The government is keeping a close eye on a US proposal for a border tax that could hit New Zealand exports.
The tax proposal is still on the Trump administration's trade agenda. Photo: AFP
The idea was flagged by Donald Trump in his presidential election campaign as a way of protecting American jobs and industries, and is still on the Trump administration's trade agenda.
There are warnings the proposed tax could seriously disadvantage New Zealand exporters and spark a trade war if countries like China decided to retaliate.
China's Commerce Minister recently said his country would make "careful evaluations and respond accordingly" if the US unveiled a detailed border tax proposal.
Robert Lighthizer, known as an advocate for greater trade protection, is the president's pick as US Trade Representative. His nomination hearing before the Senate Finance Committee is scheduled for this week.
Prime Minister Bill English said the New Zealand government was keeping a watching brief on developments.
"In the end you have to wait and see what they actually do. Some of the suggestions we have seen would be pretty harmful, not just directly to New Zealand but to our trading partners, and therefore to New Zealand.
"So we're tracking that pretty closely, along with other countries. I had a good discussion with Malcolm Turnbull because Australia would find itself in a very similar situation to us if they implemented some of the proposals that are floating around right now."
Last month, Reserve Bank governor Graham Wheeler said the biggest threat to the global economy was America's lurch towards protectionism.
"If you saw tariffs rise by 10 percent in the US, with China retaliating and Europe retaliating, then in essence you would see a significant fall in the rate of global growth."
Another US proposal is for American companies to pay no tax on income earned from exports, while importers would not be able to claim back costs.
Revenue Minister Judith Collins said that would be a significant shift.
"It would mean basically giving such a massive advantage to someone in business who's based in the States and is manufacturing in the States over anybody who tries to import into the States - so it's a huge advantage to the home country."
A former trade negotiator, Charles Finny, said another concerning aspect would be the international response, if for example the US introduced a 10 percent tariff across the board.
"That would probably mean immediate challenge in the WTO (World Trade Organisation) by pretty much every member of the WTO because like New Zealand they'd impacted negatively.
"What we could see, worst case scenario, would be people retaliating, so some of our major trading, say like China, might retaliate and impose a 10 percent tariff of their own to get back at the United States and you're into a trade war."
The US has also signalled it would not necessarily abide by unfavourable WTO decisions. Mr Finny said that could seriously compromise global trading rules.
Labour's David Parker said New Zealand should be seeking support elsewhere.
"New Zealand's interests would not be served by the dismantling of the legal rules, the WTO rules for example, so I think the government will be moving amongst all of its international partners to emphasise the importance of World Trade Organisation rules."
Mr English said it was a challenging situation.
"We've got to keep in mind here that we won't know for sure until they actually do it. The kind of processes that are going on in the US aren't very predictable, so things can be said and not actually happen. So you've got to be pretty resilient, because you don't know quite where they're going."
But he said the country had a president "who's quite happy to proceed with policies that may have quite broad criticism, including within his own party or within the US."
America is New Zealand's fourth largest trade partner, with about $16 billion of trade in 2016.