US Tariffs and Their Impact on New Zealand

BY JASLEEN BAINS

Introduction

Tariffs, trade and globalisation have been hit words this year. With United States (US) tariffs hitting New Zealand (NZ), the impacts on consumers and businesses have been topics of concern, with an overarching question of how we respond as a country. This article explains tariffs and what they are, how New Zealand is responding to them, and how tariffs can affect businesses and everyday people.

Tariffs and How They Work

Tariffs are taxes imposed by a government on goods bought from other countries. They are usually a percentage of the product's value. 

On 2 April this year, President Trump announced ‘Liberation Day’ tariffs, which imposed an additional tax on goods imported from other countries to the US. This includes a 10% ‘baseline’ tariff on New Zealand exports to the US, which will be applied on top of existing US tariffs, such as the prior 20% tariff on dairy, which now would face a 30% tariff. Comparatively, Trump initially proposed 20% tariffs on the European Union but halved it to 10% to allow time for negotiations.

The US and China engaged in reciprocal tariffs, which led to the US imposing a 145% tariff on Chinese imports and a Chinese levy (a tax, here imposed on imported goods similar to a tariff) of 125% on some US goods on 9 April. Since then, negotiations have taken place, and US tariffs on Chinese exports have decreased to 30%, while Chinese tariffs on US imports have been reduced to 10%.

New Zealand’s Stance

NZ Finance Minister Nicola Willis maintains that diplomats are working to clarify  the position the new tariffs put New Zealand in and that “channels of communication between officials [are] open.” At this point, there has been no proposal to implement reciprocal tariffs against the US.

Meanwhile, Prime Minister Christopher Luxon has made it clear that he is reaching out to and engaging in conversations with “like-minded” countries to promote free trade. In a speech, Luxon proposed to the Wellington Chamber of Commerce that New Zealand engage in a trade alliance with the EU and members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, with aims to reduce tariffs between their countries and create a more competitive trading environment.   

Asha Sundaram, Associate Professor in Economics at the University of Auckland, stated in an interview for this article that a 10% tariff on NZ imports is likely to have a negative impact, but a modest one.  Per Professor Sundaram: 

A 10% tariff on US imports from New Zealand will raise the price of NZ products for US consumers, shifting demand away from them and towards domestic US products. Though this will negatively impact New Zealand exports to the US (which is a big market), the impact will be mitigated [because] a 10% tariff is among the lowest tariff rates the administration has levied on imports. For instance, Indonesian imports face a 32% tariff, while Japanese imports face 24%.

Thus, products from other countries have higher tariffs compared to New Zealand, making it possible US consumers will switch to NZ imports. Further, countries that engaged in retaliatory tariffs, such as China, have raised US export prices, presenting the opportunity for NZ exporters to redirect or divert exports to those markets.

What are the Impacts on New Zealand Consumers?

“US consumers will likely bear the brunt of these tariffs because prices for imports into the US will go up,” says Professor Sundaram, who emphasises that while NZ consumers will not be directly impacted, there will be a drag on the global economy which dampens business investment and consumer confidence. “This will impact not only NZ, but economies globally.”

An example of an indirect impact can be seen through KiwiSaver. When the overseas market is volatile, KiwiSaver funds invested overseas may take a short-term hit  before bouncing back. 

What are the Impacts on New Zealand Businesses?

In an interview for this article, Dr. Sihong Wu, Senior Lecturer in International Business at the University of Auckland, highlighted the consequences of US tariffs for local firms, stating:  

Rising costs may reduce profits or lead NZ firms to raise prices, weakening their global competitiveness. Uncertain tariffs and geopolitics also make it harder to plan, grow, or expand into new markets.

On the one hand, geopolitical risks, encompassing trade wars and uncertainty, are the potential political and economic risks that can emerge from a nation’s involvement in international markets. On the other hand, by attempting to avoid such risks, we risk moving towards domestic protectionism. Domestic protectionism can be defined as a move towards protecting the domestic industry by placing specific restrictions on international trade. Critics argue that this protectionism slows economic growth.  International trade, measured as the sum of exports and imports, is currently around 60% of New Zealand’s gross domestic product.  Tariff’s act as a factor that can cause trade friction and slow growth in the export sector. 

When asked about this movement, Dr. Wu stated there is a current shift towards trade protectionism, adding:

For New Zealand firms — many of which are deeply dependent on international trade — this environment may result in reduced market access, increased operational costs, and a more fragmented and complex regulatory landscape. To stay competitive and resilient, firms will need to reassess and diversify their market entry strategies, strengthen supply chain adaptability, and actively pursue opportunities within regional trade agreements and growing Asian markets.

What Now?

With delays in implementing tariffs, Trump has shown a willingness to engage in negotiations.  Does New Zealand have a chance to negotiate reduced tariffs?

“NZ should try, but the scope is limited,” says Professor Sundaram:

President Trump’s tariff strategy aims to get countries to negotiate better access to the US markets. NZ already has low tariffs on imports, so there is no 'carrot' that NZ can offer the US. NZ is also a small market, so the US may not prioritize the negotiation. Overall, however, NZ should focus on free trade deals with countries that are willing to engage.

Conclusion

Tariff tensions have left a hole in New Zealand trade. The impact of these tariffs has, however, called into question how we as a country should be moving forward in regards to trade. New Zealand should be focusing on engaging in free trade with more countries to diversify and lower the risk of overreliance on a single country. This will make our economy more connected and resilient and will uphold international collaboration. 

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