The recent introduction of sweeping tariffs by US President Donald Trump, including a 10% tariff on all New Zealand goods and significantly higher tariffs for many of our global trading partners, presents a complex landscape for New Zealand businesses.
New Zealand exporters have experience dealing with protective action from major trading partners, and the global shipping upheaval of the recent pandemic, and we are confident they will navigate these challenges and come out stronger. While these tariffs pose significant short-medium term challenges for some exporters, they also offer unique opportunities. This article proposes five practical considerations for New Zealand businesses:
- Quantify Immediate Impact: The tariffs have been introduced on extremely short notice. Assess the value of your annual sales into the United States and the base impact of the tariffs on committed and forecast orders. Determine which party is responsible for tariff costs under your supply contract or terms of trade. Understanding the short-term financial impact and contractual responsibilities are the first steps to formulating a plan.
- Consider Your Options: Now is the time to delve into the details of your supply contracts with existing US customers. How and when can prices be varied? Can orders be cancelled? Is either party committed to minimum volumes? Within your contracts, there may be options for managing the impact. For example, could your business renegotiate terms with US buyers to share the tariff burden or adjust order volumes to mitigate financial strain?
- Manage Key Relationships Actively: The tariffs have significant ramifications for the global economy, particularly for exporters to the US. Many businesses will be pushed into difficult conversations about pricing, volumes, and outlook. Keeping a close eye on the human impact and dynamics, and communicating well with counterparties, will help you stand out and reinforce key relationships. There may also be opportunities to collaborate to mitigate impact.
- Engage in Scenario Planning: The tariffs are expected to have a major impact on global trade and could lead to an economic slowdown for some of our major trading partners. Conduct scenario planning to understand potential knock-on effects of the tariffs on your business. Consider different market conditions and develop strategies to respond to these changes. For example, if you need to restructure your workforce to adapt to changing market conditions, a lead time of at least eight weeks will usually be needed.
- Consider Competitive Advantages and understand your markets: Where else in the world are products similar to yours produced? What tariffs will apply to their goods? Is there domestic manufacturing capacity in the US? Higher tariffs on major economies like China and the European Union may present an opportunity for New Zealand exporters to increase their market share. For example, a New Zealand food producer might find that higher tariffs on European goods create a competitive edge in the US market, allowing them to expand their presence and capture new customers.
This is not the first time that the United States has implemented tariffs in a way that has disrupted global pricing structures and supply chains, and nor is it the first time that New Zealand businesses have had to rapidly adapt to a changing world. While the full impact of the tariffs will not be known for some time, we are optimistic about the future of New Zealand’s exporters, and we are here to help you navigate this change.
For more information on how the tariffs may impact your business please contact a member of our Corporate and commercial team.
Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.
