Trump, Tariffs, and the Global Economy: What It Means for NZ

A key feature of Donald Trump’s economic policy is his aggressive stance on trade. His proposed tariffs on China and other major trading partners have sparked concerns about a potential global trade war. But as Jarrod pointed out, it’s important to take Trump seriously but not literally.

Historically, Trump has made bold economic statements that don’t always materialise in their extreme form. For instance, while he might announce a 25% tariff, the final figure may land closer to 10%. However, even a smaller tariff can have wide-reaching effects, influencing inflation and global supply chains.

For New Zealand, tariffs can be a double-edged sword. China is one of our biggest trading partners, and if they are caught in a trade war with the US, the ripple effects could reach our shores. A slowdown in Chinese exports could affect demand for New Zealand’s dairy and agricultural products. Conversely, some businesses might benefit from re-routed trade, finding opportunities in markets that are looking to bypass tariffs.

For instance, some New Zealand firms are already acting as intermediaries, importing goods from China and exporting them to the US at a lower tariff rate. While these short-term gains exist, the broader concern remains: prolonged trade wars can disrupt supply chains, increase costs, and create economic instability.

The US market has been on a strong run over the past few years, but concerns linger about how sustainable this growth is. Tariffs act as a tax on consumers, increasing prices and potentially fuelling inflation. This puts pressure on the US Federal Reserve to slow down rate cuts, keeping interest rates higher for longer.

Despite this, Jarrod noted that equity markets are still performing well. Sentiment remains strong, and while valuations may be stretched, economic fundamentals in the US are holding up. The key question is whether this momentum can continue or if rising costs will eventually slow economic activity.

Closer to home, New Zealand has faced economic challenges over the past three years, with rising interest rates and a recession creating a tough environment for businesses and households. However, there is a sense that we may be turning a corner, with interest rates stabilising and some optimism returning to the market.

One concern, however, is how external geopolitical risks could derail our recovery. As a small, open economy, New Zealand is vulnerable to global events. Whether it’s a trade war between the US and China or broader geopolitical tensions, these factors can have a significant impact on our exports, currency, and overall economic growth.

With New Zealand’s economy struggling to regain momentum, the role of government spending is a hot topic. Jarrod emphasised the need for a balanced approach—focusing on both controlling expenses and investing in growth initiatives. Infrastructure spending, in particular, could be a way to stimulate the economy, but the challenge remains: major projects take years to deliver, and with short three-year political cycles, long-term investments often take a backseat to short-term budget cuts.

Jarrod also pointed out that New Zealand has relatively low debt levels compared to other countries, which could provide room for increased investment in infrastructure. He noted that while some worry about government debt, many developed nations have far higher debt-to-GDP ratios without significant consequences.

Beyond trade and government policy, another major economic force on the horizon is artificial intelligence (AI). AI-driven automation is already transforming industries, from finance to logistics. While AI can increase productivity and efficiency, there are concerns about job displacement. However, Jarrod noted that technological advancements tend to create new industries and job opportunities over time.

He compared today’s AI revolution to explaining a modern job—like a night manager—to a medieval blacksmith. Just as past technological shifts have created new roles, the economy will likely adapt, with new jobs emerging in response to AI advancements.

1. Tariff Uncertainty Remains: Investors should prepare for potential trade disruptions but avoid overreacting to bold political statements.
2. New Zealand’s Economy is Improving, But Risks Remain: Interest rates are stabilising, but global geopolitical risks could still pose challenges.
3. Infrastructure Investment is Key: The government has room to invest in long-term growth, particularly in infrastructure.
4. AI Will Reshape the Economy: While some jobs may be displaced, new opportunities will arise, making adaptability crucial.

As we move through an uncertain economic landscape, staying informed and thinking long-term is critical. Whether it’s navigating trade tensions, understanding government policy, or adapting to technological change, businesses and investors alike need to remain agile. While risks exist, so do opportunities, and those who can strategically position themselves will be best placed to thrive in the years ahead.

For expert financial guidance on navigating these economic trends, contact Lighthouse Wealth today.

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