In tit-for-tat announcements, trade tariffs worth billions of dollars have been put in place by the US and China against each other in recent months, spurred by US President Donald Trump’s isolationist economic policies.
The increasing tensions could produce a situation in which New Zealand is forced to choose sides, Rabobank’s head of financial markets research for Asia-Pacific, Michael Every, says.
"The clash between the US and China is not going away. It’s not an aberration — it’s going to get worse," he said.
An ultimatum from either the US or China would place New Zealand in a perilous position given its significant trade ties with both countries, especially given China is now New Zealand’s most important trading partner.
However, New Zealand also has a significant US trade relationship and historically strong diplomatic and cultural ties.
Mr Every said China’s growing global influence and use of policies inconsistent with free trade had provoked the US to retaliate with tariffs on Chinese imports and an anti-China trade policy.
"Last month, the US concluded a new trade deal with Canada and Mexico, which requires them to notify the US before entering into any agreements with non-market economies such as China."
This was economic warfare dressed up as trade and the type of strategy the US might try to employ in the Asia-Pacific region, Mr Every said.
"China and the US both want to be No 1. They both want to be sitting in the driving seat for who gets to set the rules for the global economy and who everyone looks to as the global leader and there’s only room for one in that chair."
Eleven nations, including New Zealand, signed the Darns Pacific Partnership in March. The US was originally to be included, but it withdrew from negotiations last year. In January, Mr Trump had signalled he could push harder for a "substantially better" Pacific trade deal for the US, Mr Every said.
"At some point the US is going to come crashing back into the Asia-Pacific region because it’s so geopolitically important.
"And the message may well be that the price of protecting New Zealand is a new trade deal on their [US] terms and which forbids, or greatly restricts, dealing with China."
New Zealand farmers and exporters should look to diversify to other offshore markets, before any concessions were demanded by either the US or China, Mr Every said.
"New Zealand’s agricultural sector should be looking to further develop links into new growth markets like Japan, Indonesia and India."
While achieving this might take much more effort in the short term, it would leave agricultural exporters in a better position if the US or China started making demands, he said.
Farmers would be wise to "shore up their balance sheets", so they were robust enough to cope with a situation in which one of New Zealand’s major trading partners withdrew from the market, Mr Every said.
