ADDRESS TO THE 48TH ONE STOP UPDATE FOR THE ACCOUNTANT IN BUSINESS

Thanks to Conferenz for once again inviting me to address this 48th One Stop Update event.

It’s great to be back and talking about the global economy.

If there is one thing we have learnt from this dreadful pandemic, it is that our ability to connect and trade with the rest of the world really matters.

It’s trade that has propped up our economy in this global crisis.

I’ll focus first on how the global economy has fared over the last year or so.

I’ll then turn to what should be on our mind right now.

And lastly, I’ll suggest a few things that will be more apparent in the years to come.

How have we fared?

My wife always tells me I use the same quotes in speeches.

My favourite over-used one from Yogi Berra, the famous baseball player: “The future ain’t what it used to be”.

Actually, I think for once Yogi is wrong: the future looks curiously like what it was before, at least for the immediate future!

Certainly, when it comes to the pandemic, there’s no escaping that things have been very bad and for many around the world they still are.

In some places they are getting worse.

The human toll has been incalculable, with a massive loss of human life and human potential.

The impact on the global economy and trade has been pretty dire, although the numbers are beginning to look more positive.

The economic downturn in 2020 was the worst peacetime global contraction since the Great Depression. 

In April the IMF released its World Economic Outlook, in which it projected global growth for 2021 to be 6 percent, which is 0.7 percentage points above the previous forecast in February. 

Growth is expected to moderate to 4.4 percent in 2022.

The World Trade Organisation is forecasting a growth in world merchandise trade of 8 percent this year, after a decline of  5.3% in 2020, less than the 9.2 % drop predicted earlier. 

Much of course will depend on the success with which economies are able to get on top of the pandemic and to hasten the vaccination effort.

The IMF describes this as a race between the virus and the vaccine.

In this difficult global environment New Zealand’s goods trade held up reasonably well, especially during the height of the pandemic, but has begun to fall back this year.

Exports and imports were both down in March with exports declining to most markets except China[1].

This fall-off in goods’ exports is possibly a result of the resurgence of the virus in some markets and increasing difficulties experienced with shipping and airfreight.

There are increasing bottlenecks at our ports, shipping rates are rising exponentially and airfreight is both expensive and facing capacity issues with airlines reducing flight schedules.

Of course, in services, especially the ‘people-intensive’ sectors where we are strongest, such as tourism and international education, the news continues to be bad.

The pandemic has a long tail and we may be living with an unstable environment for some time to come.

Yet what is clear is that as we work to get out of the mess that has been created by the virus, our economic recovery will continue to depend on our ability to do business with the rest of the world.

What should be on our mind right now ?

That ability is impacted by a number of factors which complicate the task before us.

Let me highlight briefly just five: growing protectionism, complex geo-politics, the rise of new trade arrangements, changing business models and risks arising from climate change. 

Growing protectionism

In a recent media interview New Zealand’s Chief Trade Negotiator, MFAT Deputy Secretary Vangelis Vitalis said that during the pandemic there had been the sharpest spike in protectionism since the establishment of the WTO.

That’s quite something!

Certainly protectionism had been growing since before the pandemic with a certain President in the White House announcing that “trade wars are good and easy to win”.

Even so – and this is really alarming – the tariffs imposed during the US/China trade war were responsible for only around one-quarter of all the trade-restrictive measures that have been deployed, including not just tariffs but also trade remedies like anti-dumping and especially, subsidies.

The US for example has resorted to large-scale subsidisation to compensate farmers’ lost incomes which penalises unsubsidised players like New Zealand.

The early onset of the pandemic saw the general climate of protectionism worsen with import and export restrictions applied to a number of goods including essential health supplies and food.

But in the course of 2020 statements from various international organisations such as the G20, APEC and the WTO all served to lower the temperature as countries sought to work more together.

Latterly however, as countries have started to move on vaccinations, new protectionist pressures have reared their ugly head once again.

Both the EU and the US, despite signing up to those numerous international statements to the contrary, introduced measures to restrict the flow of vaccines or associated goods, although they have since moderated their position in the light of the unfolding tragedy in India. 

Numerous economies also continue to maintain tariffs on goods like vaccines, soap and syringes – all of which impose costs on economies when they are trying to fight the pandemic and develop and distribute vaccines.

It’s good to see that New Zealand is leading an initiative in APEC to make trade in goods required to combat the pandemic tariff free.

Fortunately for us, New Zealand’s export markets remained largely open during the earlier period and the Government was able to negotiate a number of agreements with partners to keep supply chains open and keep trade flowing.

Unfortunately the threat of protectionism continues to overshadow the global economy.

Complex geo-politics

Behind some of this growing protectionism that we see around the world lurks a dangerous geo-political “Game of Thrones”.

It’s a story of a rapidly rising power, a slowly declining power and a whole bunch of players with limited or no power at all.

It takes place in the Asia Pacific region we call our home and involves some key friends and trade partners of New Zealand.

China’s rise as an economic power is driving growth across Asia even during this pandemic.

China’s success in lifting millions of people out of poverty cannot be denied, but their policies at home and abroad are causing deep concern on the part of the liberal democracies.

The former US Administration went out of its way to raise the temperature in the relationship, seeking overtly to contain China’s rise and citing problems in both economic and political areas.

The “trade war” between the two had little to do with trade and mostly served to penalise the United States, but had grave global consequences.

There’s little doubt that American commitments to Asia have underpinned an ‘age of peace” in the region, but the outlook is increasingly menacing.

Certain politicians in Australia are talking about a future war with China.

The Economist has gone so far as to call Taiwan, “the most dangerous place on earth”.

For what it’s worth, I think these assumptions are way off mark, but the tone is disturbing. 

New Zealand may be reluctant to be asked to choose between our largest trading partner and our “very, very, very good friend”.

As the old adage goes, when elephants fight, it gets tough on the grass.

Changing trade arrangements 

Against this background, trade policy has not stood still in recent years and we see a number of new trade arrangements come into the frame.

New Zealand like many others has been negotiating a number of bilateral and plurilateral agreements of which the NZ/China FTA, the NZ/ ASEAN FTA, CPTPP – a veritable mouthful of an agreement – and now RCEP – which most people have never heard of – are the most significant.

These agreements have been a response to the business community’s continuing push for more open and effective trade arrangements which can remove tariff and non-tariff barriers and reduce the cost of doing business.

Even so, it’s interesting to note that New Zealand still has no existing or planned preferential market access with almost 40 percent of the world’s economy and consumers.

Over half of this represented by exports to the United States where our decades-long quest for an FTA has not yet been rewarded.

That is not to say that all sectors are fully liberalised in the FTAs we do have.

The “shag on the rock” is the dairy industry – even with our coverage of FTAs, dairy only has access to around 12 percent of global dairy demand at tariffs of less than 10 percent.

Even our very high quality and recently upgraded FTA with China continues to see dairy exports affected by safeguard tariffs – these tariffs however will be completely removed within 3-4 years.

Changes in business models

One area which these new trade arrangements have all been forced to address concerns new models for international business.

The rise of digital transactions requires a different approach to the flow of data across borders, protection of privacy, systems for payment and the applications of new technologies just to name a few.

There has been a tendency to regard digital and other forms of trade as quite distinct – in fact today all trade is digital as digital systems impact on the ways exporters connect with consumers, particularly through e-commerce and the way goods move around the world.

The point here is that trade continues to evolve and trade policy needs to continue to evolve with it.

The risks of climate change

Evolution is also required in relation to trade and the environment and especially climate change.

There has long been the thought amongst more progressive trade thinkers that trade and the environment need to be mutually supportive and there has been a corresponding increase in the number of environmental provisions inserted into trade agreements, like CPTPP.

A trade and the environment chapter has also been added to the NZ/China FTA, but disappointingly RCEP has no such provisions.

The looming real-world impacts of climate change and the growing consensus amongst both governments, citizens and business alike that something, finally, needs to be done means that we need, both at the international and domestic level, to go far beyond the steps taken to date.

Working out what these steps should be and co-ordinating responses across the international community to avoid the risk of carbon leakage and new protectionism are going to be major pre-occupations.

It’s been said that the Covid disaster is but a foretaste of what could happen if the risks of climate change are not addressed.

What’s ahead ?

So where does this leave us ?

In my remarks to this conference last year I said we were in the midst of a really big storm.

I have to say, it’s still pretty stormy out there !

The challenges I have outlined are all bearing over the global economy and the multilateral trading system and in ways that are not always easy to predict.

Let me turn now to what might lie ahead.

The building blocks of trade 

It almost goes without saying, firstly, that the health response to the pandemic will continue to exercise our minds and our economies for some time to come.

We are not out of the woods yet and the economic recovery will likely be a stop-start sort of thing.

Trade will continue to underpin the performance of the NZ economy in this next period.

I have no doubt that the NZ Government will continue to look for new opportunities in global markets – Trade Minister Damien O‘Connor will shortly be travelling to Europe and spending two weeks on return in MIQ, taking one for the team of 5 million.

I mentioned earlier that despite our success in negotiating trade agreements these did not cover important areas of our trade.

The United States and India are two big gaps for us where we have no FTAs and no immediate prospect of getting them.

That means we must continue to explore ways of connecting with both.

We have a number of trade agreements to upgrade and expand.

We have completed the China FTA upgrade: the ASEAN FTA is the next cab of the rank.

We have two important trade negotiations to finish – one with the EU and one with the UK.

Both are complex because they will require our partners to open their markets in  what they regard as the “sensitive” area of agriculture. 

The NZ/EU FTA has been a long time in the making and there are other problems in the negotiation to be worked through but a successful conclusion would be a significant milestone.

The NZ/UK FTA would also be welcome and would pave the way for the UK to join CPTPP.

The UK talks a good talk on free trade these days, but it will need to demonstrate it is willing to open its market to NZ including in “sensitive” areas if this negotiation is to succeed.

We also have potential new partners to explore – in non- EU Europe, in Africa, in Asia and in Latin America.

Some of those markets are closed to us at present and will take more than a decade of work to open and develop, but these, and the other agreements I have mentioned will be the building blocks for future economic recovery.

Let’s hope Damien really enjoys MIQ!

Calls for greater inclusion

The global pandemic has laid open some significant inequalities in our societies, some close to home, others around the world.

We knew about these before of course, but we took consolation in the increasing numbers of people who have benefited from the enormous technological advances of the last thirty years.

It is now pretty clear that some groups in society have suffered more from the pandemic than others.

We will therefore most certainly hear even greater calls for inclusion of those groups who have been left on the margins, including women, youth, indigenous people, those living in rural areas, those who have not been able to acquire the skills required for the modern workforce.

Finding ways to make the economy work for everyone and to expand the benefits of trade will become an even more urgent task as we seek to “build back better” from the crisis.

A new focus on multilateralism?

The last thing I want to mention is more of a wish.

You see here the building of the World Trade Organisation in Geneva.

I hope that, as we move beyond the health crisis and turn our attention both here in New Zealand and globally to economic rebuilding and recovery, we will learn the really big lesson of the last seventeen months:  we need global co-operation to address global challenges.

At the Writers’ Festival in Auckland I heard it put this way: “we may not all be in the same boat, but we are all on the same sea”.

I admit the global climate for co-operation is not the best.

The pandemic is not defeated.

Our economies are shattered.

The world is moving increasingly inwards.

New economic policies currently being pursued in major economies – “Buy American” in the USA, “dual circulation” in China, “strategic autonomy” in Europe – do not make for a very good recipe.

When it comes to trade, we desperately need a renewed focus on the WTO.

There is some hope that the new Administration in Washington may be more enlightened than its predecessor when it comes to global engagement.

The world’s two largest economies need to learn not to let their political differences overshadow the important work they need to do together.

New Zealand is not immune from these risks.

If the world, with all its gloom and bloom, is to find a way out of the mess we need to find once again that spirit of co-operation and collaboration.

The future doesn’t need to be what it used to be: with more global co-operation, it can be a whole lot better.


[1] Annual goods exports were valued at $58.9 billion, down $1.7 billion (2.8 percent) from the previous year. Annual goods imports were valued at $57.3 billion, down $6.8 billion (11 percent) from the previous year.

Trade and the virus: united we stand

Economies need to fight the Covid-19 virus by standing together.

Desperate times call for desperate measures, but not stupid ones.  The world faces an unprecedented challenge to human health and to economic vitality.  Many economies including New Zealand are now resorting to extraordinary measures to check the spread of the virus, treat sufferers and deploy massive economic stimulus.  That is as it should be.  Borders need to close to travelers for a time. But some economies are resorting to protectionism.  That will make the fight against the virus even more complicated and is likely to delay the recovery once there is light at the end of the tunnel.

Protectionism – what’s new ?

Unfortunately, protectionism is nothing new and has been rising steadily since the Global Financial Crisis, and particularly over the last three years.  Economic openness had been fragile before the crisis struck and it seems that the virus has accelerated the trend.   Fifty governments are now limiting access to the essential tools to fight the pandemic, imposing export restrictions on medical equipment and drugs.  Many more are maintaining tariffs on even the most basic protective items such as soap and disinfectant.  The Global Trade Alert team at the University of St. Gallen  have pointed out that at least 16 export bans have been imposed since the beginning of this month alone.  Now, as Prof Simon Evenett says “beggar-thy-neighbour means sicken-thy-neighbour”.

What can be done ? 

Trade and open markets are crucial to getting through this global challenge, helping life-saving medical supplies to get to where they are needed most.  By contrast, going it alone is a recipe for disaster.  Commentators at ECIPE (European Centre for International Political Economy) have called for economies to “get rid of the restrictions and tariffs that delay the purchase of medical equipment and make them more expensive”.  They are right.  We need a lifting of export bans and a stand-still on new tariffs and elimination on these products as soon as possible – and for markets for other goods and services to stay open too, even as countries may be tempted to throw up barriers elsewhere in response to the difficult period that undoubtedly lies ahead.   We believe that economies in the Asia-Pacific should show global leadership here, staying true to our shared values of “equal partnership, shared responsibility, mutual respect, common interest and common benefit” as APEC Economic Leaders put it in their Bogor Declaration in 1994. 

Getting the engines started again

While we are in the midst of the struggle right now, thought will need to turn to how to restart the engines of trade and investment as soon as possible.  Forecasts are for a serious global recession, at least in the short term.  We will need the right tools to keep economies and communities going in the meanwhile, and ready to crank up again when the moment is right.  Protectionism is bad medicine.   First to hand instead should be openness and co-operation. Bodies such as APEC and the WTO, where countries can come together to lay the groundwork for coordinated global action, will be crucial to get things moving quickly.  New Zealand has a leadership role to play here as Chair of the WTO General Council and Chair of APEC in 2021.  We need to get back to the habit of mutually beneficial international co-operation.

For now, the world and its people are hurting. We wish all our readers the best of health and happiness wherever it can be found in these viral times.  Kia kaha ! (Be strong!) 

This post was prepared by Stephen Jacobi and Stephanie Honey.