Kiwi exporters scramble to understand Trump's new tariffs

Some of New Zealand's biggest exporters to the US are trying to come to grips with what exactly the Trump administration's new tariffs will mean to them.

Goods from New Zealand will have a 10 percent tariff applied when sent to the US.

Last year the US surpassed Australia to become New Zealand's second-largest export destination, with trade nearly doubling over the past decade to $9 billion.

Meat Industry Association CEO Sirma Karapeeva said the new tariff was not a surprise, she said it was a shame.

"It is disappointing that we're caught up in this tariff… given that we are longstanding trade partners to the United States and our products are very complementary to their needs and a key ingredient into the manufacturing of hamburger patties Americans love to eat."

New Zealand's meat export value to the US was estimated at $2.7 billion in 2024, and the association projected the new tariffs could increase costs 17-fold compared to what was currently being paid.

Karapeeva said New Zealand was still relatively competitive compared with countries that were facing even higher tariffs, and the bigger question was what effect the sweeping tariffs could have on competition in other global markets.

"I'm sure that the officials and ministers are doing all that they can to argue against the imposition of these tariffs and to mitigate or minimise the negative impact of them as much as possible," she told Morning Report on Friday. "It is disappointing, as I said, that we are caught by this, and particularly so because I don't believe that New Zealand was even the target of these actions. We just got swept in with the rest of the world.

"And so should we be making more noise? I think we are making as much noise as a small nation that has got a good trade relationship with the US can, in the interest of maintaining that relationship and keeping that open for us."

Ultimately who would pay the extra costs would depend on exporters' contracts with importers, or whether businesses could absorb the costs or be forced to pass it on, Karapeeva said.

"Some may choose to absorb it domestically, some may choose to pass it on to the importer, and the importer themselves may decide to absorb it or pass it on to consumers. So it's really hard to give you a one-size-fits-all kind of answer."

Dairy Companies Association CEO Kimberly Crewther said the announcement was disappointing, particularly given that the US already had far higher tariffs on dairy products it imported compared to the tariffs New Zealand charges.

She said while they were waiting for the finer details of how the new tariffs will be implemented, she understood the 10 percent tariff will come on top of existing tariffs - and it was difficult to say what the impacts would be.

"There's still water to flow under this bridge. What we do know is that we have a very long history of navigating a quite challenging trade environment globally for dairy."

New Zealand Winegrowers CEO Philip Gregan took the issue in his stride.

"It could have been worse, but you know, 10 percent is still 10 percent and we'll have to live with the consequences."

Gregan said New Zealand exported $750 million worth of wine each year to the US, which meant potentially $75 million in tariffs. He was confident the appeal of New Zealand's product would withstand the challenge, suggesting the costs would be passed on to consumers.

"Our wine in the United States hasn't been cheap… Our wine doesn't sell because it's cheap. It sells because it's very high quality, distinctive, sustainable. So [the] fundamentals haven't changed."

The bigger problem was that the tariffs would depress the entire sector.

"You can't get around the fact that a 10 percent tariff at the border, which then you've got to imagine that the margins of the importers, distributors, retailers, they put on top of that, so it's going to have an impact, one way or another. It's going to depress the wine market in the US, which is already struggling, and potentially obviously can have an impact on our sales in the US market."

Gregan said the way the US calculated what tariffs to put on each country was flawed. President Donald Trump's list falsely claimed New Zealand charged a 20 percent tariff on US goods coming into the country.

"Look, clearly for a start, the so-called 20 percent imposition on US imports into New Zealand's absolute rubbish," Gregan said. "The New Zealand tariff is nothing like that and New Zealanders know that. I think the second thing is for 30 years, 40 years, in fact, post-World War II, the world is growing, trade has grown, prosperity has increased, and one of the drivers for that has been steadily reducing barriers to international trade.

"So, you know, while in our industry we could say we're only facing a 10 percent tariff into the US, the real, the much bigger point here is that what the US has done yesterday is create massive uncertainty."

'Everyone is a little bit less well off'

Economist and lecturer at AUT Professor Niven Winchester said New Zealand had been hit by relatively low tariffs compared to the EU and China, and that might give us advantages in certain areas. He predicted there would not be a direct big impact on New Zealand's industries, but the knock-on effects on the global economy would be felt.

"The big worry for New Zealand is a global trade war, where everyone is a little bit less well off and buying less of everything from anywhere, but the tariffs on themselves - because we have a relatively low tariff - there's pluses and minuses, and I think it's going to be pretty much close to come out as a wash for New Zealand as a whole."

Prime Minister Christopher Luxon believed New Zealand was well-positioned to weather the tariffs and would not respond in kind.

A lawyer with particular expertise in the area said businesses with thin profit margins might be badly affected.

Sarah Salmond, partner at MinterEllisonRuddWatts, told Morning Report it could be fine for businesses with high profit margins to keep sending goods to the United States. But for others, it might not make sense to keep trading.

"It's essentially a 10 percent tax levied on the value of the goods that you declare to US Customs and Border Protection. Exporters will have some homework to do and some strategic decisions to make.

"For some companies exporting into the US they have really good profit margins, and if they need to they can afford to absorb these additional tariff costs. For others though, particularly when you're selling certain types of baseline commodities, the margin is actually very thin - and so if tariff responsibility is going to sit with your business, it may not be possible to absorb the additional tariff."

She said with the tariffs coming into force this weekend, exporters needed to act quickly.

"You need to first determine what the tariff impact on your business is going to be - so, look at every product you export to the US. Every product has an eight to 10 digit code, and you'll have to work out what is the tariff that's going to be applied to your product. So for some products, it's really easy - a kiwifruit is a kiwifruit, it's quite simple. If you've got a complex manufactured product, working out the tariffs that will apply when parts of the product are made and assembled in China, that's going to be quite complicated.

"But once you've worked out what is the total duty liability for the duty payer, you then have to critically think who has to pay that. The default position is that the US importer pays. But quite often when you have a supply contract between a New Zealand exporter and a US importer, that tariff responsibility is reassigned, and it might be reassigned to the New Zealand exporter.

"Also, sometimes New Zealand exporters actually set up a US company that becomes the US importer. So for very many companies, they are going to find that the ultimate tariff responsibility is going to sit with them, with the New Zealand exporter. So you then decide, can I pass this on? Can I absorb this? And if I can't, you have to start thinking creatively about what you're going to do."

"There are a number of alternative routes to markets to try and avoid tariffs. So, encouraging anyone who really feels a bit stuck here, can you move your goods into one of the US' free trade zones where you can potentially delay and maybe avoid paying tariffs? Does your US importer have any access to special exemptions and drawbacks?

"Or maybe over time, as we see some of New Zealand's trading partners negotiate lower rates of tariff into the US, maybe we can do some final stage processing in some of those countries to try and avoid tariffs.

"But the key thing is you really need to look at this now and be very careful, I think, and considered in your dealings with US importers, because what we are seeing is they are telling New Zealand exporters, 'In these circumstances, we need to renegotiate.' But the supply contract might not say that. So look very carefully at your contracts before you engage in meaningful commercial discussions with your US importers."

Gregan said the government had done well to keep New Zealand at the bottom end of the tariffs scale.

"I just think we've got to keep on doing what we've always done, which has been a small country that is a strong voice for logical trade, for free and fair trade between partners. We've got no other approach that's going to work."

Boots on the ground in the US

New Zealand company Skellerup had already moved a vast quantity of its inventory to the US, where its biggest seller was insulated rubber gumboots for technical use.

"Ahead of the election was when we started to make some preparations, mainly for products that we manufacture at our factory in China for the US market," chief executive Graham Leaming told Morning Report.

"So we made a decision to mitigate risk to invest a little bit more in holding high quantities of inventory in the market in the US. Of course it's not a solution for the long-term, but it does give us more time to put in place longer-term solutions."

Leaming said there was no "magic answer" for combatting the new tariffs.

"Obviously, we can look at price in the market you charge for your product. We're always looking to make improvements in our cost base and the way we manufacture things… you can also look at the source of some of the materials that are used in your products, because that influences, you know the country of origin that's determined."

Skellerup had factories in China, New Zealand and Vietnam. Leaming said costs were "substantially lower" in Asia, but another advantage of moving production closer to its big markets was a less complex supply chain - a lesson learned during Covid-19.

Most of the company's competitors would face similar problems, Leaming said.

"Obviously, we prefer this wasn't happening and it would be untrue to say it doesn't present some challenges. But, you know, we do have an international manufacturing model, so we do have some options."