because.

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<v Speaker 2>They already have some tariffs on EU these from China

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<v Speaker 2>as well as and some teslas that are made in China.

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<v Speaker 2>Isn't that right?

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<v Speaker 3>I think in the United States?

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<v Speaker 2>Sorry, Canada has tariffs already.

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<v Speaker 3>Well, that's right because the Canadian one of their big

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<v Speaker 3>exported industries, including to the US, is actually cut so

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<v Speaker 3>they're very much a competitor in that space.

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<v Speaker 2>Okay, So some of the commentary is that it's going

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<v Speaker 2>to be inflationary for the US. How does that have

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<v Speaker 2>a does it have a knock on effect here? And

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<v Speaker 2>what will our Reserve Bank be watching for regarding its

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<v Speaker 2>own monetary policy?

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<v Speaker 3>Yeah? Well, last week, obviously, the Federal Reserve stopped cutting

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<v Speaker 3>interest rates and citing, amongst other factors, the uncertain air

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<v Speaker 3>in this space. So the implication is that you know,

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<v Speaker 3>this is not going to be deflationary or disinflationing for

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<v Speaker 3>the state. So that means higher interest rates the air,

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<v Speaker 3>which has knock on effects effects to our own interest rates,

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<v Speaker 3>but also the exchange rate. The Zero Bank will be

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<v Speaker 3>looking at that. They'll be looking at to see what

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<v Speaker 3>the extent to which the New Zealand dollar goes down

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<v Speaker 3>much further. It's already fallen quite a lot in the

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<v Speaker 3>last sort of three or four months. We're down about,

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<v Speaker 3>you know, eleven percent against the US dolescence start of October,

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<v Speaker 3>and that will be figuring into their minds in terms

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<v Speaker 3>of their headlining. Flash is going to go. But as

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<v Speaker 3>you pointed out, you know, there could be a few

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<v Speaker 3>cheaper evs and manufactured goods get our way to the

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<v Speaker 3>extent to which especially these China tariffs get increased.

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<v Speaker 2>As a bank economist, what are the things that you

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<v Speaker 2>have your eye on most with these things? In terms

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<v Speaker 2>of the advice that your employer are seeking from you,

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<v Speaker 2>I think that the.

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<v Speaker 3>Thing that well, my employer asks me basically to provide

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<v Speaker 3>good advice to our customers, and you know, so that's

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<v Speaker 3>that's where I've been sort of trying to advise customers

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<v Speaker 3>to be a bit careful, particularly around the exchange rate.

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<v Speaker 3>There has been a tendency, I think in the last

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<v Speaker 3>few years to people focus a lot on interest rate trends,

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<v Speaker 3>both down and then up and then down more recently.

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<v Speaker 3>But with these sorts of shocks, they're more complicated, and

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<v Speaker 3>actually it might look more like some of the situations

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<v Speaker 3>we had in the late nineties and early two thousands,

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<v Speaker 3>where more of the adjustment to these shocks comes through

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<v Speaker 3>the exchange rate, and that matters a lot for exporters

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<v Speaker 3>and importers because you can potentially use hedge and techniques

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<v Speaker 3>and to prepare for some of these things, or at

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<v Speaker 3>least a lady impacts, you've got time to adjust well.

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<v Speaker 2>Actually, imagine anyone who's planning any overseas travel there as

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<v Speaker 2>will have pricked up. What are the concerns they might have?

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<v Speaker 2>Does it mean that they're better to get there? And

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<v Speaker 2>no specific financial advice obviously, but in terms of exchange rates,

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<v Speaker 2>are going to be bad for the New Zealand dollar or.

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<v Speaker 3>Good, Well, it's probably going to be bad. It has

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<v Speaker 3>already been bad. As I mentioned that Zealand dollar has

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<v Speaker 3>already fallen quite a bit against many countries, so that

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<v Speaker 3>has got to be a consideration for anybody thinking about,

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<v Speaker 3>you know, whether they need to buy something in foreign

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<v Speaker 3>exchange and the next six to twelve months.

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<v Speaker 2>And lucky last question, I guess on that cash rate question,

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<v Speaker 2>most of the predictions I hear are people who are

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<v Speaker 2>expecting a point five percent cut in the cash rate

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<v Speaker 2>with the Reserve Bank. Does any of this put that

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<v Speaker 2>those sorts of cuts at risk? Do you think with

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<v Speaker 2>what we're seeing?

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<v Speaker 3>You know, I think the Reserve Bank was fairly settled

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<v Speaker 3>on this next fifty basis point cut next month. And

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<v Speaker 3>you may remember before Christmas as well, we learned that

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<v Speaker 3>the economy had been particularly weak through the middle of

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<v Speaker 3>last year. So I mean, I think it's most including ourselves,

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<v Speaker 3>are comfortable with the idea that will get that fifty

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<v Speaker 3>point cut. Where I think things matter with some of

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<v Speaker 3>these sort of shops is what happens after that. You know,

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<v Speaker 3>the Reserve Bank had indicated that perhaps they might have

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<v Speaker 3>scope to get interest rates down towards three percent over

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<v Speaker 3>the course of the next couple of years. Perhaps that

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<v Speaker 3>might not be so likely if, for example, the new

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<v Speaker 3>Zealand Dollar Force A.

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<v Speaker 2>Long way, Okay, I really appreciate your time to say Kelly,

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<v Speaker 2>thanks so much. That's Kelly Echold. He's chief economist at Westpac.

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