US elections & NZ

The US has a change of president to Donald Trump. What does it mean for NZ?? It means dealing with change, especially for trade and foreign policy. For retirement savings the old adage remains: focus on what you can control and that is regular contributions. Markets will rise and fall, and it's not possible to predict, it's the power of regular investments that delivers the goods.??

Also on our site here: https://simplicity.kiwi/learn/updates/us-election-nz-impacts

Context

Trump’s last term and the announcements in the current campaign suggest changes in:

• Social policy (for example illegal border crossings)
• Economic policy (tax cuts, borrowing and spending more, reversing Inflation Reduction act, etc)
• Foreign policy (import tariffs - although history shows that tariffs increase costs for domestic consumer, which is not offset by increase in domestic manufacturing, less support and thus legitimacy of supranational organisations like the World Trade Organisation and United Nations)
• Security policy (defence support for Ukraine and potentially South China sea)

Like markets, past performance is not a reliable guide to the future. Trump’s previous presidency was characterised by uncertainty and volatility. Also, not all campaign policies were implemented. There are still checks and balances in the US political process, which affect what policies are ultimately adopted. The implications for New Zealand are perhaps best considered through two lenses: financial markets and? trade. Leaving aside social policy and geopolitics in this instance.?

Financial implications

There are two aspects to financial markets: equities and bonds. The S&P500 - the benchmark for US equity market - over previous presidential terms does not show any clear patterns of one political party being better than the other. While government policy matters for the economy and financial markets, economic and business conditions matter a lot more for market performance. For bond markets, more borrowing and spending is likely to mean higher interest rates. Which is likely to mean that in New Zealand we will experience higher fixed mortgage rates, at the margin. This is because the US bond market is the benchmark or reference for ‘risk free interest rates’.?

For retirement savings, US presidential elections are perhaps less important than might seem from wall-to-wall coverage. The growth of KiwiSaver since inception has mainly been about regular contributions, rather than market return, although they help a great deal. This will not change. Time in the market is what matters and regular contributions is the best way to do that.??

Source: IRD, Simplicity Research Hub

There is a real risk of trade being disrupted, with import tariffs being imposed by the US. import tariffs, is essentially a tax on imported products, making them more expensive than domestic producers. US is an important export destination to NZ - it accounts for 13% of our goods exports, is our second biggest export market after China, and just ahead of Australia. Goods exports to the US is equivalent to around 2% of NZ’s economy. Any tariffs could disrupt our exports (wine, medical equipment, etc), but we will have to wait and see what specific tariffs are brought in and how it will affect our exporting businesses.?

Source: Statistics NZ, Simplicity Research Hub

Conclusion US elections matter, because it is such a large and important economic and political force. There will be changes in social, economic, foreign and security policies with the election of Trump as the new president. It is still too early to tell which of the campaign promises will be implemented in policy. There are still checks and balances in the US political system. There are risks for NZ exports, if tariffs are introduced. This has been well signalled and NZ businesses exporting to the US will be doing everything they can to moderate these effects. The implications for retirement saving are modest, if any. What any saver can control is how much they save and suitability of the savings product. Those fundamental truths remain.

Disclaimer: This is Simplicity Research Hub’s independent expert commentary and thought leadership on economic trends and policies of interest to all New Zealanders. This content is our opinions and is provided for general information only. It does not relate to your particular financial situation or goals and is not financial advice or recommendations. Any external resources provided are accessed at your own risk and the Simplicity Research Hub takes no responsibility for third party content and does not approve, recommend, or endorse any external websites or the content they contain.?