Trump's pledge to implement tariffs initially rattled markets and prompted a backlash from the EU sparking fears of a trade war. Picture / AP
Trump's pledge to implement tariffs initially rattled markets and prompted a backlash from the EU sparking fears of a trade war. Picture / AP
Global markets have surged on confidence that Republican Party opposition would derail US President Donald Trump's proposed import tariffs and prevent a trade war.
But the stakes remain high for New Zealand say trade experts who see much broader risks to exporters than just the direct impact on salesof steel and aluminium to the US.
Trump's pledge, on Friday, to implement tariffs of 25 per cent on steel imports and 10 per cent on aluminum import initially rattled markets and prompted a backlash from the EU sparking fears of a trade war.
Donald Trump has pledged to implement tariffs of 25 per cent on steel imports and 10 per cent on aluminum. Picture / Glenn Jeffrey
New Zealand International Business Forum executive director Stephen Jacobi said he did not want to dismiss those impacts but with just $39 million of steel and $22m of aluminium exported to the US the bigger risk was the damage that the US could do to the framework of the global trade network.
"It escalates very quickly and New Zealand could get caught in the cross-fire, especially if they start to target agricultural products," Jacobi said.
But the "big one" and the issue that could do lasting damage was the extent to which the US could undermine the World Trade Organisation (WTO) dispute resolution processes.
Numerous countries would be likely to dispute the US tariffs almost immediately if they were implemented.
"The US is taking this action justified on security grounds and that is very difficult for the WTO to adjudicate."
The process would be long and slow and even if they ruled against the US it may be unwilling to accept a negative decision, further weakening the WTO's authority, Jacobi said.
The strength of the WTO disputes process was vital to a small trading nation like New Zealand, he said.
Even our numerous free-trade agreements such as the China FTA and the CTPP relied on the WTO to resolve disputes.
So while those agreements might be expected to buy New Zealand some respite from a trade war, they could be undermined by the US actions.
"It has always been the nightmare scenario with Trump, that they [the US] do something, people take action, they refuse to implement them and we've got a big problem. Its like watching a slow motion train-wreck."
Trump's pledge to implement tariffs initially rattled markets and prompted a backlash from the EU sparking fears of a trade war. Picture / AP
Auckland University associate professor of political science Stephen Hoadley said he remained hopeful that the high-level pressure going on Trump would see him pull back from the tariffs proposal.
"If I was an optimist I'd say it's not going to happen, it's like the immigration policy, it will be knocked back either by political pressure or the courts."
There were some sensible people in the Trump Administration, he said, pointing to economic adviser Gary Cohn who is reported to be lobbying within the White House for a softening of the policy.
Beyond that there would be immense pressure coming on the Administration from powerful lobby groups like the National Association of Manufacturers and the Foreign Trade council, he said.
Ultimately Trump would need the support of Congress even if he did have executive power to declare the tariffs.
"The Tariff Act is finally agreed upon by Congress. Trump can proclaim but at the end of the day the law has to be changed. The Tariff Schedule has to be published. He can do an executive order but without the cooperation of legislature it will not have permanent force."
The S&P/NZX 50 Index is trading up 0.6 per cent at 8,328.11, following a rise of more than 1 per cent on Wall Street.
