China trade weapon claims ‘ring hollow’
We had some good economic news last week with reports that New Zealand goods exports during Covid-19 were generally holding up.
Higher export prices for dairy, kiwifruit and logs helped drive up overall export prices.
It was a bright reprieve amid otherwise bleak Covid-19 news.
But commentators couldn’t resist leaving us with a warning: New Zealand risked putting all its eggs in one basket, with China being singled out.
This is an issue that doesn’t concern New Zealand alone.
In our Asia Pacific region, China dominates and is the No 1 export partner for most countries.
Ominous warnings about trade being weaponised against us, as some argue it has against Australia, ring a bit hollow when Australian-China trade is up 4 per cent compared to the previous year.
The challenge, of course, is that governments don’t trade with each other. Companies do. And just like gravity, trade is subject to some immutable rules.
In a market, sellers will generally sell to those who pay the best price, and often to those they enjoy a good relationship with, as Māori businesses, which do particularly well in Asia, know well.
Buyers want the best products and the best price.
For New Zealand, these demand and supply curves often cross in Asian markets generally, and China specifically. Covid-19 hasn’t changed that.
So, for those who say we need to diversify, the question needs to be asked: Where?
Will that market pay top dollar? Are they reliable payers?
It is easy to look to the Government for an answer, but ultimately it comes down to market forces and business decisions.
It’s interesting to look at what happens when the Government sets frameworks that New Zealand exporters can use, opening the doors that companies go through.
When the Asia New Zealand Foundation was established in 1994, New Zealand had no freetrade agreements with Asian countries.
Today, it has seven bilateral agreements with Asian economies, and a host of other Asian economies are members of multilateral agreements.
This has not happened by chance but by hard work.
It’s encouraging to know that when barriers are reduced, playing fields levelled and New Zealand can play to its comparative advantages, we can compete successfully, despite distance and a small domestic market.
The last quarter’s trade figures pay testament to that.
Not only has there been a proliferation of trade agreements, but New Zealand has also forged its own path in quite a distinctive way.
New Zealand, aside from Singapore, is the only country to have signed free-trade agreements with the People’s Republic of China, Hong Kong and Taiwan.
In fact, we beat Singapore to that claim.
It was a truly remarkable achievement, and one that probably couldn’t happen today. It is an example of political and economic windows opening briefly, then closing.
Taiwan, an island of 23 million people, has been in the news a lot more than usual, mostly because it has been held up internationally as an example of an effective Covid-19 response.
But it’s also worth noting the growth in the New Zealand-Taiwan trade relationship.
In the second quarter this year, Taiwan overtook the United Kingdom to become New Zealand’s sixth largest goods export market for that period.
Think of that: more goods exports to Taiwan than the UK.
In particular, the Taiwanese like our sheep and beef, kiwifruit and apples.
The growth in the TaiwanNew Zealand economic relationship comes courtesy of a grand-sounding agreement signed in 2013: the Agreement between New Zealand and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu on Economic Cooperation (Anztec).
It was Taiwan’s first freetrade agreement with a developed economy.
It’s widely regarded as a highquality agreement concerned not only with the removal of tariffs, but also with many other aspects of the economic relationship between New Zealand and Taiwan, including film and television co-production provisions, and air links.
Most distinctively, there is also a chapter on indigenous cooperation, designed to strengthen cultural, people-to-people and trade links between Taiwan’s indigenous peoples and Māori.
Anztec is but one example of how the opening of doors by the Ministry of Foreign Affairs and Trade, New Zealand Trade and Enterprise, and other agencies is crucial to New Zealand’s economic success.
With seven of our 10 largest trading partners in Asia, these economies will be fundamentally important as we emerge from Covid-19,
Based on the trade figures from the last three months, there is some optimism Asia is going to continue to underpin recovery.
Excitingly too, China’s rapid economic growth could well be replicated by other economies across the Asian region, and the immutable laws of trade state increased demand is generally very good for sellers.
It also gives New Zealand options.