US-China trade war makes New Zealand vulnerable

News 15/05/2019

While President Donald Trump defends his trade war with China, a leading Kiwi economist suggests New Zealand will be more affected by the direction of the larger global economy.

On Wednesday, Trump defended his trade war with China as tensions escalated and markets extended their losses, promising a deal with Chinese President Xi Jinping soon, even as fears escalated about a protracted battle.

In a series of early-morning tweets on Tuesday, Trump kept up his "America First" agenda in support of hefty tariffs and called on US companies to back him by shifting their businesses away from China.

"When the time is right we will make a deal with China," Trump said.

It will all happen, and much faster than people think!

World stocks hovered near two-month lows on Tuesday, although slightly more optimistic comments from US and Chinese officials on trade brought some comfort a day after equities suffered their worst sell-off so far this year.

Economist Cameron Bagrie told The AM Show that it isn't just the US-China trade war that we should be watching, but the overall state of the global economy.

"The global economy is a pretty fragile place, we have got more debt in the global financial system than we did in 2008 when we had the global financial crisis, you've got rising populism, we've got Brexit to deal with, there are various issues in the Middle East, and now you got some pretty big egos at the table.

The world is an unsettled place, not a settled one.

Bagrie said New Zealand had been proactive in bringing down interest rates and had a good fiscal state, putting it in "a reasonable shape at this junction in the cycle".

But the country would still follow the world if there was an economic slow-down, which could happen in the next two or three years.

Trump said he could make a deal with Beijing now, but said he would not be burned again and criticised China for last-minute attempts to renegotiate.

"We are in a much better position now than any deal we could have made," he said.

Trump also defended his administration's trade efforts with China as a model for US negotiations with other nations.

"Other countries are already negotiating with us because they don't want this to happen to them. They must be a part of USA action," he added.

The AM Show/ Reuters report