Westpac economists say the change in US administration reinforces their expectations that the RBNZ's approach to monetary policy easing over the New Year will be more cautious

The "balancing act" for the Reserve Bank's Monetary Policy Committee (MPC) has "become more complex" after the US election result, according to Westpac economists.

In Westpac's Weekly Economic Commentary, senior economist Satish Ranchhod says US domestic fiscal policy is set to become more expansionary and, "crucially for New Zealand, the landscape for global trade will be rockier".

"There will also be impacts on financial conditions that could be important for New Zealand," he says.

Overall, the mix of policies under the Trump administration is likely to be "reflationary", Ranchhod says - though this will take some time to come through given that it will likely be well into 2025 before the policies are enacted.

The change in US administration comes as our Reserve Bank (RBNZ) has started to cut interest rates, having dropped the Official Cash Rate since August from 5.5% to 4.75% and with a further cut expected at the final OCR review for this year on November 27.

Ranchhod says the outlook for our export earnings "is likely to be weaker", especially if a tightening in US trade policies materially dents growth in economies like China.

He says we could see other countries ‘dumping’ exports previously destined for the US on to global markets, which could dampen tradables inflation in New Zealand.

"It’s the balance between those factors that will be important for the RBNZ – while downwards pressure on the NZD [New Zealand dollar] could add to inflation, the downside risks for export earnings and economic growth will be an important offset."

Ranchhod says the Westpac economists continue to expect another large 50 basis-point OCR cut from the RBNZ at the November 27 review.

"But heading into 2025, the balancing act for the MPC [Monetary Policy Committee] has now become more complex. That reinforces our expectations that the RBNZ’s approach to policy easing over the new year will be more cautious, measured and data dependent."

Ranchhod says that in terms of US domestic policy, incoming President Donald Trump has stated that he will enact expansionary fiscal policy mainly through tax cuts in a range of areas.

"Even with the potential increase in revenue from tariffs, Trump’s plan is likely to mean larger increases in US debt and related increases in US government borrowing costs. The result is higher bond yields across the whole US curve, and we expect that to pass through to higher Government bond yields here in New Zealand."

Ranchhod says that on the trade front, the centre piece of Trump’s platform has been tariffs of 10% to 20% on all imported goods, and potentially much larger tariffs on imports from China (possibly up to 60%).

"The imposition of tariffs would clearly mean a tougher environment for many New Zealand exporters. The US is New Zealand’s second largest market for goods exports – in the year to September the US took close to $9 billion of our exports, accounting for around 13% of our total exports. Our major exports to the US include meat products, as well as dairy and beverages (including wine)."

Ranchhod said the exact impact of tariffs on New Zealand’s export earnings will depend on a range of factors. In addition to the level of tariffs themselves, the type of good and consumer preferences will play a role. For goods where there is strong competition from US producers or where consumers are very price sensitive (such as beef used in the US fast food industry), there’s likely to be only limited scope to pass on tariff increases to consumers. That would mean increased pressure on New Zealand producers’ margins. In contrast, for some items like higher quality wines sold at restaurants, there may be scope to pass on a portion of the tariff increase. But even in such cases, higher tariffs would still dent export earnings.

The impact of a tightening in US trade policy on New Zealand would also depend on how other countries are affected, Ranchhod said.

"Of particular importance will be the impact on the Chinese economy, which has already been struggling with weak demand and which could face a much more aggressive tightening in US trade policies than in other regions.

"China is our largest trading partner, and if tougher US trade policies dent growth there, we could see related weakness in the prices for some of our exports, like dairy products.

"There is also the risk that we see retaliatory trade policies as we did during the first Trump presidency when China introduced its own tariff increases in response to those imposed by the US. That sort of tit-for-tat trade war would have a negative impact on global growth, meaning downside risk for our export earnings.

"Even if we are not subject to tariffs ourselves, or if they are less severe than has been signalled, the landscape for global trade has clearly become a lot rockier. Trump’s protectionist focus was evident during his first term in office, as evident in his withdrawal from the TPP in 2017. That approach means that negotiating improved access to US markets is likely to now be tougher," Ranchhod said.