President Donald Trump's tariffs of 25% on Canadian and Mexican goods, and similar proposed rates for China and the European Union in the weeks ahead, represent more than just economic policy shifts.

Trump has described himself as a "tariff man," viewing them as a means to protect American jobs, grow the US economy, and raise tax revenue. While economists debate their effectiveness, tariffs have become a cornerstone of his economic vision. During his first term, the average US tariff on Chinese imports rose from 3% to nearly 20% - a policy direction that the Biden administration largely continued.

These tariff policies could dramatically alter our economic landscape. For New Zealand investors and businesses, understanding and preparing for these changes isn't just prudent—it's essential for survival and success in this volatile new environment.

With our nation's diplomatic positioning weakening, and our defence commitments at historical lows, we face these challenges from an increasingly vulnerable position.

This shift represents a significant departure from decades of globalisation, and a concerning return to post-Renaissance mercantilism.

Mercantilism trade is a zero-sum game. Countries sought to maximise exports while minimising imports, accumulating precious metals and maintaining favourable trade balances. Today's neo-mercantilist policies similarly focus on trade surpluses and protection of domestic industries, but with more modern metrics of success like employment rates and GDP growth.

For countries like New Zealand that have prospered under post-WWII liberal trade systems, this regression to mercantilist thinking poses serious challenges.

Our economy relies heavily on international trade, making it particularly susceptible to global trade disruptions. A concerning potential outcome in the wake of this is stagflation - the painful combination of rising inflation and economic contraction.

Several factors are compounding our vulnerability:

1. Diplomatic Positioning at the Margins

In recent years, New Zealand has positioned itself at the edges of the tent in international relations. While still technically inside the alliance framework with traditional partners, our actions have increasingly pushed us toward the periphery. This was starkly illustrated when New Zealand broke with our Five Eyes intelligence partners (Australia, Canada, the UK, and the US) at the United Nations, choosing to back resolutions that put us at odds with our traditional allies.[I]

And just this week, Phil Goff was removed as NZ’s ambassador to the UK after publicly questioning President Trump’s understanding of WWII at a panel conference.[ii] Doubtless the swiftness of Goff’s dismissal had a lot to do with trying to keep the USA onside. Deputy Prime Minister and Foreign Minister Winston Peter’s decisive action was no doubt a reflection of this.

Incidents like these potentially weaken our negotiating position when seeking exemptions from tariffs or preferential trade access. In an era where trade policy is increasingly being used as a geopolitical tool, our diplomatic stance matters more than ever.

2. Defence Commitments at Critical Lows

Our defence spending has declined to embarrassingly low levels. Recent reports highlighted that New Zealand's artillery stocks had allegedly been run down to a mere 50 rounds of ammunition,[iii] while a tenth[iv] of our naval fleet rests permanently in Samoa observing a reef.

These situations have made New Zealand the subject of mockery in foreign media outlets like The Spectator, which questioned our capability to contribute meaningfully to regional security. Such perceptions may reduce our strategic importance to major powers during trade negotiations, as allies increasingly expect reciprocal commitments in the geopolitical realm.

3. Export Concentration Risks

Our export economy remains heavily dependent on agricultural and horticultural sectors that could face significant pressure if global trade tensions escalate. This makes us vulnerable to either targeted measures or collateral damage from broader trade disputes.

Historically speaking, countries that depend heavily on exports (like NZ) often suffer disproportionately in trade wars – and in this still-unfolding scuffle, Canada and China have already announced retaliatory measures.[v]

New Zealand could experience several unpleasant effects as a result of these tariff tiffs:

Redirected trade flows: Products blocked from entering the US market may flood alternative markets, including New Zealand. Chinese manufacturers, for instance, might redirect excess capacity to our shores, challenging domestic industries.
Supply chain disruptions: Complex global supply chains built over decades of free trade could fragment, increasing costs for New Zealand businesses reliant imported components. Industries from manufacturing to technology could face higher input costs and uncertain supply.
Currency pressures: Trade tensions typically create currency volatility. The NZ dollar could face significant fluctuations, complicating business planning and investment decisions. Exporters might benefit from a weaker dollar but import-dependent sectors (and everyday consumers) would face higher costs.
Reduced export opportunities: As countries implement retaliatory tariffs, New Zealand exports might face higher barriers in key markets, particularly if we become collateral damage in a broader trade war. Our agricultural exports could be especially vulnerable to such measures.

How Dire is the Dow?

Headlines had it: The Dow dropped by almost 700 points as the threat of trade war hung over it.[vi] While these are daunting, it’s important to take a long-term view of what market volatility – particularly that due to the actions of spooked investors – actually means for investors.

History offers some reassurance. Since 1930, during years when the US experienced negative GDP growth coincided with positive inflation (stagflationary conditions), stock markets delivered positive real returns (returns exceeding inflation) in 9 of 12 instances.

Even during President Trump's first term, when tariffs were a central economic policy, both Chinese and US markets outperformed the broader MSCI World ex USA Index. This suggests that financial markets are adaptive and forward-looking, often pricing in policy changes before they fully materialise.

Staying Focused in Frustrating Times

In uncertain times, focusing on elements within your control becomes essential. You cannot control the tariffs imposed by other nations, nor any other foreign trade policy.

You can control whether your investment portfolio is globally diversified to buffer against localised shocks.

You can focus on strategic planning and contingencies. Now is the time for businesses to analyse their supply chains for tariff vulnerabilities, so they can effectively manage any exposure before it becomes an issue.

You can choose to look at your investment decisions through a long-term lens, and ignore policy headlines. Maintaining discipline through market cycles (and election cycles) remains a fundamental principle of successful investing.

And the best thing you can do for your financial future? Seeking professional financial advice. The complex and shifting economic landscape we see currently highlights the value of working with a financial adviser, who can act in a fiduciary capacity to:

· Assess how global trade policies might impact your specific investments

· Develop strategies to protect against currency and inflation risks

· Create a robust, diversified portfolio resilient to geopolitical uncertainties

· Provide perspective during market volatility driven by trade headlines

By focusing on sound financial planning principles and working with knowledgeable advisers, Kiwis can navigate these uncertain waters with greater confidence. The sea of global economics might be looking wild right now, but having a chat with a trusted financial adviser is a great first step to ensuring that your financial future remains on dry ground.

· Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay and Wellington based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 397.

· The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz

[i] https://www.nzherald.co.nz/nz/politics/new-zealand-breaks-with-five-eyes-partners-to-back-un-resolution-calling-israel-to-withdraw-from-settlements/FZE6ZOBOSRGZXMJXSWWXDJC224/

[ii] https://www.aljazeera.com/news/2025/3/6/new-zealand-sacks-diplomat-who-questioned-trumps-understanding-of-wwii

[iii] https://businessdesk.co.nz/article/politics/nz-defence-force-artillery-stocks-were-allegedly-run-down-to-50-rounds-of-ammo

[iv] https://thespectator.com/topic/new-zealand-sink-tenth-naval-fleet/

[v] https://www.bbc.com/news/articles/ckg1jxdpq0qo

[vi] https://edition.cnn.com/2025/03/04/economy/global-markets-trump-tariffs/index.html