Market Analysis

China Tariff Cuts: A Case of Sour Milk for the NZD?

China’s Ministry of Finance announced on Friday that effective from Dec 1, is Friday, China will cut import tariffs on 187 imported products to an average of 7.7 per cent down from the current 17.3 per cent. The tariff cuts will apply to consumer goods, including, among others, food, pharmaceuticals and clothing.  Australasian bank ANZ wrote Monday that “At first blush the biggest winners would appear to be infant formula, rock lobster and various cheese products.” But what has this got to do with currencies? Well, as ANZ points out “Across these product areas alone New Zealand currently exports around $700 million of product each year.

However, upon closer inspection under our existing free-trade agreement New Zealand actually already pays virtually no tariffs on many of the products. In fact if anything the tariff reductions bring the competition closer to New Zealand products in these categories.” “This is another signal that [New Zealand’s] first-mover advantage and existing free-trade advantages with China are being incrementally eroded,” ANZ said while seeking to emphasise the positives arising from the fact that in a world where protectionist pressures have been on the rise, China’s tariff reduction is a welcome sign that China is resisting that trend. It remains to be seen if the currency market takes such a benign view of the prospects for the New Zealand dollar (NZDUSD) in the wake of the Chinese tariff move.

Written by Neal Kimberley, External Currency Analyst.