New Zealand has altered its diplomatic language on U.S. President Donald Trump’s tariffs, from relief that it escaped with a rate at the lower end—10 percent—to condemning the effect higher tariffs on other countries.
Prime Minister Christopher Luxon read a prepared statement to reporters before a Cabinet meeting, in which he warned of the potential consequences of what he called a “profound shift in the global economic landscape.”
“We’ve all seen the immediate impact on KiwiSaver (New Zealand’s contributory superannuation scheme) balances, but wider than that, it is hurting growth prospects at a time when the global economy needs certainty and confidence, not uncertainty,” he said.
“What actually is concerning me is the shift away from agreed rules and the risks of actually backsliding into a global trade war.
Concerns of Trade Diversion
Meanwhile, Finance Minister Nicole Willis held a press conference to lay out the government’s view of the economy in the wake of Trump’s move, saying the biggest impact on New Zealand would come not from the tariff on its export to the United States, but on demand from other countries hit by much higher tariff rates, particularly China.“The Asian region, including Australia, accounts for 70 percent of New Zealand’s international trade,” she pointed out.
“There is a risk of slower growth in the region, because many economies here have significant exposures to the new U.S. tariff regime ... and export large volumes of goods to the U.S.
“Should retaliatory tariffs be imposed and the situation escalate, there will be further impacts on growth in these countries and potentially, therefore, demand for New Zealand’s products,” she said.
It could also trigger trade diversion, where goods made in Asia destined for the United States would be dumped into another market in which New Zealand was competing. This would reduce prices for New Zealand exports.
Willis acknowledged there may be some positive impacts, including import prices falling for some products, including oil.
New Zealand’s floating exchange rate may also mitigate some of the worst effects, as the dollar has weakened, making New Zealand exports more competitive but increasing the price of imported goods.
“All of these factors create risk for the New Zealand economy,” she said. “And this happens just as we have been gathering positive momentum and recovering from a period of high inflation and high interest rates.”
With Willis due to deliver the federal budget on May 22, Treasury is scrambling to adjust its forecasts to accommodate the changes.
At the last half-yearly update, growth in partner countries was projected to be 2.5 percent to June 2026, but Willis says the initial assessment is now closer to 2 percent. And while global inflation was forecast to be around 2.5 percent over the same period, Treasury now feels it could rise by as much as half a percent due to Trump’s policies.
Higher interest rates will mean higher costs of borrowing, leaving the government with less money to spend, but Willis indicated she couldn’t say more until the budget was announced later this month.
However, there were unlikely to be major revisions to the government’s long-term plan she said.
“We have confidence we can stick to the operating allowances that we’ve previously negotiated, and that our intention to return to surplus in 2028 remains the right one.”
New Zealand remained well-placed to weather the coming storm, Willis said.
“Investors and businesses will continue to have confidence in us in an unstable world, we are a safe haven with a stable macroeconomic environment, a pro-growth government and a constellation of positive global relationships.
Asked whether she had an opinion on Trump’s trade policy, she said New Zealand “continues to be a country that stands for the values of free trade.”
The Reserve Bank of New Zealand is set to announce the Official Cash Rate (OCR) on April 9 affecting mortgages. Whether it was appropriate in light of the situation to introduce a fiscal stimulus by significantly reducing interest rates was something she would leave to the Bank, Willis said.
