New Zealand Tries to Cozy Up to Trump: Navigating Tariffs and Diplomatic Realities

New Zealand's finance minister, Nicola Willis, recently characterized the country’s relationship with the United States as "warm." However, in the face of the Trump administration’s blanket tariffs on steel and aluminum, that warmth may be tested.

The 25 percent tariffs on steel and 10 percent on aluminum will apply to all countries, including long-standing allies such as the European Union, the United Kingdom, Japan, and Australia. With no exemptions or exceptions, the move signals a significant shift in trade relations, one that could leave New Zealand facing difficult decisions.

The Trade Fallout: How Will New Zealand Be Affected?

The U.S. is New Zealand’s third-largest trading partner, following China and Australia, with total trade between the two nations exceeding $16 billion annually. While steel and aluminum exports from New Zealand to the U.S. are relatively small, the broader implications of these tariffs—particularly on supply chains, pricing, and New Zealand’s key trade relationships—could be substantial.

The key concerns for New Zealand include:

1. Potential Price Increases and Supply Chain Disruptions

- The United States is a significant player in the global metals market. With tariffs increasing costs for steel and aluminum imports, higher material costs could ripple through industries that rely on these imports, including construction, manufacturing, and transportation.

- Even if New Zealand is not a major direct supplier, higher global prices for steel and aluminum could indirectly raise costs for infrastructure and industrial projects in the country.

2. Retaliatory Measures from Trade Partners

- Other nations impacted by these tariffs—including the European Union, Japan, and Australia—have stronger economic influence and are more likely to retaliate with countermeasures. If trade disputes escalate, New Zealand could find itself caught in the crossfire, facing rising prices and potential trade barriers.

- Countries affected by the tariffs may divert trade flows, increasing competition in markets where New Zealand also exports goods.

3. New Zealand’s Export Market at Risk

- While dairy, meat, and wine are New Zealand’s primary exports, any disruption in global trade could have spillover effects on its agricultural sector. If tariffs and countermeasures slow economic activity in key markets, consumer demand for New Zealand’s high-end agricultural goods could decline.

The Bigger Picture: U.S. Trade Policy and New Zealand’s Position

Trump’s latest move is consistent with his "America First" economic strategy, which prioritizes domestic manufacturing and industrial policy over international trade relationships. Unlike past tariff implementations, which sometimes included carve-outs for allies, this new order applies indiscriminately to all trading partners.

For New Zealand, this presents a diplomatic challenge. While the country enjoys strong ties with the United States, it is also deeply integrated into the Asia-Pacific trade network. New Zealand is a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and has been strengthening ties with China.

The country must balance its economic interests while avoiding geopolitical friction.

What Are New Zealand’s Options?

With March 4 as the implementation date for the tariffs, New Zealand and other affected nations have limited time to respond. Possible courses of action include:

1. Diplomatic Engagement and Negotiation

- New Zealand’s government may lobby for an exemption or seek an alternative trade arrangement, as it has done in previous trade disputes. However, given the no-exception stance of the Trump administration, this may be difficult.

- If other major allies negotiate a modification, New Zealand could leverage those discussions to secure a more favorable position.

2. Strengthening Regional Trade Alliances

- If U.S. protectionism intensifies, New Zealand may prioritize diversifying its trade portfolio further. Strengthening economic ties with China, the European Union, and Southeast Asia could help cushion the impact of U.S. tariffs.

- The Regional Comprehensive Economic Partnership (RCEP), which includes China, could become a more critical trade vehicle for New Zealand exports.

3. Exploring Alternative Markets and Suppliers

- With potential price increases in steel and aluminum, New Zealand businesses that rely on these imports may need to explore alternative suppliers in Asia, South America, or the Middle East.

- Developing domestic manufacturing capabilities could be another long-term strategy, albeit one that requires significant investment.

Global Market Implications: Is Protectionism on the Rise?

The broad application of tariffs is a departure from traditional U.S. trade policy, which has historically sought to balance domestic industry protection with international trade relationships. This shift suggests:

- A more aggressive stance on economic nationalism, which could set a precedent for future trade restrictions.

- Increased global uncertainty, as other nations weigh their responses and potential retaliatory measures.

- Higher costs for manufacturers and consumers, particularly in industries reliant on imported metals.

For investors and market participants, volatility in commodities and trade-sensitive equities may rise as these policies take effect.

Final Thoughts: A Precarious Trade Landscape for New Zealand

While New Zealand’s finance minister describes the country’s relationship with the U.S. as “warm,” the reality of global trade is becoming more complicated. The new U.S. tariffs on steel and aluminum represent a clear challenge to trade-dependent economies like New Zealand, forcing policymakers to rethink their strategies.

As March 4 approaches, the world will be watching for any potential modifications to these sweeping tariffs. Whether or not exceptions emerge, New Zealand must prepare for a shifting global trade environment, one where protectionist policies may become the norm rather than the exception.