Trade hostilities between the United States and China heightened further last week with tit-for-tat tariffs from both sides.
On Monday the US announced tariffs on US$200 billion worth of imports from China.
While the quantity of imports targeted was expected, the tariff rate imposed – initially 10% then rising to 25% on January 1 – is at the higher end of expectations.
Trump immediately raised the temperature with threats to impose tariffs on the remaining US$267b of Chinese imports into the US should China retaliate with tariffs of its own.
On Wednesday China responded with 5%-10% tariffs on US$60b worth of US imports.
Log exporter Rayonier’s marketing manager Chris Rayes said an earlier round of tariffs against US logs was a short-term boost for competing exports from New Zealand.
However, the subsequent escalation of tariffs against Chinese exports bound for the US is fueling fears about a slowdown in China’s rate of economic growth.
About 70% of Chinese demand for softwood logs came from the construction sector, which was especially sensitive to swings in confidence in the economy’s future prospects.
“I have just come back from China and every customer I saw was talking about and concerned about the trade war and how it might effect their businesses and undermine confidence.
“We are definitely seeing an ebb in confidence and I won’t say a big drop in demand but softer demand than we would have seen at this time last year.”
Rayes said sagging confidence in the Chinese economy has also led to a weakening in the renminbi, which is eating away at the buying power of importers of NZ logs.
However, he discounted suggestions China will engineer further currency declines to counteract the effect of US tariffs on export incomes.
China’s central bank has in fact stepped into the currency market twice in recent weeks to help prevent a further slide in the value of the renminbi.
Beef + Lamb NZ’s international trade manager Esther Guy-Meakin said the levy-funded body has yet to analyse how much of the US$90m a year of beef exports to China from the US will be hit by the latest tariffs.
China recently relaxed restrictions on US beef entering the country and while tariffs could see off an emerging competitive threat to NZ’s beef exports it remains to be seen what disruptive effects they will create in other markets.
“It creates a whole range of uncertainties because you do not know how other markets will be able to absorb the diversion of that product.”
Fonterra’s global stakeholder affairs director Simon Tucker said similar knock-on effects can be expected in international dairy markets from China’s tariffs on US dairy exports.
US dairy exports to China rose by 49% last year to US$577m.
That rate of expansion is likely to take a dive now, however, after China hit US dairy exports with a 25% tariff in July.
Tucker said the industry will be sifting through the latest round of retaliatory tariffs by China against US dairy exports in an attempt to predict potential disruption to markets important for NZ exports.
“If the US is not sending that product to China it must end up somewhere.
“The question is where is it going to go and is that additional supply going to have a price impact.”
