Wellington’s usually cautious officials yesterday started to unveil their concerns about President Trump.
In what amounted to a double whammy both the Governor of the Reserve Bank and the Secretary of Foreign Affairs devoted sections of long-scheduled public appearances to trying to decipher Trump and what he might mean for New Zealand.
The Ministry of Foreign Affairs is still unsure what his administration might do.
And there are real fears in Wellington that Trump’s advisors could precipitate a trade war – or worse – with China.
That could end the run of buoyant economic news that the Bank reported today and which it forecast to continue out to 2020.
That may explain why the comments from Reserve Bank Governor, Graeme Wheeler, were the most forthright.
“If you look at what are the big risks out there then clearly there are risks around Brexit and the negotiations and the triggering of Article 50 by the end of March and debates about what that means for the British financial system and particularly the banking system.
But Wheeler’s focus was on the US and protectionism.
The Ministry’s outgoing chief trade negotiator, David Walker, said they would be deploying extra staff to Europe this year to assist that process.)
(Foreign Affairs Secretary Brook Barrington told the Foreign Affairs Trade and Defence Committee, that in contrastNew Zealand was moving ahead with its negotiations for a free trade agreement with the EU.
“But the biggest risks are around the US – plus also China regarding their debt position.
“But if you go to the US, I think the biggest risk is around the protectionist policy.”
Wheeler listed the withdrawal from the TPP, the “putting on ice” of the Trans-Atlantic Trade and Investment Partnership between the US and EU and the proposed renegotiation of the North American Free Trade Agreement as examples of increasing protectionism in the US.
“You could end up with a situation, if it were followed through, of higher tariffs and what would that mean for the global economy.
“So let’s say, for example, if the US really did get serious about imposing 45% tariffs on China or large tariffs on Mexico, then that would have serious implications for the global economy.
“One thing it would do would be to raise inflation rates in the US; the Federal Reserve would need to push harder against rising inflation.
“So those interest rates would rise, the exchange rate in the US would probably rise.
“You would see retaliation by other major countries.
“The biggest risk is the protectionist risk, and it is unfortunate that a lot of this rhetoric is taking place at a time when we’ve seen the slowest growth in merchandise trade volumes in the last five years.
“The other risk out there in terms of bond markets and therefore interest rates is what the US does on fiscal policy in terms of the potential for tax cuts, infrastructure spending, and then increase in operating spending such as around the military and other things that have been identified.”
Wheeler’s comments made headlines around the world.
Last night the Asian edition of the Wall Street Journal website featured them with the headline: “Central Bank Chief Warns Trump Trade Policies Could Harm U.S. Economy.”
As Wheeler was holding his media conference, a long line of top officials from the Ministry of Foreign Affairs and Trade were before Parliament’s Foreign Affairs, Trade and Defence Committee for its annual review of the Ministry.
Again, Trump was on the agenda.
The Ministry’s Secretary, Brook Barrington, told the Committee that the Ministry had set up a 24 Trump-monitoring team of six or seven staff to keep up to speed with what Trump was doing.
This obviously followed the confusion in the Ministry’s advice over the recent Muslim visa ban which saw Barrington given a dressing down by the Minister, Murray McCully.
“This is not business as usual at the moment, and I think we need to be running this as a 24/7 operation which means being able to give the government advice in real time,” Barrington said.
But Barrington said that the Ministry’s problem was not only that it couldn’t forecast what Trump might do, but it was too early to arrive at any definitive analysis of what his Government might do.
On one issue, though — New Zealand’s vote on the controversial Israeli settlements resolution at the United Nations — deputy secretary, Bede Corry emphasised that no country at the Security Council had voted against the resolution.
He said New Zealand’s support was based on its long-standing policy of supporting a two-state solution for Israel and Palestine.
And he said New Zealand would continue to advocate for the issues raised in the resolution.
Slowly as the diplomats join more pieces together, and as the reserve bank gets more data, the full implications of the Trump presidency will become more clear.
But the early signs are that Wellington is worried.