Tense times: US President Donald Trump shakes hands with Chinese President Xi Jinping during a meeting of the G-20 summit in Osaka, Japan. Photo / AP
First the good news. New Zealand's export economy hasn't yet taken a direct hit from the trade war.
The bad news?
That means the hit is still to come.
The escalation of the United States-China trade war in the past week has sent shock waves through the global economy.
Markets slumped and confidence in the international growth outlook continues to slide.
But assessing the real impact on New Zealand right now, as opposed to the risk, is a constant balancing act for local economists.
READ MORE:
• Why the trade war doesn't have to mean recession yet
ANZ agricultural economist Susan Kilsby puts together the monthly commodity price index and keeps a close eye on New Zealand's biggest exports.
"I don't think there's anything that can be attributed directly to the trade war at this point, but it's certainly a big concern," she says.
New Zealand's trade data in the past few months has started to slide, but from relatively solid levels for almost every major commodity.
Local data for July, released this week, showed that falling exports and rising imports had widened the trade deficit to $685 million - from $203m in July 2018.
Milk powder, butter and cheese exports fell 16 per cent, or $243m, in July.
Butter alone fell 51 per cent, or $139m.
Exports of logs, wood and wood articles fell 19 per cent, or $85m. Logs alone fell $67m, or 19 per cent.
This was largely expected, though, and economists described it as more of a short-term seasonal or cyclical fall.
"The only thing we've seen change recently was with the sharp decrease in log prices going into China," Kilsby says.
But the reasons for that related more to supply issues than falling demand, she says.
"With other commodities, meat has been strong because of the swine flu issue in China which has pushed up global demand for alternative meats and had a positive impact on both beef and lamb."
Dairy has also been reasonably steady, she says.
That's not to say Kilsby doesn't have concerns about the trade-war effect.
Global data published last week by the CPB Netherlands Bureau showed world trade volumes fell by 1.4 per cent in June from a month earlier.
The total volume of global trade is now off by more than 5 per cent since March 2018.
But so far, the impact has hit non-food commodities the hardest.
"So we've got a bit of a buffer because what we are supplying is food rather than something that's going into manufacturing," Kilsby says.
"There are a few other things going on [like the swine flu] that have helped us in the short term. So that might mean we're getting a bigger piece of what is a shrinking pie."
And that shrinking pie - the decline of top line economic growth - will inevitably affect New Zealand.
For trade policy experts such as Stephen Jacobi - executive director of the NZ International Business Forum - the escalation of the trade war is a worrying trend.
Not least because it threatens to undo years of progress on trade liberalisation which has driven strong economic growth for New Zealand this century.
"Unfortunately, the atmosphere is becoming really poison – [Trump] is making it okay for countries to raise protectionist measures," Jacobi says.
"The price that's being paid for this adventurism with China is being paid by the rest of the world. You're seeing the global economy start to look decidedly shaky at a time when we should be looking forward – in NZ anyway – to a relatively smooth ride."
"I would say the direct impact is limited but expanding. We're hearing every month from different sectors [that] come out and say we've got a problem."
At this stage exports to China are still going strong, he says.
Jacobi says he has always seen the bigger risk being the long-term damage to the global economy.
He cites data from website Global Trade Alert, which measures the implementation of protectionist policies and trade liberalisation policies around the world.
Perhaps not surprisingly, protectionist measures have spiked in the past year and liberalising moves have fallen.
So far this year, 618 "harmful" measures have been introduced, up from 549 at the same time last year, according to Simon Evenett, a British economics professor who runs Global Trade Alert.
It is worrying, says Evenett, that the US and China were responsible for only 136 of those 618 moves.
"One of the things we used to be able to rely on was the US noticing when [countries] were taking protectionist measures and taking action. Clearly they are otherwise occupied," Jacobi says.
Meanwhile, fallout from rising trade tensions is being felt right now on financial markets.
In New Zealand there are three primary markets: the sharemarket, currency market and interest rate markets.
It's currency and interest rates that are seeing the most direct impact, says Milford Asset Management portfolio manager Mark Riggall.
When the Reserve Bank (RBNZ) cut rates by 50 basis points a couple of weeks back, it cited the trade war as one of the key reasons, he says.
In its monetary policy statement, the RBNZ said "spill-overs from trade disputes have resulted in widespread impacts across many economies".
It highlighted slowdowns in China, Australia and Europe, and noted that prices for many of our commodities had softened.
"New Zealand's terms of trade declined over 2018, weighing on domestic incomes and dampening growth in consumption and business investment," it said.
The double rate cut, which surprised many, was an attempt to head off a downturn before it really takes hold.
Reserve Bank governor Adrian Orr expressed a strong view that it is better to act early than try to catch up later.
He doesn't buy arguments about keeping rate-cut firepower in reserve and says he's prepared to take them into negative territory if needed.
In New Zealand we now have 10-year yields approaching 1 per cent, historically extremely low, Riggall says.
However, he says, that still looks relatively healthy compared with the rest of the world - for example, places such as Germany at minus 0.70 per cent.
"So on the rates side - yes there's been direct impact."
The currency was also feeling some direct impact, Riggall says.
"Because the kiwi dollar is often seen as a growth proxy, a more uncertain outlook or a degenerating global growth picture will tend to lead to the kiwi underperforming – and we've tended to see that over the last six to eight months."
The kiwi was sitting at about US69c six months ago. As of Friday it
was sitting at US62.98c - off almost nine per cent.
Of course, when it comes to headlines it's on Wall Street and equity markets that the fallout from trade war blows is most acutely felt.
But while the local NZX50 index has been down this week and volatility has increased this year, it's still had a strong year of growth.
Riggall says local companies haven't really been in the firing line.
"If you look at it company by company, no one's got products that are being tariffed directly. So we're not seeing anything concerning from a direct impact point of view."
Again, it comes back to secondary considerations like sentiment, he says.
"So are falling growth outlooks the result of trade? Or is it the result of something else - for example, a deteriorating domestic growth picture?
"And it is hard to separate the two out. There probably is something there related to trade but the link through interest rates and currency is really important."
Unfortunately, however much New Zealand is already feeling the chill of the trade war, it looks as if it only gets worse from here.
From next month the US escalation of tariffs on Chinese goods gets serious - broadening away from manufacturing into sectors that will hit consumers in the pocket.
Riggall highlights the risk that might pose to companies such as NZX-Listed a2 Milk, which sells premium infant formula into China.
Even though its profits or revenues might not be directly affected by tariffs, the expectation that Chinese growth will be lower might affect sentiment and prompt investors to reduce their prices on a2, he says.
"Are Chinese mothers going to buy less a2 formula? It's a pretty long bow to draw. But there'll be some part of that going on. As a growth company it will feel the impact."
When you look at the discretionary spending of Chinese consumers, it might be that the New Zealand tourism sector is at greater risk, Riggall says.
"We know that as part of their stimulus they [the Chinese Government] are encouraging their citizens to travel domestically. And we know that we're seeing a smaller increase in Chinese tourists over the past year."
The latest data from Stats NZ showed the number of Chinese visitors in June was down 3.1 per cent (to 18,334) compared with June 2018.
"We're in a precarious situation," Riggall says. "Obviously, increasing uncertainty means it's very difficult to predict what's going to happen.
"What do we know is global growth remains positive. We're not in recession now."
But things had slowed from 12-18 months ago, mainly because businesses had stopped spending due to all the uncertainty.
"Then the domestic economy is also slowing. Mainly because all the tail winds we've enjoyed the past few years are blowing less strong," Riggall says. "Long term migration, housing, tourism etc. Again we're not predicting recession any time soon. We've just got a much lower growth outlook."
That isn't necessarily so bad, he says. Slow but stable growth still leaves room for companies to improve earnings.
"Then on the other side of the coin, we've got the world's central banks doing everything in their power to try and prevent that from happening," he says.
"So we've seen interest rates fall dramatically and that's meaningful to anyone who's got a mortgage. We've seen, globally, consumer sentiment being quite strong, offsetting that business uncertainty."
But the latest escalation of trade-war rhetoric just adds risk to that slower growth picture, he says.
"The lower the growth outlook, the greater the odds that a shock might tip New Zealand into recession."
'This is just so sad, just before Christmas' - liquidator Pritesh Patel on ProLink NZ.