How NZ should respond to the post 'liberation-day' order

April 2 marked what the current US administration termed “Liberation Day”, a milestone it claimed would restore America’s economic freedom. On that day, new import tariffs were introduced on a broad range of goods from numerous countries. New Zealand secured one of the lowest rates at 10 percent, and China faced tariffs as high as 34 percent.

This move triggered a trade war between the US and China, with each side escalating retaliatory tariffs on each other’s imports. Traditional US allies, such as Canada and the European Union, were not exempt from these new trade barriers.

Much has been written about the inflationary effects of these tariffs: how they could raise consumer prices, dampen global demand, and ultimately hurt GDP and living standards. The selective exemption of certain products has only heightened uncertainty, which in turn undermines business investment and weakens consumer confidence.

Rather than reinforce these real concerns, I would offer broader perspective: that “Liberation Day” has been a long time coming and is not a temporary disruption, but a long-term recalibration of global trade dynamics. How should New Zealanders and the collective global community respond?

For years, large swathes of the US population have seen few benefits from globalisation. Job losses from manufacturing shifting to emerging economies, particularly China, have been geographically concentrated, affecting local communities. As a result, there has been growing political momentum behind protectionist trade measures aimed at reviving domestic manufacturing in the US.

The strategy being adopted by the current administration to achieve these goals is to raise the cost of importing by imposing tariffs, and to negotiate bilateral “deals” with partner countries that grant access to their markets to US exporters in return for lower tariff rates.

Central to this strategy has been the identification of China as an economic competitor and its framing as a threat to US economic sovereignty. China, for its part, appears equally determined to stand its ground and has signalled its willingness to engage in a prolonged strategic contest. The resulting shift signals a more enduring global trade realignment, not a fleeting period of volatility.

In the near term, New Zealand may derive limited benefits from ongoing trade hostilities. As US and Chinese goods become more expensive in each other’s markets because of high tariffs, both countries are likely to reroute exports to third markets. This creates an opportunity for New Zealand to access cheaper imports and for its exporters to become more competitive internationally. Although the broader drag on global demand will inevitably affect New Zealand, these short-term advantages may offer modest economic relief.

The larger challenge is in how New Zealand positions itself in this new geoeconomic landscape, while also contributing to the revitalisation of a multilateral trade system that enhances sustainable and inclusive global growth. Navigating the delicate balance between the US and China will be critical.

China has applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Granting it entry could provoke a response from the US – a longstanding ally and Five Eyes intelligence partner. Yet, China is a dominant force in electric vehicles and artificial intelligence, both essential to the planet’s economic future. Alienating either superpower is not a good idea.

One pragmatic path forward for New Zealand and similar economies is to pursue strategic bilateral trade agreements. This seems to be the prevailing trend, as countries seek individual deals with the US to secure preferential terms. New Zealand already has a free trade agreement with China and is in talks with India, and should consider initiating one with the US.

However, bilateralism comes at a cost. A patchwork of overlapping free trade agreements can lead to what prominent trade economist Jagdish Bhagwati called a “noodle bowl” effect – confusing exporters and complicating compliance with trade rules. Such frameworks also risk distorting trade flows. For example, a US-Japan free trade agreement may incentivise Chinese firms to route goods through Japan to access US markets under favourable terms. Though rules of origin exist to prevent such practices, today’s intricate global supply chains make enforcement complex and often ineffective.

Despite current challenges, the more cautiously optimistic among us can hope for renewed vigour for multilateralism, at least in some quarters. Signs of realignment are emerging. The UK recently became the first non-Pacific nation to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, an agreement championed by New Zealand among others.

There is optimism that Europe could follow, potentially transforming the Trans-Pacific Partnership into a formidable trading bloc accounting for a significant share of global GDP. The agreement’s high environmental and labour standards also make it a model for future-focused trade. In digital trade, a burgeoning frontier in economic engagement between countries, New Zealand has played a pioneering role in crafting the Digital Economy Partnership Agreement, which it can work to expand beyond its current membership of Singapore and Chile.

As the US steps back from its historical role in supporting a liberal global trade infrastructure, the responsibility falls on other nations – including New Zealand – to step up. In the face of protectionist headwinds, the world must renew its commitment to a rules-based, cooperative trading system. Globalisation has lifted millions out of poverty, and though it creates both winners and losers, its net benefits are immense. It is now incumbent on the international community to safeguard these gains and push for a more resilient trade order.