VAT may open a new front in tariff attack

US President Donald Trump is reportedly considering introducing new tariffs that may significantly impact New Zealand’s exports to the United States. This development introduces a new and concerning dimension to the ongoing trade tensions.

The risk of significant tariff increases on New Zealand’s exports has resurged as President Trump vows to implement reciprocal tariffs to counter perceived unfair trading practices. As it stands, New Zealand imposes a low average tariff of 1.5% on imports fr om the US, compared to the 3.4% tariff on its exports to the United States. However, the US has signaled a potential reassessment of these tariffs.

In light of recent US government evaluations, there is particular interest in how VAT systems might play a role in the upcoming tariff discussions. Although New Zealand levies a 15% VAT on all imports, including those from the US, this tax is generally not seen as discriminatory under international trade law.

Economist John Ballingall of Sense Partners suggests that any new US tariff policy would likely be aimed at multiple countries with VAT systems, not New Zealand alone. He further proposes that New Zealand could mitigate impacts by renegotiating its tariffs on US products wh ere they are higher than comparable US tariffs on New Zealand exports.

Such negotiations could assist in averting the significant economic impacts that new tariffs could impose on New Zealand's export-driven sectors, particularly the dairy industry, potentially preventing losses in the hundreds of millions. In timing with international trade discussions, New Zealand might find strategic leverage in offering concessions or adjustments to existing trade agreements.