ADDRESS TO THE NZ APPLES AND PEARS CONFERENCE – 30 JULY 2024

30 July 2024

GEO-POLITICAL, TRADE AND CONSUMER UPDATE

STEPHEN JACOBI, EXECUTIVE DIRECTOR, NZ INTERNATIONAL BUSINESS FORUM

Introduction

Thanks to the team at NZ Apples and Pears for the invitation to be with you today.

I’m here to talk about the bigger picture against which your industry carries out its business here at home and around the world.

I’m conscious that it was not long ago that Hawke’s Bay went through some of the worst times anyone could remember.

And all of you are coping with weather events and rising costs of production which impact on your business.

Globally too we are living in anxious times.

We see this in two horrendous, armed conflicts, growing geo-political uncertainty, a global economy that is only now shaking off inflation, a climate crisis and a new wave of technological change.

It’s important in times like this to keep some perspective.

Markets rise and fall.

The sun will inevitably rise no matter who is elected President of the United States.

And an apple a day … well, you know the story.

Today I’d like to talk about:

  • The global economy in the midst of geo-political disruption;
  • Some recent significant trade policy developments; and
  • What consumers are looking for in a world like this.

My comments are informed by the views of the members of the NZ International Business Forum – an organisation which brings together our larger exporters and leading business associations, including I’m delighted to say, NZ Apples and Pears.

You can find out more about us at www.tradeworks.org.nz.  Please follow us on Twitter, LinkedIn and Facebook!

A disrupted global economy

It’s fashionable these days to say that “history, geo-politics and (even) geo-economics are back”.

I’m not sure they were entirely absent earlier, but it is true that these days we seem to be returning to another age in terms of super-power rivalry.

Certainly, geo-politics is being talked about more frequently and at Boardroom level than before.

That’s doubtless because of the growing risk caused by geo-political disruption.

By “geo-political risk” we mean the way in which conflict or tension between states or other international entities can impact on the global economy and the ease and cost of doing business.

Putin’s illegal and immoral war in Ukraine is the most striking example.

We are faced today with the horrible prospect that the war in Ukraine may drag on indefinitely, or even spread to other theatres, casting a shadow over security and growth in Europe and beyond.

Then there is the continuing conflict in Gaza between Israel and Hamas, with the risks this poses for wider conflict in the Middle East.

This has already impacted on global supply chains and the cost of shipping passing through the Red Sea.

Your own industry is affected by this both by rising costs and the extra time required to get shipments to Europe.

There is also the “new cold war” that is becoming hotter between the United States and China, in which New Zealand itself risks becoming embroiled – I’ll talk more about this in a moment.

And there is the prospect of a return of a Trump Administration in the United States which could further complicate all of the above.

Geo-politics can never be entirely put to one side, but today the risks to prosperity are heightened because the global economy is still struggling to break free from the aftermath of the pandemic.

The UN Secretary General has said that the world cannot afford more war[1], and he is undoubtedly right.

Economic growth

The IMF released its latest World Economic Report[2] just two weeks ago.

There is some better news on the economic front:  the world is making some progress in reducing inflation, which is forecast to will slow to 5.9 percent this year from 6.7 percent last year.

The not so good news is that inflation is surprisingly persistent: while costs of “headline” inflation – food and energy – have declined, prices for services have continued to rise, which complicates the return to a more normal inflation outlook.  

The IMF expects the global economy to grow 3.2 percent this year and 3.3 percent next year.

That’s slightly lower than last year (3.3 percent) but significantly lower than the long-term average of 3.8 percent.

The growth projection masks different scenarios for different economies.

Generally speaking, emerging markets and developing economies especially in Asia and Africa are doing better than advanced ones.

And some economies including the United States are propped up by massive government spending and borrowing which will one day have to be paid for.

China’s economy is facing structural problems, but is forecast to grow by 5 percent next year and 4.5 percent in 2025.

India continues to out-perform but at a lesser rate – down from a high in 2023 of 8.2 percent to 7 percent and 6.5 percent this year and next.

Other economies in “emerging and developing Asia” which include some of New Zealand’s bigger trade partners are doing reasonably well.

Why do these figures matter?

They matter because they impact on the countless commercial decisions in international markets which drive the prices which you as New Zealand businesses can receive for your goods and services.

Trade growth

In April the World Trade Organisation released its annual trade survey[3].

The WTO forecast is that trade should grow by 2.6 percent in 2024 and 3.3 percent in 2025.

That’s a lot better than the paltry 1.2 percent score for 2023.

But these are still not great numbers.

One bright spot is that services trade – driven by a surge in digitally-delivered services – things you can buy over the net – and other services like tourism – has expanded significantly.

(Of course, these are the very same services where price rises are now contributing to global inflation!)

We see this in New Zealand – while tourism is not yet back to pre-Covid levels, there are now more Chinese airlines serving New Zealand than pre-Covid.

When it comes to goods trade, the last year, as many of you know only too well, has been a tough one but there are some green shoots evident in the statistics.

For New Zealand as a whole there are signs that exports are stabilising – whereas total goods exports declined by 5.5 percent in the December 2023 quarter they rose by 2 percent in March, although dropped by 0.1 percent in June[4].

It’s pleasing to see that in the case of apples and pears MPI is forecasting that renewed growth in the national crop should enable export volumes to return this year to between 2021 and 2022 levels.

Some have pointed to the economic difficulties in China, your largest market, as a contributing factor to New Zealand’s export performance over the last year.

It’s true that the Chinese market has continued to be problematic, reflecting a slow rebound from Covid and other structural problems in the economy.

Meat exporters have been particularly hard hit, but in other sectors like dairy and horticulture there would still seem to be optimism for a rebound in the market in the medium term. 

It’s important to remember that New Zealand is not supplying “the whole of China”: there remains a lot of growth potential in the middle class, which is our target market, variously estimated to be between 500 and 700 million people.

What’s more China continues to open its market to New Zealand as is shown by Chinese willingness to explore new ways of further upgrading our ground-breaking FTA.

Geo-political risks

Let me come back to those geo-political risks facing our world.

As I suggested earlier, they are present not just in Europe and the Middle East, but also in our Asia Pacific region too, as the United States and China compete for economic power and political influence.

There has been some alleviation of geo-political tension between the US and China following the meeting in San Francisco of Presidents Biden and Xi last November.

It is an improvement in tone, rather than in substance, but it is welcome in terms of ratcheting down tensions.

But since then new areas of difference have arisen – both economic, as the US places new tariffs on Chinese exports of electric vehicles, and political, as the US and its allies take issue with China’s continuing economic links with Russia.

New Zealand’s predicament is that we need to maintain close and strong relationships with both the US as an enduring security and economic partner and China as our largest export market.

It is important to maintain some sort of balance, while remaining faithful to our values and history.

That’s really what an “independent foreign policy” is all about: making our own decisions about what we say and when we act, quite often in concert with our traditional partners, but from time to time acting on our own.

It’s not easy and it’s getting harder all the time.

Our traditional relationships matter, but so do our economic interests particularly at times like these.

The political risk is rising of an impact on our trade from an unforeseen event or some new policy direction, which disturbs the balance we have tried hard to maintain.

Exporters need to be alert to these risks.

It’s not simply a case of rushing to other less rewarding markets (if indeed these can be found) but taking steps to mitigate risk by shoring up key relationships and where possible diversifying product offerings in market.

And by encouraging the New Zealand Government to be alert to the potential unintended economic consequences of big changes to our independent foreign policy.

Recent trade policy developments

New Zealand’s Chief Trade Negotiator Vangelis Vitalis often talks about “the end of the golden weather” for trade policy.

By this he means that the period over the last thirty years which saw a large expansion in free trade agreements and market access has come to an end.

Today, protectionism on the rise everywhere as the number of trade restrictive measures increases.

Free trade is giving way to “industrial policy and friend-shoring”.

These are relevant to the economic growth scenarios I outlined earlier.

The IMF points to the increasing use of what it calls “unilateral measures – tariffs and subsidies –  as a tool in geo-political contest.

To quote the IMF Chief Economist:

“Our imperfect trading system could be improved, but this surge in unilateral measures isn’t likely to deliver lasting and shared global prosperity. If anything, it will distort trade and resource allocation, spur retaliation, weaken growth, diminish living standards, and make it harder to coordinate policies that address global challenges, such as the climate transition”.[5]

In case anyone hasn’t heard there is a really big election in the United States later this year.

It’s hard to see a second Trump Presidency as being anything other than a disaster for trade with his proposal to raise tariffs of 10 percent to all goods as well as further measures against China.

Imagine a 10 percent tariff applied to your industry’s fourth largest export market valued at around $80 million with a zero tariff.

Imagine a 10 percent tariff applied across the board to New Zealand’s $14.5 billion worth of exports to the United States, which is not protected by any free trade agreement, meaning we would have to rely on the protection of the WTO.

This could prove even more problematic for our economy than the impact of economic uncertainty in China.

In fact, even under the Biden Administration, the United States has moved away from their traditional role of global trade leadership.

This was seen clearly last November when the United States withdrew, without warning, from negotiations on trade issues in the Indo Pacific Economic Framework (IPEF) – its own initiative for economic co-operation in the region.

The agreements signed under the umbrella of the Indo Pacific Economic Framework (supply chain, clean economy and fair economy) provide an opportunity to maintain engagement with the United States, but it is still not clear what they can deliver.

In case you were wondering, there is little if any hope that the United States would re-join TPP, which it left in 2017, or negotiate a bilateral FTA with New Zealand.

WTO

US ambivalence on trade was also seen at the recent World Trade Organisation Ministerial in Abu Dhabi, where very little in the end was achieved, despite the strenuous efforts of our own Trade Minister McClay and his officials.

The US was not the only WTO member at fault, but the heft it can normally bring to such negotiations was sorely lacking.

As the ultimate keeper and arbiter of the rules of international trade, the WTO must remain our top trade priority, but it is now in a severely weakened state, just when we need it most.

The tragedy for the WTO today is that even if a number of the things on offer at the Ministerial had been agreed, they would have been unlikely to impact significantly on the downside risks currently facing the global economy.

The WTO is ultimately the creature of its 166 members: they control its destiny, but the world is not in the open, outward looking frame of mind it once was.

NZ/EU FTA

More positively for New Zealand a big new free trade agreement, the NZ/EU FTA came into force on 1 May.

This FTA seeks to connect our exporters to 450 million European consumers and it delivers some significant new openings especially in apples, kiwifruit, wine, honey and seafood.

I know you were pleased that the FTA was able to enter into force earlier than expected.

Unfortunately the gains for other goods we sell in volume (dairy and meat) are much smaller.

The value of the agreement is further eroded by the risks of non-tariff barriers arising from increasing environmental regulation in the EU.

On the other hand the FTA is also accompanied by the application of the EU’s Horizon Fund for scientific research and development – this is very significant and could prove a real boost for innovation in this country.

Both the NZ/EU FTA and the earlier NZ/UK FTA are quite possibly the last in a line of larger agreements, like NZ/China, NZ/ASEAN and the Trans Pacific Partnership (TPP), which New Zealand has been able to secure during the period of “golden weather”.

But the cause of freer trade is not completely dead and nor have we reached “peak FTA”.

CPTPP

There is a still a range of agreements which can be further upgraded as China was in 2022 and ASEAN in 2023.

New Zealand’s main opportunity lies in the deepening and expansion of the renamed Comprehensive and Progressive Trans Pacific Partnership, or CPTPP. 

CPTPP now has twelve partners once again now that the United Kingdom is in the process of completing its accession.

There are others waiting in the queue including China and Chinese Taipei and several Latin American economies as well as Indonesia.

Even Ukraine wants to join.

I’m sure your industry would rejoice if South Korea could join – that will depend largely on the progress made in expanding the agreement.

Enlarging CPTPP helps spread the CPTPP rulebook around the world.

That would also be assisted by the general review of CPTPP rules which is now underway, led by Canada which is the current Chair.

New Zealand has been part of the CPTPP journey from the very beginning – in fact, it was our idea!

Trade agreements need to be continually updated as business models change and new issues arise.

Deepening and expanding CPTPP at the same time is no easy undertaking, but if this is not successfully completed, with new rules and new members within the next two years, the value of CPTPP could be significantly eroded.

Other negotiations

Some smaller FTA negotiations also remain on the books.

Negotiations for an  FTA with the United Arab Emirates are now underway.

A wider negotiation with the Gulf Co-operation Council has spluttered along with no breakthrough in recent years.

The Government has also expressed interest in picking up again the opportunity to join the Pacific Alliance linking Chile, Colombia, Mexico and Peru – Colombia is a missing piece of our coverage through CPTPP.

Sri Lanka, a sizeable market for dairy exports, is seeking membership of the Regional Comprehensive Economic Partnership (RCEP), to which New Zealand also belongs.

India

Then of course there is India.

I am well aware of your interest in the Indian market and the 50% tariff which restricts your ability to grow sales.

There’s no doubt about India’s growing political and economic importance.

India’s recent growth has been extraordinary.

India may have well and truly arrived on the world stage, but New Zealand’s relations are still quite restricted especially in the economic space.

We export to India about a tenth of what we export to China.

In past years we have already been down the FTA route with India both bilaterally and in the context of RCEP without success.

Unhooking a fresh start will require a large amount of investment and some new ideas on the part of the Government and business.

Above all we need to demonstrate the value proposition for India – why would an expanded economic relationship be of interest to them?

What is the part that New Zealand can play in India’s rapidly developing economic success?

Taking a sector-by-sector approach may prove – how shall I put it – “fruitful” in the short term.

Discussions are already advanced in kiwifruit space – other sectors, including apples, could be added over time until the case for a more formalised partnership can be made.

There may be scope to leverage off the recent World Bank project in Himachal Pradesh.

This work will require significant investment from both Government and business and it will take time to mature and develop.

Our newish Government is certainly ambitious on trade and that’s a good thing.

But doubling export value in ten years is not an easy task.

We will likely need more than just new free trade agreements and more trade missions, however valuable they both are.

Some big new ideas are needed.

Slide 15

One such big idea is moving more rapidly towards paperless trade –  eliminating the vast amount of paper documentation which accompanies goods as they move through global supply chains.

There are big savings to me made here in terms of the cost of doing business – estimated to be as much as the gains from a free trade agreement.

Adopting digital, data-driven systems can avoid the need to replace lost paper documents by sending expensive couriers around the world, something that, as you know well, happens quite often.

What’s more by exchanging data rather than paper, clearance times through ports can be accelerated and more information can be provided to regulatory authorities and even to customers and consumers about a product’s provenance, safety and sustainability.

Our trading partners including the Australia, the UK and Singapore are moving far ahead of us and we need to catch up.

What do consumers want ?

I want to finish my remarks today with a word about consumer preferences.

I realise I am in front of people who know a lot more about this than me.

Digital and paperless trade provide a means to connect more rapidly and efficiently with customers and consumers around the world.

There are a number of possible markets in which to sell, but not all markets are created equal.

We do not enjoy the same market access everywhere, connectivity remains an issue and doing business globally remains expensive.

There’s little doubt that we’re aiming at the top of the market, at consumers who can afford to buy what we have to sell.

In these tough economic times, even those top end consumers, who have plenty of choice, are focusing on value for money.

And in anxious times consumers everywhere are wanting reassurance.

Reassurance about a product’s origin, safety and sustainability.

The 2024 KPMG Agribusiness report[6] summed this up well:

“The challenge for organisations is targeting consumers that understand our products and are prepared to pay for them, and then ensuring that the whole value

chain – from input providers through to producers, including all supply chain partners – is geared up to deliver the experience we sell ..the industry needs to be clear in its ambition to deliver nature-positive food from well stewarded landscapes, that is demonstrable by hard data”.

This seems to me to point to at least four important messages for the industry:

  • Harnessing more effectively the use of data
  • Dealing proactively with climate and sustainability
  • Continuing to do the basics really well, especially quality and food safety
  • Selling the New Zealand experience to customers  – telling the story of this land, our people and what we can produce.

Conclusion

No-one is saying that the task we have ahead of us is straightforward – it is not.

As I said, these are anxious times around the world.

We cannot fully control the weather, the global economy or the geo-political risks affecting our business.

What we can do is continue as businesses to focus on those things we can influence.

Nurturing existing and new relationships in-market and focusing on delivering what consumers want, while paying attention, as the whole industry, to productivity, competitiveness and costs.

As a nation, we must continue our careful and deliberate management of New Zealand’s external engagement, developing new trade agreements and upgrading or expanding others, along with adopting other big ideas, like paperless trade, to reduce costs and promote the ease of doing business.

In a contested world there are few magic wands to be waved.

As ever, New Zealand’s prosperity lies in our ability to connect and integrate in global markets.

That’s the challenge and the opportunity and one I know this industry is completely focused on achieving.


[1] https://www.un.org/sg/en/content/sg/statement/2024-04-14/secretary-generals-remarks-the-security-council-the-situation-the-middle-east-delivered#:~:text=It%20is%20vital%20to%20avoid,concerned%20to%20prevent%20further%20escalation.

[2] https://www.imf.org/en/Publications/WEO/Issues/2024/07/16/world-economic-outlook-update-july-2024

[3] https://www.wto.org/english/res_e/publications_e/trade_outlook24_e.htm

[4] https://www.stats.govt.nz/information-releases/overseas-merchandise-trade-june-2024#:~:text=In%20June%202024%2C%20compared%20with,a%20surplus%20of%20%24699%20million.

[5] https://www.imf.org/en/Blogs/Articles/2024/07/16/global-growth-steady-amid-slowing-disinflation-and-rising-policy-uncertainty

[6] https://assets.kpmg.com/content/dam/kpmg/nz/pdf/2024/06/2024-agribusiness-agenda-v6.pdf

Introduction

Thanks to Brightstar for the opportunity to be with you again, in person this time!

I’ve spoken several times now at this event and I’ve usually begun by bemoaning the current state of the world and the shadow this casts over our economic fortunes here in Aotearoa.

I’m not going to disappoint you today – as we meet here this morning, it’s hard to escape the fact that we are in some serious trouble at the global level. 

Two conflicts – one in Ukraine and an expanding one in the Middle East – threaten the global rules-based order and risk overturning the slow progress we are making to overcome the post-pandemic economic gloom.

Both conflicts have the capacity to impact enormously on the outcome of the November US Presidential election – a water-shed moment not just for the United States but for the world as a whole.

And they are also diverting attention away from other hugely significant challenges:  a technological revolution that can change fundamentally the way our society functions and a climate challenge that the world is largely failing to take seriously enough.

On so many levels it seems we are at an inflection point, a moment in history where what transpires in coming months will radically change the future.

Let me explore this further today by talking about:

  • The big picture facing New Zealand in the global economy;
  • The geo-political issues that loom large; and
  • Some of the other trends and challenges that we currently face.

Global economy

Let’s start by looking on the bright side.

The global economy, while weak, is growing again and inflation is being brought under control.

The IMF released its latest World Economic Report[1] back in July.

The IMF expects the global economy to grow 3.2 percent this year and 3.3 percent next year.

That’s lower than the long-term average of 3.8 percent. 

The world is also making some progress in reducing inflation, which is forecast to slow to 5.9 percent this year (from 6.7 percent last year).

The not so good news is that inflation is surprisingly persistent: while costs of “headline” inflation – food and energy – have declined, prices for services have continued to rise, which complicates the return to a more normal inflation outlook. 

That growth projection masks different scenarios for different economies.

Generally speaking, emerging markets and developing economies especially in Asia and Africa are doing better than advanced ones.

China’s economy is facing structural problems – the forecast is for 5 percent growth this year although some commentators doubt this can be achieved.

India continues to out-perform but at a lesser rate – down from a high in 2023 of 8.2 percent to 7 percent this year.

Other economies in “emerging and developing Asia” which include some of New Zealand’s bigger trade partners which the Government is now targeting, are doing reasonably well.

Why do these figures matter? 

They matter because they impact on the countless commercial decisions in international markets which drive the prices which New Zealand businesses receive for their goods and services.

Back in April the World Trade Organisation released its annual trade survey[2].

The WTO forecast is that trade should grow by a mere 2.6 percent in 2024 and 3.3 percent in 2025.

That’s a lot better than the paltry 1.2 percent score for 2023.

But these are still not great numbers. 

One bright spot is that services trade – driven by a surge in digitally-delivered services – things you can buy over the net – and other services like tourism – has expanded significantly.

(Of course, these are the very same services where price rises are now contributing to global inflation!)

We see this in New Zealand – while tourism is not yet back to pre-Covid levels, there are now more Chinese airlines serving New Zealand than pre-Covid.

When it comes to goods trade, the last year has seen some stabilising of our  position after a decline which set in towards the middle of last year.

Whereas total goods exports declined by 5.5 percent in the December 2023 quarter they grew in May and dropped by a mere 0.1 percent in June and August[3].

Some have pointed to the economic difficulties in China, our largest market, as a contributing factor to New Zealand’s export performance over the last year.

It’s true that the Chinese market has continued to be problematic, reflecting a slow rebound from Covid and other structural problems in the economy.

Meat exporters have been particularly hard hit, but in other sectors like dairy and horticulture there would still seem to be optimism for a rebound in the market in the medium term. 

Kiwifruit is doing particularly well as a result of the strong market position Zespri has built in China.

It’s important to remember too that New Zealand is not supplying “the whole of China”: there remains a lot of growth potential in the middle class, which is our target market, variously estimated to be between 500 and 700 million people.

China still has a number of policy levers at its disposal and we are starting to see these deployed as more stimulus is pumped into the economy.

What’s more China continues to open its market to New Zealand as is shown by Chinese willingness to explore new ways of further upgrading our ground-breaking FTA.

Geo-political risks

That is of course unless geo-politics overturns the apple cart.

It’s fashionable these days to say that “history, geo-politics and (even) geo-economics are back”.

I’m not sure they were entirely absent earlier, but it is true that these days we seem to be returning to another age in terms of super-power rivalry. 

Certainly, geo-politics is being talked about more frequently and at Boardroom level than ever before.

That’s doubtless because of the growing risk caused by geo-political disruption. 

By “geo-political disruption” we mean the way in which conflict or tension between states or other international entities can impact on the global economy and the ease and cost of doing business.

Look at Putin’s illegal and immoral war in Ukraine or the multiple conflicts in the Middle East between Israel and its neighbours and the risks these “proxy wars” pose for wider conflict between Israel and Iran.

Impacts are already being felt on energy and oil prices, on global supply chains and the cost of shipping passing through the Red Sea, complicating the time to move goods to and from Europe.

There is also the “new cold war” that is becoming hotter between the United States and China, in which New Zealand itself risks becoming embroiled.

New Zealand is not immune from these developments.

We may be far away from the global hot-spots but as a global trader, with global interests and a proud history of being active on the international stage, our interests are certainly impacted.

We are seeing these geo-political tensions play out in our immediate neighbourhood in the stand-off between the US and China.

China’s political and economic rise has drawn it into greater competition with the United States which is no longer the only prevailing super-power.

If you want a classical interpretation, we are heavily into the territory of the Thucydides trap.

Thucydides was an ancient Greek historian who postulated that a when a rising power threatens to displace a ruling power, the result can be conflict.

Let’s hope Thucydides is proved wrong, but it is fairly clear that the United States is no longer prepared to accommodate China’s rise and is taking steps to respond to what it sees as increasing Chinese competition.

Hence the raft of economic measures taken against China started under former President Trump and continued and even expanded by President Biden.

The American explanation for this is that China itself has changed by becoming more authoritarian both within China and especially in the provinces of Xinjiang and Tibet and externally through its coercive, “wolf-warrior” diplomacy, increasing militarisation and destabilising actions in the South China Sea and the Taiwan Strait.

Last November’s meeting in San Francisco between Presidents Biden and Xi gave rise to some alleviation of the geo-political tension between the two.

It was an improvement in tone, rather than in substance, but even this risks being overtaken as the United States seeks to gather its allies and partners in a tighter coalition prepared to challenge directly what it sees as Chinese aggression.

The most visible illustration of this is the AUKUS (Australia, UK, US) partnership which focuses on deterrence through a programme of expansion of Australian nuclear-powered submarine capability in the Pacific.  

New Zealand is currently considering whether there is a case to join a second pillar of AUKUS related to advanced military technology.

What is a small, freedom-loving, trade-dependent South Pacific country like New Zealand to do ?

We have developed strong relationships with both the US and China.

We’ve tried hard, with some success, to maintain some sort of balance, while remaining faithful to our values and history. 

That’s really what our “independent foreign policy” is all about: making our own decisions about how we act and what we say, quite often in concert with our traditional partners, but from time to time acting on our own.

Our traditional relationships matter, but so do our economic interests particularly at times like these.

The political risk is rising of an impact on our trade from an unforeseen event or some new policy direction, which disturbs the balance we have tried hard to maintain.

Membership of AUKUS II could well fall into this category as we are drawn into the inevitability of regarding our largest trading partner as a direct military threat. 

These are weighty matters and the New Zealand Government will need to be alert to the potential unintended economic consequences of big changes to our independent foreign policy.

Other tends and challenges

I suggested earlier that these geo-political issues tend to mask some other big challenges.

Let me touch briefly on a few of these.

Protectionism

First up, the world is becoming increasingly inward-looking.

That’s unfortunate at a time when our Government is wanting to double export value. 

Today, protectionism on the rise everywhere as the number of trade restrictive measures increases.

Free trade is giving way to “industrial policy and friend-shoring”.

In the land of the free and the brave, tariffs are the order of the day – whether the 100 percent tariffs the Biden Administration is imposing on electric vehicles from China or the 20 percent tariff that a second Trump Presidency promises to initiate should be win the election.

A 20 percent tariff applied to New Zealand’s $14.5 billion worth of exports to the United States, which is not protected by any free trade agreement, could prove even more problematic for our economy than the impact of economic uncertainty in China.

This comes at a time when the World Trade Organisation, as the ultimate keeper and arbiter of the rules of international trade, is in a severely weakened state, just when we need it most.

New Zealand has benefited greatly from the wave of trade liberalisation that has unfurled around the world in the last thirty years.

CER entered into force in 1983 but our second FTA was not signed with Singapore until 2001. 

Since then we have knocked off some big ones including China, ASEAN, CPTPP, RCEP, the UK and the EU. 

At the end of September Minister McClay announced the conclusion of negotiations for our latest FTA with the United Arab Emirates.

And of course the Government is keenly interested in a new FTA with India if that can be unhooked – that will depend largely on whether we can first expand the relationship across the board and develop new areas of co-operation.

Trade agreements also need to be continually updated as business models change and new issues arise – this is the case with the mega-regional agreements like CPTPP.

We may not have reached “peak FTA”, but the age of large-scale transformational agreements is probably behind us.

Attention will now need to turn to making sure we get the most out of the agreements we have and finding ways to improve competitiveness and productivity.

Sustainability

Another key challenge for us  – and one that is closely linked to our trade prospects – is to walk the talk on sustainability and fully embrace the climate challenge.

Climate consciousness has risen significantly around the world in recent years and only the most backward-looking of political parties and the occasional business organisation thinks there is nothing to worry about.

Whatever you may think about the causes of climate change the international community has signed up to the Paris agreement and the obligations that entails – obligations which impose on us an undertaking either to meet our “nationally determined contribution” or emissions target by 2030 or buy carbon credits on the international market.

This commits Aotearoa New Zealand to reducing net greenhouse gas emissions by 50% below gross 2005 levels by 2030.

Today it seems we are some way off from meeting this target which implies a significant contingent liability – in other words either we play or we pay !

Beyond this, we have a huge incentive to get on the right side of the debate and use our superior carbon performance as an asset in marketing our products overseas. 

It matters not whether it is consumers (the end purchasers of our products) or customers  (those who actually buy from us) demanding greater attention to sustainability, the writing is clearly on the wall.

I was very much taken by KPMG’s most recent agri-business report[4] which had this to say about the future positioning of New Zealand food products in global markets:

“The challenge for organisations is targeting consumers that understand our products and are prepared to pay for them…the industry needs to be clear in its ambition to deliver nature-positive food from well stewarded landscapes, that is demonstrable by hard data”.

“Nature positive food from well stewarded landscapes that is demonstrable by hard data” – think about that.

In today’s anxious times consumers everywhere are wanting reassurance.

Reassurance about a product’s origin, safety and sustainability.

This is not a cost, this is a huge opportunity waiting to be realised, but it starts with meeting the climate challenge and living up to our commitments.

Artificial intelligence 

The last global challenge I want to mention all too briefly is the fourth technological revolution and the advent of artificial intelligence.

The APEC Business Advisory Council (ABAC) is an organisation I am involved with – it brings together business leaders from the Asia Pacific region.

ABAC points out that AI has the potential to transform the world as we know it.[5]

Whether in science, business, education, productivity or climate change, AI can help to tackle the world’s greatest challenges, including green development, alleviating poverty and increasing food security, solving significant health issues.

But AI is an emerging technology and there is need to weigh opportunity, responsibility and security in considering how to develop AI and the appropriate governance and standards to harness the benefits and mitigate any potential risks. 

The point here is that there is a lot of work to do both here both in policy and AI business development in New Zealand and around the world: we must not let our understandable preoccupation with today’s problems undermine our ability to tackle tomorrow’s challenges.

Conclusion

Let me come back to where I started.

The world is at an inflection point.

That we will eventually get back to where we were before the pandemic – remember those heady days ? – is not a given.

The slow economic progress we are making can be derailed.

Our attention is too easily diverted by the difficult security situation we find ourselves in.

Geo-politics is everywhere, trust amongst nations is at an all-time low.

This risks preventing a focus on other big issues – the closing of borders, a pressing need for greater sustainability, the opportunities and risks of AI.

New Zealand is making its way in a confused and unstable world.

Today more than ever we must leverage our strengths in trade, sustainability and the adoption of new technology.

 

[1] https://www.imf.org/en/Publications/WEO/Issues/2024/07/16/world-economic-outlook-update-july-2024

[2] https://www.wto.org/english/res_e/publications_e/trade_outlook24_e.htm

[3] https://stats.govt.nz/information-releases/overseas-merchandise-trade-august-2024/

[4] https://assets.kpmg.com/content/dam/kpmg/nz/pdf/2024/06/2024-agribusiness-agenda-v6.pdf

[5] https://www.tradeworks.org.nz/wp-content/uploads/2023/11/DIWG_43-045A_ABAC_Statement_on_Artificial_Intelligence_4th_draft.pdf