Archives for December 2020

Trade in the worst of the worst times

Read Stephen’s end of year round up for the Trade Works website:

“Out with the old, and in with the new”. The old saying seems to have particular relevance for 2020, a veritable annus horribilis for the global economy.  2021 can’t come fast enough, but while the vaccine portends better times to come,  many parts of the world remain in crisis as the year closes.

Trade plows through rough water

The Covid 19 virus caught the world unprepared and has had incalculable effects on people’s health and livelihoods:  too many precious lives have been lost and economies have been devastated.  Trade has been heavily disrupted as supply chains continue to come under pressure.  Protectionism was quick to rear its ugly head at an early stage as even supplies of much-needed medical equipment were blocked, but eventually wiser heads prevailed and markets remained largely open and trade continued to flow.   The WTO reports that global trade volumes bounced back in the third quarter from a deep slump in the second quarter – up 11.6 percent, as compared to – 12.7%, but still 5.6 % lower than the same time the previous year.

New Zealand’s trade has held up remarkably well this year, with some variations between products.  The trade surplus is the highest it has been for twenty years or more: imports are down sharply while exports are around 4.4% lower than this time last year (which was a bumper year for trade).  There is little doubt that trade saved New Zealand’s economic bacon in 2020, but constraints at ports and a growing lack of shipping are beginning to have a major effect.

Trade policy did not stand still 

It’s hard to keep a good trade policy down, and New Zealand negotiators pivoted very successfully during the initial impact of the crisis to negotiate a series of supply chain resilience agreements.  International organisations played their part too with the WTO, G20 and APEC all making supportive statements.  Some significant agreements were concluded this year including the Digital Economy Partnership Agreement (DEPA)signed virtually – of course – in June and the Regional Comprehensive Economic Partnership (RCEP) signed in November.  

Other negotiations are ongoing.  The NZ/EU FTA is the biggest of these with eight rounds of negotiations having been held, but the NZ/UK FTA is gathering speed, albeit in the uncertain environment created by Brexitwhich, as ever, is going down the wire.  Much attention was focused early in the year on an apparent truce in the trade war between the US and China,  

but this conflict has by no means gone away and may not be entirely resolved by an incoming Biden Administration.  New Zealand’s own relationship with China has been in the spotlight this year:  the NZ/China FTA upgrade has been completed but awaits signature.  As the year closes the World Trade Organisation – that great lifeboat for international trade – remains without a Director-General and without an Appellate Body, rendering the task of settling trade disputes that much more problematic. 

Enter APEC !

In this highly contested and uncertain environment, New Zealand takes the chair of APEC in 2021 and will do so virtually.  This is no mean feat for our Prime Minister, Ministers and senior officials but it gives us a chance to help lead the emergence from Covid and prepare the ground for the economic recovery.  Business is gearing up too as New Zealand also chairs the APEC Business Advisory Council (ABAC).   This will be major preoccupation for us in 2021 as ABAC provides an important opportunity to socialise important ideas and concepts and build alignment with other business leaders and groups around the region.  Global co-operation and collaboration have been critical during the pandemic and will be no less so during the recovery.

Keeping on keeping on 

Throughout this year it has been important to continue our work in support of trade and investment and to point out to New Zealanders (and anyone else listening) the importance of openness and integration.  We published 18 blogs on current issues, posted a raft of information to the Trade Works site and to our social media channels and updated the look and feel of the website as well as the content, with a view to the work we have to do with  ABAC next year.  The New Zealand election gave us the opportunity to publish background on the trade positions of the major parties.  We look forward to engaging with the new Government in the period ahead.

As the curtain falls on the most difficult year many of us have ever experienced, all the team at Trade Works extend our best wishes to all our readers for a restful holiday period and for a happier, healthier and more secure trading year in 2021.

What does a Biden Presidency mean for New Zealand?

In this article published by The Spinoff, Stephen assesses the impact of a Biden Presidency on New Zealand’s trade interests.

The American people have spoken.  America’s “better angels” have prevailed.  We all hope for better times ahead, but, while there is ample scope to expand co-operation with a Biden Administration in the White House, the future is unlikely to be all plain sailing.

The state of the relationship

The importance of the United States in international affairs is such that It is in New Zealand’s interest to co-operate with whoever occupies the White House.  The NZ/US relationship has continued to expand over the last four years. High level contacts have continued, although the Prime Minister herself has not yet made the customary visit to Washington. Security and defence relations are closer now than at any other time.  New Zealand and the US continue to be “very, very, very good friends.”  

Trade has flourished, even in the absence of an FTA.  Consumer demand for our products probably increased as a result of the economic stimulus flowing from the Trump Administration’s tax cuts.  Even Covid-19 has not made a dent in the trade figures.  True, the Administration disappointed us (and this writer in particular) on the Trans Pacific Partnership (TPP),  and continues to apply tariffs on our steel and aluminium exports, but with the KIWI Act it gave us visas for investors and entrepreneurs.  

New Zealand has not been immune from the fallout from the US/China trade war which has cast a shadow over the global economy.  We have also been concerned about US policies towards the World Trade Organisation (WTO), as well as multilateralism more generally, including, most importantly, withdrawal from the Paris Agreement on Climate Change.  The approach to  Iran and North Korea has been perplexing.  Co-operation in science, technology and education have all advanced, and our space co-operation has literally blasted off.  

Those annoying tariffs aside, the relationship is in good shape and ready for further development.

What do we want at this point?

There are a number of things that the Ardern Government might like to see from the US under a Biden Presidency, including:

  • Re-engagement in multilateral institutions, including the Paris Agreement and the WTO
  • Reduction of tension with China and re-alignment with Asia more generally
  • Partnership on global political, economic and environmental issues affecting us both 
  • Openness towards trade and investment.

Some of these seem assured given the Biden/Harris policy pronouncements; others will take time to eventuate: the processes required to get a new Administration up and running are labyrinthine by New Zealand standards.  It will take time to re-orient the ship of American policy.  New Zealand will need to take its turn, although our chairing of APEC in 2021 will give us some useful early opportunities to engage.

What about trade ?

We should not expect any early moves towards joining the Comprehensive and Progressive Agreement on Trans Pacific Partnership (CPTPP).   There are competing views on trade and President-elect Biden cannot be expected to want to disturb the Sandersistas in his party, at least not straight-away.

A bilateral FTA is no more likely in our view.  We have been down this path before, with both Republican and Democrat Administrations.  Somehow, no matter the quality of our friendship, we can never get the right conditions to allow an FTA to proceed.  That’s because we offer the Americans only a small market and our asks of the US are not without consequence domestically.  You only have to look at the importance of Wisconsin in the recent election to see that no favours affecting American dairy farmers are likely to be done for New Zealand.   The whole strategy with TPP – now CPTPP – was that the prospect of a bigger deal might serve to outweigh these domestic concerns.  As it turned out, TPP delivered only marginal agricultural market access and the Obama Administration was unable to get it passed through Congress.

The US may take a less aggressive stance on the WTO and New Zealand and the US could well co-operate on reforms aimed at improving the dispute settlement system rather than seeking to undermine it.  A return of US global leadership on trade is to be welcomed by New Zealand.  The multilateral trading system was after all one which the US helped build. 

Another area we can expect some welcome evolution in policy is in relation to China.  Although the Trump Administration’s tariffs have undeniably hurt America more than China, the perception of China as a strategic competitor cuts across the political divide.  We would expect a Biden Administration to continue to contest China’s economic, political and technological rise, but the policy could be pursued in a less confrontational way. That may not however lessen demands being made of very good friends like New Zealand.

What’s next ?

New Zealand and the United States have many shared interests, but America remains very divided, in the grip of a health and economic crisis and the “America first” movement has not gone away.  New Zealand has long pursued an independent foreign policy, but we value opportunities to work together. The relationship will continue to require close attention in the years ahead from Prime Minister Ardern, Foreign Minister Mahuta and Trade Minister O’Connor.