Expect the unexpected the year’s mantra
Steve Jobs first launched the iPhone on June 29, 2007. Since then it’s been seen as a ‘‘disruptive’’ technology. It looked at things differently. It wasn’t just a onedimensional voice communications device. Its inventors saw it as a multifunctional tool for users, unlike Kodak, which didn’t realise that to survive it needed to enable people to talk to each other through their cameras.
Steve Jobs looked at the world differently. And through his iPhone he disrupted it.
On November 8 Donald Trump was elected as president of the United States. Like Jobs, he has looked at the political world differently. Has Trump just invented ‘‘iPolitics’’?
His supporters voted for some disruption to the status quo. What shape and form this will take, and its impact, is yet to be determined. But if it’s as disruptive as the iPhone, things will be different. And like the iPhone, this may be both positive and negative.
This will matter to New Zealand. As a trading nation, what other countries do matters, whether it’s the US, Russia, Australia, China or whichever. What they do can make life harder or easier, cheaper or more expensive for us here in New Zealand. Their actions can provide jobs or lose jobs. Because the planet is so interconnected, the impact can be transmitted directly and with speed.
Our oil price has been impacted for decades by geopolitical decisions of foreign governments. Access to markets and the return we can extract from them are affected by tariffs, quotas and other policies. Britain’s entry into the European Union in the mid 1970s had a significant impact, as will its exit. Our free trade agreement with China has had a significant positive impact, as do the other agreements that our government negotiates to enable trade and investment to be facilitated more easily.
Right now, as an exporter based in Wellington, there is certainly no shortage of geo-political risks that could have a direct impact on the business in a very real way. This could mean hiring or reducing staff.
Jobs matter. It’s important not to forget history. The incoming president is suggesting significantly higher tariffs to protect domestic jobs. This isn’t a new idea, but it can be very disruptive. In 1929 the Smoot-Hawley Tariff Act was passed as a political solution to perceptions around imported goods. Make it easier to ‘‘buy local’’, and make imported products more expensive and less competitive by putting on tariffs, was the theory.
However, other countries that America traded with responded. They didn’t do nothing, they reacted. The outcome ended up being an own goal. Yes, US imports decreased 66 per cent, from $4.4 billion (1929) to $1.5 billion (1933), so that must be good for jobs?
Well, no, because exports also decreased 61 per cent, from $5.4 billion to $2.1 billion. GNP fell from $103.1 billion in 1929 to $75.8 billion in 1931 and bottomed out at $55.6 billion in 1933.
Wikipedia tells us that, yes, imports from Europe did fall from a 1929 high of $1.3 billion to just $390 million during 1932, so the theory must be working? But alas US exports to Europe decreased from $2.3 billion in 1929 to $784 million in 1932.
So rather than create jobs, jobs were lost, and plenty of them. Unemployment was at 8 per cent in 1930 when the SmootHawley tariff was passed, but the new law failed to lower it. The rate jumped to 16 per cent in 1931, and 25 per cent in 1932-33.
It was not until World War II, during which the American economy expanded at an unprecedented rate, that unemployment fell below 1930s levels.
When people talk about The Great Depression, they often mention the sharemarket crash. However, they usually forget to talk about the SmootHawley Tariff Act, which is unfortunate.
As with the Smoot-Hawley act, unexpected things will happen, and there will be unexpected impacts on New Zealand in 2017. The first way we are often directly affected by what other countries do is through foreign exchange and interestrates movements. Our prices may become less or more competitive. Then our exports may be impacted by changing trade or domestic policies of other countries. Border controls may become slower, transaction costs higher. Access may be denied to markets, or shipping lanes may become more difficult.
Recent significant reductions in international dairy prices, which took billions of dollars off New Zealand’s dairy export receipts, were driven by the removal of milk quota limits in Europe, international sanctions against Russia following some activity on Russia’s western border, and the Federal Reserve’s and other central banks’ monetary policy settings, among other things.
Political uncertainty, including for example impeachment proceedings in South America, has seen some currencies devalue, making their products more cost competitive in USD terms, thus reducing our meat schedules here in New Zealand.
As an exporter, geo-political risk is a very real reality. I know we live in a very competitive, fast-changing world. We need to think every day about how we manage our very real geopolitical risks, focusing on those things we can control. So messy politics in South America means our sheep and beef farmers receive less for their meat.
A few years ago, the Hurricanes rugby team used to have a mantra, ‘‘expect the unexpected’’, which became so apt they dropped it. In 2017 that should be the mantra for global geopolitics. The challenge for exporters in New Zealand is how we adapt and adjust to the very real challenges this increasingly unexpected geo-political disruption will present us.
Just as Steve Jobs invented the ‘‘iPhone’’, perhaps now Donald Trump is ushering in a new political disruption – ’’iPolitics’’. The jury is out on what impact, both negative and positive, this may have on New Zealand, but we will need to be fleet of foot and be very open to looking at things differently.
Conor English is the former chief executive of Federated Farmers and current chairman of Agribusiness New Zealand.