16 Jan 2020

US-China trade deal sparks concerns about impacts on New Zealand

8:39 pm on 16 January 2020

A new trade deal between the United States and China has sparked some concern about just how it might affect New Zealand.

Chinese Vice Premier Liu He and US President Donald Trump display the signed trade agreement between the US and China in the East Room of the White House in Washington, DC, January 15, 2020.

Chinese Vice Premier Liu He and US President Donald Trump display the signed trade agreement between the US and China. Photo: AFP

The signing of an initial trade deal will roll back some tariffs and increase the amount China buys from the US, particularly in agricultural products.

New Zealand is currently the largest foreign supplier of agricultural products to China.

In 2018, New Zealand's total exports to China were worth just over $17 billion, the top products being diary, meat and wood, making it one of the country's main markets.

While the cessation for now of an 18-month long trade war between China and the US can only be good for all countries, including New Zealand, it needs to be wary.

Under the new deal, China has agreed to buy about $40b worth of agricultural products from the US over the next two-years.

Executive Director of NZ China Council, Stephen Jacobi

Stephen Jacobi. Photo: supplied

Stephen Jacobi from the New Zealand International Business Forum said there were many questions still to be answered and that there would be implications for Aotearoa.

''This undertaking of China to buy a large quantity of US agricultural products. Now, some of those products are going to be things that we would like to sell to China.''

New Zealand exports 30 percent of its diary production to China, worth $5b.

Kimberley Crewther from the Dairy Companies Association said the implications of the deal on dairy were still unclear.

''We will be looking for whether the provisions of the agreement give the US industry any advantage versus New Zealand in respect of tariffs or other provisions such as having plants registered for export or certification requirements.''

The dairy industry would be concerned if the end result of the deal put it at a tariff disadvantage, she said.

Federated Farmers believed any de-escalation of geo-political tension could only be a good thing, especially if it ultimately led to less protectionist attitudes in terms of trade.

Katie Milne

Katie Milne. Photo: Supplied

Its president, Katie Milne, said while there may be some implications for the dairy and meat sectors that still need to be fully understood, it does not necessarily follow that because China has agreed to buy more agricultural products from the US, it will buy less from New Zealand.

''If anything there could be benefits from the US exporting more agricultural products to China as it could take pressure off a number of third-party markets where the US has diverted its trade and has increased competition with NZ exporters in those markets," Milne said.

''Another good thing would be if the trade deal dissuades the US from continuing with its recent increases in subsidies to its farmers to compensate for impacts from the trade war."

ASB Chief Economist Nick Tuffley did not believe New Zealand would suffer too much from the new US-China deal.

He said New Zealand would need to keep in mind its biggest exports of dairy and meat.

''The biggest thing that we export is whole milk powder and that is not something we can necessarily see the US readily start to export to China. It's tended to be more things like skim milk powder, and in the US there dairy export base has often been things like cheese and butter, so they are not a strong competitor for us at this point with dairy.''

A lot of the extra agricultural production going into China from the US would be in an area New Zealand does not excel in, Tuffley said.

''A big chunk of that is things like soybeans - which is by far and away the biggest US agricultural export - and other grains as well for example going into livestock feed.

''There is always going to be a strong opportunity for New Zealand to keep exporting protein to China and as the economy there continues to grow, the opportunity is not going to be diminishing for a while."

The Ministry of Foreign Affairs and Trade said the deal covered a number of complex areas and it would need some time to analyse the possible implications for New Zealand exporters.

Constructive engagement between the US and China to resolve their differences on trade should be beneficial for the broader global trade system and may help enhance global business confidence, it said.

It was in New Zealand's interests that global trade was conducted in a manner consistent with the rules enshrined in the multilateral trading system, it said.

National's trade spokesperson Todd McClay said it was pleasing China and the US were making progress, but described it as only a small step forward.

''There isn't a lot of detail and I think there is a lot to be worked out before our exporters can breath a sign of relief and perhaps be able to start thinking that there isn't an impending, sort of trade fight or war on the horizon.''

Tuffley said New Zealand, like many countries, relied heavily on trade with China and that it was hard not to.

''The opportunities to diversify away from China are just not as strong. China is doing a very good job supporting our overall export prices going forward, so for some time they have been the people who have essentially (been) driving higher prices and we are clearly much the better for it over the last 15 years.''

Jacobi said one question still to be answered was whether the new China-US deal was compatible with World Trade Organisation rules.

Cautious optimism

The Foreign Affairs Minister is cautiously optimisitc the US-China trade deal will see the global economy stabilise.

Winston Peters said it would give significant comfort to international traders concerned about the ongoing battle between the two global powerhouses.

But he said it was too soon to say whether all the issues would be resolved.

"In the words of Phil Collins 'you've got to see both sides of the story', and there are two sides to the story.

"And the American market and other markets are concerned to get fair trade wherever they can possibly operate, not just free trade but fair trade. So there's some way to go yet."

The US-China deal could help lift business confidence - which hit a 10-year low last year - "somewhat", he said.

But uncertainty caused by the trade war wasn't the only reason confidence was low, Peters added.

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Winston Peters. Photo: RNZ / Dom Thomas

"There's certain commentary that has been the habit now for many, many years, where despite the adverse circumstances when a certain party is in power there's pretense that all is fine.

"So let's be rational and sane and not have people chasing after false leadership, so to speak."

Peters said he wasn't too focused on what that could mean for the lifting of US tariffs imposed on New Zealand steel and aluminium in early 2018.

"That's not our major issue at the moment, our major issue is to get a much bigger agreed arrangement with the United States than that and we're working on that as hard as we can.

"Just stopping at the steel and aluminium tarrifs is minimalist in terms of what I believe our country is entitled to."