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When the Trump administration arbitrarily imposed 15% tariffs on New Zealand exports on August 1, up from a previously announced 10%, no one should have been surprised.

“Reciprocal” tariffs, based on the difference in value between what the United States imports from and exports to other countries, were signalled on April 2, Trump’s “Liberation Day”. New Zealand’s latest tariffs are higher than some, lower than many.

Many governments are now frenetically seeking deals before the tariffs take effect on August 7. New Zealand’s chief trade negotiator Vangelis Vitalis has been dispatched to Washington urgently to plead New Zealand’s case, with Trade Minister Todd McClay also on his way.

Labour’s trade spokesperson has declared the lack of a deal for lower tariffs – along similar lines to ones struck by the European Union and United Kingdom – a “major fail”.

But politicians should be careful what they wish for. Bigger countries have already caved in to Trump’s demands, signing vague deals at a high political and economic price with no real guarantees.

Trump’s economic rationale

Trump has a long expressed love for tariffs as leverage over countries that depend on US markets. Essentially, these are taxes the US charges on imported goods.

It’s not New Zealand exporters who “pay” these taxes, it is US importers, and likely their customers. Similarly, New Zealand exporters don’t “save” millions from tariff cuts.

Trump hopes making imports more expensive will spur domestic production, support local business and create jobs, and the trade imbalance with the US would decline. As a bonus, in June alone, tariffs earned the US$26 billion in revenue, partly compensating for massive tax cuts contained in Trump’s “One Big Beautiful Bill”.

By imposing tariffs unilaterally, Trump breaches the US tariff limits at the World Trade Organization (WTO) and its “most-favoured-nation” rule of treating all countries equally. But the US has already paralysed the WTO’s dispute system. US tariff limits and other trade rules in US free trade agreements are also being ignored.

Domestically, Trump has used the 1977 International Emergency Economic Powers Act to justify bypassing Congress to impose tariffs, on the basis that threats to the US economy constitute a “national emergency”.

This was ruled unlawful by the Court of International Trade and is currently under appeal at the Federal Circuit Court of Appeals. Meanwhile, the tariffs continue. The Trump-friendly Supreme Court would likely endorse them.

US economist Paul Krugman predicts this approach will not be rolled back by future administrations and will become “the new normal”.

Exaggerated claims, few guarantees

The various bilateral “deals” other countries have sought to mitigate Trump’s tariffs look vague and precarious.

The talks and the outcomes remain secret. The vaguely worded “frameworks” – not signed agreements – lack detail and allow Trump to make exaggerated claims at odds with the other country’s statements. Krugman describes these “understandings” as, for the most part, “vaporware”.

Take the European Union’s promise to buy goods worth US$250 billion a year for three years, mainly in fossil fuels such as liquefied natural gas. One commentator described this as as “delusional” and “totally unrealistic”, given EU imports of energy in 2024 were only worth about $65 billion.

The EU also admits it lacks the power to deliver on a promise to invest $600 billion in the US economy, because that would come entirely from private sector investment over which Brussels has no authority.

Nor is there any guarantee Trump will uphold his part of the deal or not demand more. The EU said its landmark regulations on Big Tech survived unscathed; Trump says they remain on the table as further “non-tariff barriers” – trade-speak for anti-business regulations.

To take another example, Japan has said its 15% tariff deal operates from August 1, while the US gives no start date.

The White House said “Japan will invest $550 billion directed by the United States to rebuild and expand core American industries” to be spent at “President Trump’s direction”. The investment will be in a list of industries, including energy, semiconductors, pharmaceuticals, critical minerals and shipbuilding, with the US retaining 90% of the profits.

Bloomberg reports Japan expects only 1–2% of that $550 billion to be actual investment, with the rest made up of loans, and makes no reference to Trump having control.

Trump’s political agenda

Trump’s demands are not just about trade. His strong-arm tactics – which Brazil, China and France have termed economic blackmail – aim to punish political foes and damage competing powers, notably China and Russia.

They are also a form of retaliation over other countries’ foreign policy decisions (such as Canada’s intention to recognise Palestinian statehood), a way to exploit foreign natural resources (such as Pakistan’s oil), and to remove obstacles to corporate donors (such as Canada’s digital services taxes).

What will Trump demand, and get, from New Zealand in these secret negotiations? Governments face high political costs as they navigate their own domestic processes to “secure” such deals.

At the very least, New Zealand’s negotiations need to be transparent and consulted on before commitments are made. More broadly, the country will need to rethink of its trade strategy in the light of the new international realities.

Jane Kelsey does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

– ref. NZ is looking for a deal over Trump’s new tariffs – that could come with a high political price – https://theconversation.com/nz-is-looking-for-a-deal-over-trumps-new-tariffs-that-could-come-with-a-high-political-price-262497

Donald Trump is a mercantilist, as noted in Trump’s tariffs: Short-term damage or long-term ruin? ‘The Bottom Line’, Al Jazeera, 11 April 2025 (or here on YouTube). But the United States, in today’s world, is not a mercantilist country. Or at least not a successful mercantilist country, though it is inhabited by many mercantilists.

In that television interview, Georgetown University professor of Public Policy, Michael Strain said: “I don’t think [Trump’s tariffs are] smart politics, but I think the president [thinks they are]. I think that President Trump is a true mercantilist. The president believes that if the United States are running a trade deficit that means we are losing economic value to the rest of the world.”

Mercantilism, in its most literal form, is the belief that international trade is ‘economic warfare’, and that winning is achieved by a country exporting more than it imports. Obviously, the total amount of exports in this world is exactly equal to the total amount of imports. Every internationally traded good is both an export and an import. So, mercantilism is a belief-system which sees the world in zero-sum terms, as winners and losers, as warfare by financial means.

My chart and article yesterday (International Trade over time: gifts with strings, Evening Report, 8 May 2025) shows the accumulated ‘excess benefits’ of unbalanced global trade over the last forty years. The countries on the top-left-side of the chart are deficit/debtor countries; and the countries on the bottom-right-side are surplus/creditor countries. (The countries are selected on the basis of available ‘current account’ data from the IMF’s World Economic Outlook Database, April 2025, and as representatives of deficit and surplus countries. China, if on the chart, would belong close to Malaysia. The chart is made from my own calculations to adjust for inflation.)

The chart necessarily – because deficits must be financed elsewhere by surpluses – has a seesaw shape. Some countries are up, some countries are down; and some countries occupy the central pivot, neither up nor down. So long as some countries have consumed substantial amounts of stuff (imports) which they have not yet paid for (the deficit countries), some other countries (the surplus countries) have supplied stuff (exports) that they have not yet accepted payment for (and are unlikely to accept payment for in the imaginable future). Imports are paid for by exports.

It’s not a true seesaw, which is typically either grounded or horizontally balanced. We may think of it as a seesaw pivoting above a chasm. What is true is that if the downside goes further down – that is, if the surplus countries’ accumulated surpluses get bigger – then the upside (accumulated deficits) must go further up. The seesaw is a ‘system’, and the only alternative to the seesaw shape is system collapse, analogous to the whole seesaw breaking off its pivot and falling into the chasm.

Imports are paid for by exports. But many contracted payments are deferred, indeed to the point where the payments will never actually take place. Instead of receiving payment in the form of imports, the mercantilist surplus countries have gleefully accepted ‘promises’; effectively ‘IOUs’ (‘I owe you’). (These ‘financial promises’ or ‘financial assets’ are essentially bonds [ie credit], or titles [ie equity]; promises themselves can be bought and sold, and can appreciate or depreciate in market trading [including depreciating to zero]. Promises typically earn, for their owners, additional promises in the form of interest and dividends. Interest and dividends may be realised – that is, spent – on imports, or may be ‘compounded’ – another word for ‘accumulated’ – hence the concept of compound interest.) Technically, inflation exists when the particular promise that we call money depreciates in market value.

In a mercantilist world, all countries want to occupy the low ‘ground’ (ie a point below the seesaw pivot); they want to import less than they export, and to accumulate promises. In a stable world economy, so long as some countries insist on occupying the low ground, then some others must occupy the high ground.

The most obvious deficit countries in the chart – countries with an accumulation of enjoyed (or invested in new structures) but unpaid-for imports – are the United States, Australia, Greece, the United Kingdom, and New Zealand. (Another important deficit country is Türkiye, for which the data is not good enough, but would almost certainly have an accumulated ‘current account’ deficit of over $US100,000 per Turkish person.) These are the world’s ‘spendthrifts’.

The most obvious surplus countries in the chart are Taiwan, Germany, Sweden, Denmark, and the Netherlands. Indeed, the European Union – more than anywhere else, including China – is a mercantilist enterprise. (Further, the European Union is starting to look quite shabby, especially the countries just mentioned.) This is what Donald Trump means by the European Union ‘screwing’ the United States. (Refer EU was born to ‘screw’ US, Trump says, France24, 26 Feb 2025.)

Surplus/creditor nations (like Germany) do not want to settle; they want to compound, they want deficit/debtor nations (like Aotearoa New Zealand) to extend their liabilities. The mercantilist countries are content – indeed, more than content – for other countries to enjoy the fruits of their labour and their capital.

Just as the deficit countries are the world’s ‘spendthrifts’, the surplus countries are the world’s ‘misers’. The global economy maintains a successful equilibrium so long as the willing spendthrifts balance out the insistent misers.

Donald Trump threatens to disturb that global equilibrium by saying – in effect – that he wants the United States to join the ‘miser club’; he says he wants his country to stop being screwed by the misers. The thing is, though, he probably doesn’t actually mean it. His natural proclivity is to spend, and to gamble. He’s a hedonist, not a puritan nor a thriftwad; his nature is neither parsimonious nor austere.

(I would rather Donald Trump than Friedrich Merz was United States’ president; and prefer the pragmatism of the United States and Australian Treasurers over the austere Nicola Willis or the United Kingdom’s brutally austere Rachel Reeves. In 2027, I am optimistic that, in office, NZ Labour’s Barbara Edmonds will be able to break away from the austere image of female Finance Ministers with whom we have become familiar – remember Ruthenasia; public austerity is an election-losing strategy, a generator of societal inequality and low morale.)

Nevertheless, Trump may be unintentionally breaking the world economy, on account of his – or his advisers’ (eg Peter Navarro) – weak understanding of it. If the surplus/creditor nations sought to spend their credits (except for spending in very small increments) they would: either bankrupt the debtor countries, creating systemic collapse; or, due to depreciating prices of assets being dumped onto financial markets, have to accept many fewer imports than they felt they were due. Financial promises work according to the use-it or lose-it rule.

The Great Depression

Parsimony, austerity, and mercantilism in the 1920s got us into the Great Depression of 1930 to 1934. (These were the core years of the Depression; the timing varies for different countries.) The Great Depression was a global event that occurred as a ‘race to the bottom’; almost all countries wanted to be below the pivot of the seesaw and none at the top. The United Kingdom – under Chancellor of the Exchequer, Winston Churchill – in particular was a deficit country that tried to push its side of the seesaw down through a process of internal devaluation (deflation) at a time when France, United States (under the curmudgeonly Coolidge), and Germany had anchored their side of the seesaw down. (At that time, Germany had been – thanks to post World War One reparations – forced onto the same downside of the seesaw. Churchill’s most specific action was the returning of the British pound to an unworkable restored Gold Standard at an overvalued exchange rate.)

(In the pre WW1 global environment, one of the most important balancing deficit/debtor countries was Russia. Russia seceded from the global capitalist system in 1917, largely as a result of the war. The loss of Russia’s pre-war presence – as a counterweight – was an aggravating factor in the Great Interwar Crisis.)

Deep Mercantilism

Donald Trump, while an overt mercantilist, is shallow in his convictions. He loves ‘money’, but he also loves what money can buy.

Deep mercantilists love money, and other financial assets (‘virtual gold’) including cryptocurrencies, in miserly ways; they believe in making money, not spending it. (Stereotypical new wave misers are young men, mining and trading in Bitcoin from bedrooms in the parents’ homes.) Through hoarding, they act to impede the global circulation of money, not to enable it.

Finance, as an academic discipline, is quintessentially mercantilist. It equates the accumulation and appreciation of financial assets – promises – with the creation of wealth; and that the wealthiest country in the world is the one with the fullest Treasury. And so many people – especially journalists – buy into that vision of wealth as a pile of treasure, as an accumulation of credits.

Modern mercantilists only regard mined gold as wealth, not gold still in the ground; and only promises that are tradeable, or at least potentially tradeable. Financial institutions regard your mortgage as their wealth; and they understand public debt to be private wealth; they buy and sell mortgages, along with other assets such as government debt.

And they believe in the magic of compound interest. They believe that unspent money – unsettled promises – grow exponentially and indefinitely. The seesaw chart, showing unpaid-for imports accumulated over 40 years, belies this. If the surplus nations all tried to spend their gold and their paper (and other virtual) riches – by becoming deficit countries, by shifting the seesaw into the alternate position – then they would find both that their ability to import from the present deficit/debtor countries would amount to less than the unpaid-for amounts shown in the chart – and they would find that many of their claims (ie promises) would be unrealisable.

As already noted, trade credits – promises – are accumulated on a ‘use-it or lose-it’ basis; this amounts to a negative form of compound interest. The surplus countries have not sufficiently used their credits; without realising it, their hoarded credits have already lost much of their initial purchasing capacity. While individual countries – especially small ones like Finland – may successfully shift from one side of the seesaw to the other, it is too late for the seesaw to swing without the surplus group of countries incurring heavy losses. The present deficit countries are simply not tooled up to produce masses of goods and services for export.

Private pension funds represent the epitome of deep mercantilism.

Deep mercantilism is not just about countries and international trade. A major feature of the next Great Depression will be the collapse of these funds, as far too many ‘first world’ people in their fifties and sixties seek to withdraw and spend their retirement savings. Thus, the next Great Depression will be one of stagflation – not 1930s’-style deflation – as there will be a rush of ‘Generation Jones’ people (born in the later 1950s and early 1960s) to spend their savings and finding that the global cupboard of goods and services is becoming bare.

Non-Mercantilism

Human wealth is actually the ‘factors of production’: people (simplistically construed as ‘labour’) and nature (simplistically construed as ‘land’) and structures [and inventories; and including intangible structures such as ‘knowledge’] (construed by economists true to their discipline as ‘capital’) and the enjoyable goods and services which flow to humans from these ‘factors’.

The next global Great Depression can be forestalled if the deficit countries (like United States and Aotearoa New Zealand) – the less-mercantilist countries, or at least the ‘unsuccessful’ would-be mercantilist countries – continue as net spenders, given that the substantial likelihood is that the prevalent mercantilist countries (like Germany and Sweden and Netherlands and China) are likely to at least try to persevere as accumulators of financial assets through the process of selling more goods than they buy.

Or the next Great Depression can be forestalled by most countries slowly moving, in concert, into a position of balance. Imagine each end of the seesaw neither up nor down, a horizontal seesaw on its pivot. Here countries like France, Italy, Indonesia and Philippines serve as examples.

Collapse and its prevention

Under prevailing mercantilist ideology, the best place for a country to be is on the downside of the seesaw. The biggest danger – the danger of system breakage – is that of the deficit countries trying to get their side of the seesaw down while the surplus countries are also trying to keep their side down. Any option of voluntary balance – of some countries trying to do what the majority are trying not to do – may forestall a global economic collapse; including a voluntary continuation of the present situation, with one group of countries happy to stay up while another group of countries want to stay down.

The irony is that the real winners are the alleged losers. For good reason, the seesaw chart shows these real-winner countries at the top rather than at the bottom. The real winners like to import, to enjoy their stuff; they do not pursue the mercantilist illusions of treasure hoards and compound interest.

Children understand that when one side of the seesaw is down, the other should be up. And that being up is fun. Will the adults learn what children already know?

*******

Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

by H.E. Mr Mevlüt Çavuşoğlu, Minister of Foreign Affairs of the Republic of Turkey

This week Istanbul will host two separate but related international conferences on mediation. One will be devoted to the state of play in the conflict map and capacity for mediation within the membership of the Organization for Islamic Cooperation (OIC). The second one will adopt a broad scope and discuss the connections between sustainable development, peace and mediation; the ways to increase gender and youth inclusion in mediation processes; and a thought provoking session on the role of big data and artificial intelligence in conflict and mediation analysis. It may be thought that conferences are conferences but the Istanbul Mediation Conferences have proven rather influential in cultivating a shared understanding of issues and an agenda for action in the field of mediation and peaceful conflict resolution. As the host of these conferences and the only country that co-chairs the Friends of Mediation Groups in three distinct important international organizations, namely the United Nations, the OIC and the OSCE, Turkey has the ability to share the findings of these conferences in these international organizations.

The fact of the matter is that humanity is facing a distinct challenge in the 21^st century. Just when many people thought that the glass is half full in terms of the achievements in international law, institutions, democracy and the rule of law, accountability, free trade, gender equality and others, the empty half of the glass has begun to reassert itself. The symptoms are known to all of us and need no reminding. Trade wars, new forms of international exploitation, geopolitical competitions, great power proxy wars, disintegrating nation states, terrorism, xenophobia, animosity against Islam, raging inequalities and injustice count among the contemporary trends that make up the glass half empty. The challenges of humanity are eating away the achievements and opportunities of humanity. Which side will prevail? The answer depends on how we respond to challenges, including on how much we humans can work together towards positive outcomes. One point is clear: unless we take initiative and be enterprising and humanitarian, the bad will prevail. Wait-and-see attitude is no longer tenable. Policy options differ from mediation to actual use of force against terrorists.

Take the situation in Syria. Turkey’s enterprising and humanitarian approach cleared a total of 4000 square kilometers from two terrorist organizations, DEASH and PKK/PYD/YPG. Had we not intervened, our people would have been under continued assault from these terrorists and a political solution to the Syrian tragedy would have been unreachable. Turkey is doing utmost to relieve humanitarian suffering, hosting the greatest number of refugees worldwide, spending more than the biggest economy in the world as the world’s top humanitarian spender. Turkey is also brokering agreements that save tens if not hundreds of thousands of lives and promoting a political solution based on the territorial integrity of the neighboring Syria.

I gave the example of Syria for a reason. Syria demonstrates to us once again that prevention is important because once the fire of conflict engulfs a nation, then the only thing that remains predictable is that there will be unpredictable consequences on that state. One generation of citizens will be wasted in one way or the other; the future will also be bleak. Everyone, including those who are thousands of kilometers away will come to suffer, either in the form of terrorist threat, economic shock, irregular migration, or wounded human conscience.

If prevention and peaceful resolution of conflicts are of paramount importance, then we must take it seriously. This appreciation is driving Turkey’s efforts in the field of mediation as the co-chair of the UN, OSCE and OIC friends of mediation groups and the host to a capacity building mediation training program and the two mediation conferences that we will organize in Istanbul this week.