Trump being Trump, it won’t come as a shock to find that he regards a strong US currency (bolstered by high tariffs on everything made by foreigners) as a sign of America’s virility, and its ability to kick sand in the face of the world. Reality is a tad more complex - although no one really knows how this global tariff war is going to play out in the short term, let alone in the long run.

On Saturday, Trump launched a tariff war with three of America’s biggest trading partners. Tariffs are a tax paid by importers that almost always get passed on to consumers. Trump is setting them at 25% for Mexico and Canada, and at an added 10% for China, with the rate and timing of similar tariffs on imports from the European Union to be decided sooner rather than later.

Since Trump doesn’t want to totally enrage US citizens at the petrol pump, imported oil is getting a partial exemption – but he is warning Americans that “pain” is likely. But trust him, he knows what he’s doing. Good to know. The Wall Street Journal isn’t so sure. Its calling this “the dumbest trade war in history.”

To retain market share, some US importers may suck up at least some of the tariffs, and not pass them on entirely to their customers. By and large though, the prices for imports on the US domestic market will soon rise sharply, and be offset only to a limited degree by the strong US dollar. Theoretically, all of this should (a) reduce demand for imports and induce people to buy American-made goods, or even (b) convince foreigners to build factories in the US and avoid incurring the tariff penalties.

That’s Trump’s hope. But the process won’t stop there. The price increases on imports (and for the imported components that go into American-made goods) will be manifested in higher inflation. This will induce the US central bank to keep interest rates higher for longer, to dampen down the inflationary fires that Trump has lit. Americans in the mortgage belt will get delayed relief. In fact, those high interest rates will pull in currency speculators and push the US dollar even higher.

That’s when things will begin to curdle. Inevitably, an ever higher US dollar will make it harder for American firms (and farms) to sell their products internationally, and those reduced sales will cause payoffs among American workers. Job losses and job insecurity will rise. In normal circumstances, foreign goods should get cheaper at home as the US currency strengthens, but those passed-on tariffs will largely cancel out the gains for the US consumer.

In sum...within a tariffed world, imports won’t be much cheaper – if at all – for US consumers at home, and if you’re working for a US firm or farm that relies on selling its wares on global markets.. then hey, tough luck. Foreign customers won’t be able to afford your stuff. The strong US dollar will seriously weaken the ability of US exporters to be competitive. Unemployment will rise among the MAGA faithful, who will probably treat this pain as being a blessing from their Messiah.

The only out-right winners in this situation are the relatively few US citizens who can afford to be tourists. American tourists will be seeing their strong US dollar go further and further, everywhere from Angkor Wat to Barcelona – which has made it pretty clear that it has enough American tourists already, thanks very much.

New Zealand in the free fire zone

New Zealand risks becoming collateral damage. If Trump follows through, NZ exports to the US market will soon be facing a 10% tariff on top of the trade restrictions/quotas already in place. As the US dollar strengthens, our dollar will decline further and further. Today it is worth only 56 US cents, and is heading lower. People with long memories will recall a time in the 1990s when the NZD was worth below US 40 cents. It might happen again.

In their usual cheerleading role for corporate interests, our media tends to treat any declines in the NZD as being great news for our exporters. Yet it is a disaster for ordinary people in a small island nation made reliant on imports by decades of neo-liberal “efficiencies.” We will all be paying more and more for imported goods, including at the petrol pump. Alongside this incoming fire, we will also be struggling this year to survive the Luxon government’s self-created recession, and the avoidable job losses that austerity measures continue to impose on the domestic economy, for no valid reason.

Footnote One: The coalition government claims – in Orwellian fashion – that it inherited a terrible mess from a spend-thrift Labour government. Allegedly, this government has since licked inflation, and brought interest rates down. Much of this is fantasy. In their regular valuations, none of the international credit rating agencies ever expressed serious qualms about Labour’s handling of the economy.

Moreover – and Luxon and Nicola Willis should be asked to explain this sometime – if Labour was so out of control, how come the inflationary threat was done and dusted by the time that Labour left office? In the three months to the end of December 2023, inflation was running at only 0.5 %, and it stayed at the same 0.5% level right through to the end of December 2024. In other words, National is claiming credit for a victory that had already been won by the time it came into office. Inflation cannot be used to justify the austerity measures that have been pursued so harmfully ever since.

Footnote Two: The turmoil that Trump is creating in global markets can only cause further problems for a New Zealand economy hobbled by this government’s ideological fixations. On the swings and roundabouts, there may be a few trade openings for some of our products amid all the volatility. But, surely, the greater risk is that the insecurity will make coherent planning and marketing very difficult, while causing consumers worldwide to hunker down and shut their wallets. Can anyone sleep easily and spend happily knowing that Donald Trump is the most powerful person in the world?

Footnote Three: By my count, we have about 1,450 more days of Trump World left to endure. That’s a long enough time for us to seriously question the worth of the old foundational settings of our diplomacy and trade policy. As Bernard Hickey says:

The inevitable march of ever-freer trade powering ever-faster global economic growth and ever-lower inflation has been foundational in the thinking of our political, diplomatic and business leaders for 40 years, starting with our pre-emptive dropping of almost all tariffs and controls on imports from 1984-onwards.

This mindset was based on assumptions that are now increasingly being called into question:

The first big assumption was this would make most people richer and better-off, both globally and here in Aotearoa-NZ, and that this shift was inexorable, unavoidable and unquestionably good. The second big assumption was that the truth of the first assumption would push autocracies into democracies, in order to be part of the globalised rules-based trading system that gave consumers ever-cheaper goods and services and companies ever-richer consumers.

As I pointed out in a recent column, these assumptions are rejected by hundreds of millions of people tossed on the scrap-heap by policies that have enriched only a relative few while reducing ever more people to subsisting in low paid, insecure jobs, if they’re lucky enough to be employed at all. In all likelihood, AI will raise the risk of being made disposable. Whatever misgivings one may have about Trump’s fascist tendencies, this status quo is no longer tolerable, either. No sane parent would want to condemn their children to a subsistence existence in the world envisaged by David Seymour.

More immediately, as I also pointed out in a recent column, the “America First” realities of Trump World mean that we can no longer base our foreign policy and security on assuming the US defence umbrella will always offer us a benign shelter, as we head off to play footsy with China over trade.

That US-provided security umbrella is about to become very costly – both in dollar terms and in terms of national pride. Even then, the US will no longer be a dependable friend of this country. That being the case, we need to start looking after our own interests by engaging with China not through the AUKUS lens as a military threat, but as a superpower with a role in the Pacific region that’s just as legitimate as the American presence.

Meaning: we need to bolster our trade ties with China, Canada, Mexico and the EU, and make it very clear that we are not skittishly subservient to Trump’s whims and feuds. The old assumptions about “balance” – rely on US for defence, and on China for trade – are unravelling before our eyes. Does this government have a Plan B for this situation? Of course not.

Marianne Faithfull, R.I.P.

The death of Marianne Faithfull last week – she had just turned 78 – is a reminder of how incredibly young she and Mick Jagger were back in the days of their drug busts, and more. Good grief, her Broken English “comeback” album was released when she was a raddled and world weary survivor, of only 32 years of age.

Here's a terrific, definitive live performance of a song written by Barry Reynolds, who plays guitar on this track:

The backing band includes the also recently deceased Garth Hudson of The Band, and the bass player is Fernando Saunders, long an associate of Lou Reed. Here’s a video from the same show as “Times Square.” You can easily spot Hudson, and that’s Lew Soloff of the band Blood, Sweat and Tears beside her on trumpet:

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