Speaker 1: You're listening to the Weekend Collective podcast from News Talks,
Speaker 1: i'd be.
Speaker 2: After saying he would prefer not to have to impose
Speaker 2: and post tariffs on China, Donald Trump hasn't posed tariffs
Speaker 2: on Mexico, Canada, and China. China came out the best
Speaker 2: of the three with a ten percent rate on all imports,
Speaker 2: while Mexico and Canada with a twenty five rate across
Speaker 2: most imports. This will likely mean an increase in prices
Speaker 2: for US customers, but maybe there's some potential for New
Speaker 2: Zealand to also step up it's explores and fill the void.
Speaker 2: I don't know. We'll find out right now because Westpac's
Speaker 2: chief economist Kelly Erekhold is with me now and Kelly,
Speaker 2: good afternoon.
Speaker 3: Good afternoon.
Speaker 2: So is this the start of a trade war? Fast
Speaker 2: moving feast, doesn't it?
Speaker 3: It is very fast moving, been pretty well signaled, and
Speaker 3: it does seem like we're going to have a good
Speaker 3: few months of t for tat going on in the
Speaker 3: space as all sides work out where they want to
Speaker 3: end up.
Speaker 2: What does it mean for New Zealand? I guess let's
Speaker 2: start with exporters. Are there opportunities that come out of
Speaker 2: this or is it all bad news?
Speaker 3: Well, I think it's probably bad news in general, if
Speaker 3: only because of the increased degree of uncertainty that there
Speaker 3: is out there the movement. The actions that the US
Speaker 3: has announced today are probably just the start of a
Speaker 3: broader campaign. You're highlighting Canada, China, and Mexico because those
Speaker 3: are the three biggest trading partners of the United States.
Speaker 3: The European Union is probably next on the block, and
Speaker 3: it's probably a case of needing to work their way
Speaker 3: down their list of priorities in terms of working out
Speaker 3: what happens next.
Speaker 2: Yeah, because I did see an opinion piece saying that
Speaker 2: maybe if it's more expensive to buy goods from Mexico
Speaker 2: than we could fill that void. But that's ignoring, that's
Speaker 2: pretending that nothing else happens, isn't it.
Speaker 3: Well it is. I mean, keeping in mind that our
Speaker 3: biggest bought items are things like dairy meat in sort
Speaker 3: of white wall logs, etc. I mean, the goods that
Speaker 3: aren't going to go as easily into the United States
Speaker 3: now are probably going to go into other markets, and
Speaker 3: those are likely markets that will also be selling into
Speaker 3: as well. So I mean there is a bit of
Speaker 3: an issue of competition there. And I'll also say is
Speaker 3: there's probably a few exporters in New Zealand that are
Speaker 3: probably getting caught up with this. You know, for example,
Speaker 3: Fisher and Pipel has manufacturing facilities in China and Mexico
Speaker 3: for servicing that US market.
Speaker 2: What about consumers and in terms of the availability of goods,
Speaker 2: does it mean that we might be able to get
Speaker 2: things cheaper because there's less demand elsewhere?
Speaker 3: Well, there certainly could better case, But I think the
Speaker 3: thing I'd highlight is that the exchange rates are unlikely
Speaker 3: to remain unchanged here in the face of this. In
Speaker 3: Trump's first imustration when he did tariffs, what tended to
Speaker 3: happen is the US dollar appreciated to mean that the
Speaker 3: actual net impact on US consumers of the tariffs is
Speaker 3: pretty modest. But correspondingly, that means that it hits usked
Speaker 3: because it costs US more.
Speaker 2: What did you think of, Look, this is a slightly
Speaker 2: trivial sort of taken, but what did you make of
Speaker 2: Canadian politician Christia Freeland said there should be one hundred
Speaker 2: percent tariff on all US wine, beer and spirits and teslas.
Speaker 3: Yeah, I mean, it's a brave cool I mean, obviously
Speaker 3: it could be advisable to turn down the temperature rather
Speaker 3: than increase it at this stage. It is possibly a
Speaker 3: bit cheeky as well. You might be aware that China
Speaker 3: Canada has its own issues with trade restrictions. They limit
Speaker 3: the ability of US and New Zealand dairy products to
Speaker 3: go into Canada because they have quotas. So you know,
Speaker 3: there's a bit of pot calling the kettle black here
Speaker 3: to some extent because.
Speaker 2: They already have some tariffs on EU these from China
Speaker 2: as well as and some teslas that are made in China.
Speaker 2: Isn't that right?
Speaker 3: I think in the United States?
Speaker 2: Sorry, Canada has tariffs already.
Speaker 3: Well, that's right because the Canadian one of their big
Speaker 3: exported industries, including to the US, is actually cut so
Speaker 3: they're very much a competitor in that space.
Speaker 2: Okay, So some of the commentary is that it's going
Speaker 2: to be inflationary for the US. How does that have
Speaker 2: a does it have a knock on effect here? And
Speaker 2: what will our Reserve Bank be watching for regarding its
Speaker 2: own monetary policy?
Speaker 3: Yeah? Well, last week, obviously, the Federal Reserve stopped cutting
Speaker 3: interest rates and citing, amongst other factors, the uncertain air
Speaker 3: in this space. So the implication is that you know,
Speaker 3: this is not going to be deflationary or disinflationing for
Speaker 3: the state. So that means higher interest rates the air,
Speaker 3: which has knock on effects effects to our own interest rates,
Speaker 3: but also the exchange rate. The Zero Bank will be
Speaker 3: looking at that. They'll be looking at to see what
Speaker 3: the extent to which the New Zealand dollar goes down
Speaker 3: much further. It's already fallen quite a lot in the
Speaker 3: last sort of three or four months. We're down about,
Speaker 3: you know, eleven percent against the US dolescence start of October,
Speaker 3: and that will be figuring into their minds in terms
Speaker 3: of their headlining. Flash is going to go. But as
Speaker 3: you pointed out, you know, there could be a few
Speaker 3: cheaper evs and manufactured goods get our way to the
Speaker 3: extent to which especially these China tariffs get increased.
Speaker 2: As a bank economist, what are the things that you
Speaker 2: have your eye on most with these things? In terms
Speaker 2: of the advice that your employer are seeking from you,
Speaker 2: I think that the.
Speaker 3: Thing that well, my employer asks me basically to provide
Speaker 3: good advice to our customers, and you know, so that's
Speaker 3: that's where I've been sort of trying to advise customers
Speaker 3: to be a bit careful, particularly around the exchange rate.
Speaker 3: There has been a tendency, I think in the last
Speaker 3: few years to people focus a lot on interest rate trends,
Speaker 3: both down and then up and then down more recently.
Speaker 3: But with these sorts of shocks, they're more complicated, and
Speaker 3: actually it might look more like some of the situations
Speaker 3: we had in the late nineties and early two thousands,
Speaker 3: where more of the adjustment to these shocks comes through
Speaker 3: the exchange rate, and that matters a lot for exporters
Speaker 3: and importers because you can potentially use hedge and techniques
Speaker 3: and to prepare for some of these things, or at
Speaker 3: least a lady impacts, you've got time to adjust well.
Speaker 2: Actually, imagine anyone who's planning any overseas travel there as
Speaker 2: will have pricked up. What are the concerns they might have?
Speaker 2: Does it mean that they're better to get there? And
Speaker 2: no specific financial advice obviously, but in terms of exchange rates,
Speaker 2: are going to be bad for the New Zealand dollar or.
Speaker 3: Good, Well, it's probably going to be bad. It has
Speaker 3: already been bad. As I mentioned that Zealand dollar has
Speaker 3: already fallen quite a bit against many countries, so that
Speaker 3: has got to be a consideration for anybody thinking about,
Speaker 3: you know, whether they need to buy something in foreign
Speaker 3: exchange and the next six to twelve months.
Speaker 2: And lucky last question, I guess on that cash rate question,
Speaker 2: most of the predictions I hear are people who are
Speaker 2: expecting a point five percent cut in the cash rate
Speaker 2: with the Reserve Bank. Does any of this put that
Speaker 2: those sorts of cuts at risk? Do you think with
Speaker 2: what we're seeing?
Speaker 3: You know, I think the Reserve Bank was fairly settled
Speaker 3: on this next fifty basis point cut next month. And
Speaker 3: you may remember before Christmas as well, we learned that
Speaker 3: the economy had been particularly weak through the middle of
Speaker 3: last year. So I mean, I think it's most including ourselves,
Speaker 3: are comfortable with the idea that will get that fifty
Speaker 3: point cut. Where I think things matter with some of
Speaker 3: these sort of shops is what happens after that. You know,
Speaker 3: the Reserve Bank had indicated that perhaps they might have
Speaker 3: scope to get interest rates down towards three percent over
Speaker 3: the course of the next couple of years. Perhaps that
Speaker 3: might not be so likely if, for example, the new
Speaker 3: Zealand Dollar Force A.
Speaker 2: Long way, Okay, I really appreciate your time to say Kelly,
Speaker 2: thanks so much. That's Kelly Echold. He's chief economist at Westpac.
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