Economist Gareth Kiernan from Infometrics. Photo/File
Economist Gareth Kiernan from Infometrics. Photo/File
Northland's top commodities – dairy and forestry – could see a short-term lift because of trade wars between the US and China, but this could nose-dive if tension sustains, says one of NZ's top economists.
With China retaliating against Donald Trump's steel tariffs with a 25 per cent increase on items such as US dairy, NZ's dairy product could shimmy up the demand ladder as China searches for an alternative supplier.
In June, the Trump Administration declared it would impose a 25 per cent tariff on up to US$50 billion ($73.8b) of Chinese goods to protect American intellectual property (IP) and technology.
China responded by imposing trade levies on US$34b of US goods, including agricultural products and a further round of tariffs could be announced.
An lift in dairy prices would be a short-lived and nowhere near the 2013/2014 prices of $8.40, says economist Gareth Kiernan. Photo/File
Economist Gareth Kiernan of Infometrics said this could trickle down to increased dairy prices at a regional level.
"It would be November or December before we see what Fonterra puts out in terms of increased prices," said Kiernan, who added that it would be a short-lived boost and certainly nowhere near the 2013/2014 prices of $8.40.
"We could be looking at no more than 25 cents more."
The global trade tensions could dampen demand for export products, as the impact of tariffs begin to weigh on the trading economy's purchase power.
Northland's forestry sector was a big earner for the region. The long-term impact of a trade war between the US and China on big economic engines such as China remains uncertain. Photo/File
The US is the third-leading exporter to China, after NZ and the EU.
"China is our largest export partner – 23 per cent of our exports go there.
"In Northland, those products are mostly dairy and forestry. And NZ is a dominant player for dairy, so China will source it from the EU or NZ, which will push the price up.
Kiernan estimates that milk prices would increase, but slightly and the "temporary phenomenon" would have a limited impact on the current season.
"It could be 12 months down the track before we see the impact of this in the region."
What was a concern, he said, was the long-term impact of trade wars on big economic engines such as China.
"If the tariffs continue, the demand for Chinese steel reducing and the producers' income with it, this would all reduce the buying power of China, which would have a dampening effect on our economy."
The warning signs would be seen in the decreasing commodity prices.
China had also increased tariffs on US beef imports by 25 per cent, however, as the US wasn't a major exporter to China, this wouldn't impact market shares and would only have modest gains for suppliers in Brazil, Australia and NZ.
Like dairy, this could again dampen the global demand for beef, which would trickle down to prices in the regions.
