It wasn’t supposed to be like this.
After many years of tough negotiations to get it ‘across the line’, the TPPA was finally signed, sealed and about to be delivered, only to be brought crashing down by the newly-elected President of the United States. Never one to mince his words, Donald Trump called it ‘a potential disaster for our country’ and made the USA’s withdrawal from the agreement one of his priorities on his first day in the White House.
In a rollercoaster ride of tweets, executive orders and policy statements, the new U.S. President appears to be ushering in a new era of American protectionism. As well as ‘bringing jobs back to the USA’, he also threatened to slap heavy tariffs on Chinese goods, prompting some analysts to fear it could trigger a trade war.
A trade war between the USA and China is the last thing the world, or New Zealand, needs.
This rapidly developing scenario is creating new economic and policy challenges for many countries around the world, including New Zealand. Historically, we have carefully managed our relationships with China and the U.S. And certainly the NZ Government won't want to be forced to choose sides in a world where globalisation means countries are more interconnected than ever before.
The uncertainty around global trade could also potentially upset the health of two-way trade between China and New Zealand. What’s more, the collateral damage on global trade, currencies and international relations would further magnify the economic shock.
As issues go, it's a big one. China is now our largest goods trade partner. In the year to June 2016, New Zealand's total trade (imports and exports) with China was $22.86 billion, compared to $16.25b with the U.S. NZ does not want to be placed in a ‘nightmare scenario’ where it risks being penalised by either side for trading with the other.
China is reportedly considering ways to retaliate against potential unfair U.S. trade practices, possibly through stepping up the scrutiny of American companies located in China.
Speaking to the New Zealand Herald recently, Auckland University Business School trade economist Dr Asha Sandaram commented: "Rationally speaking, there shouldn't be a reason we should go into a trade war. But we have to be prepared."
China and the U.S. economies are now so intertwined that doing damage to one must hurt the other. However, as can be seen by other internal and foreign policy decisions, the Trump administration continues to be highly unpredictable.
To trade with the world, we’ve got to get out there.
For New Zealand, continued trade with other nations is the lifeblood of our country, so we’re not sitting idly by waiting for Trump to throw us a few ‘crumbs from the table’. Whilst the USA, as the world’s biggest global economy, cannot and will not be ignored, our trade with other nations, in particular China, has potential for substantial growth in the coming years.
As part of a new trade strategy called Trade Agenda 2030, PM Bill English announced that over NZ$90 million will be invested in the country's trade to achieve the target of increasing New Zealand’s free trade coverage to 90 per cent of exports by 2030.
Clearly one of the keys to achieving this is by continuing to cultivate our trading relationship with China.
It was no surprise therefore, at the amount of attention generated in business circles when China’s Premier Li Keqiang made the first official visit here for 11 years in March 2017. The purpose? Trade talks.
Premier Li spoke about the importance of bolstering free trade at a time of backlash against globalisation and growing protectionism in the USA.
"This will give a strong boost to trade links between China and New Zealand and will send a positive signal to the world and to the region that our two countries are committed to free trade."
Bill English said that New Zealand was hoping for improved access for some exporters – in particular dairy – under a re-negotiated free trade deal. This push for change had been prompted when Australia signed its free trade agreement in 2015 on better terms than New Zealand's 2008 model.
English said the projected FTA upgrade would help achieve the Government's target of $30 billion in two-way trade by 2020 - up from $22.86 billion now.
To signal the developing level of economic and trade cooperation between our two countries, a number of new measures were also announced. These included:
• Signing China's "Belt and Road" initiative - a programme of transport and technology "corridors" across the world with potential for joint infrastructure projects;
• A faster border clearance of goods for "trusted exporters";
• Increasing direct flights between China and New Zealand from 49 to 59 a week;
• A six-month trial for exports of chilled meat from New Zealand to China;
• Further co-operation in agriculture, fisheries, South Pacific, environmental research and health and intellectual property;
• A commitment to work together on climate change plans;
• A "Year of Tourism" booster package – currently Chinese tourists spend $1.7 billion a year, which is second only to Australian visitors.
China is now our largest goods export partner, with exports to China at $NZ12.2 billion in the year to June 2016. And the first round of negotiations with China to upgrade its free trade agreement started from 25 April 2017.
TPPA – dead or just dormant?
Now that the Trump administration isn’t coming to the party, is the TPPA possible? Certainly there are sound reasons for us to try and keep it alive. Talking to business leaders in March 2017, Bill English made it quite clear there was potential to revive the TPPA, “While the US withdrawal is a setback, it is not the end of the road.” Currently, the biggest advantage of keeping the TPPA would be Japan's involvement, because NZ currently has no individual agreement with Japan.
Ever the pragmatist, Bill English has also acknowledged that New Zealand will need to work with other countries to try and revive the TPPA. “We have to trade and so we'll continue to advocate for the TPPA, maybe in a way that means the U.S. can join it later if they change direction, but in the meantime try to get the benefits that we can from the rest of it.”
Once again the key may be China. Recently, New Zealand’s Foreign Minister told Chinese Foreign Minister Wang Yi that he would like to see China in the TPPA and they agreed it should be discussed further.
Clearly, this is being taken seriously, as Chinese President Xi Jinping, speaking at the annual meeting of the World Economic Forum in Davos Switzerland, said China would be happy to take over the leadership role in global trade that the United States has now relinquished. Currently no timeframe exists so this may be a matter of ‘wait and see’.
Exploring other avenues for trade.
In the meantime, New Zealand is also exploring other options. The formal launch of trade negotiations with the European Union is scheduled to begin later this year, and whilst the uncertainty with the UK’s Brexit decision is still cause for concern, there are also opportunities to be had. The potential closing of one door with the possible failure of the TPPA has also prompted the Government to look at other avenues, including opportunities in Latin America and India. The PM has also said that the Government are still wanting to look at expanding opportunities in the U.S.
Creating and embracing opportunities is the key to a brighter future.
New Zealand has to pull off a difficult balancing act in a fast-moving and ever-changing scenario. We are making concerted efforts to gain a trade deal with U.S. whilst maintaining and cultivating relationships with other trading partners. Certainly, the level of investment and interest from China is fundamental to any export strategy.
The Trump administration is also realising that in an interconnected world, trade protectionism is a double-edged sword. As John Key commented when he was asked about Donald Trump’s decision to quit the TPPA, “The U.S. isn't an island; it can't just sit there and say it's not going to trade with the rest of the world. At some point the U.S. would want to think about how it accesses those very fast-growing markets in Asia, and what role it wants to have in Asia.”
In March, at the launch of Trade Agenda 2030, PM Bill English told business leaders in Auckland that the disruption of international trade was the biggest threat to the country's economy. “It's important that we remain an open and outward-facing country, focused on creating and embracing trading opportunities.”
It looks like appropriate effort is being made to maintain and develop links with all of our trading partners and bolster confidence among NZ business. Certainly the last government initiatives have been generally positively received by industry leaders and business commentators, including major exporters like Fonterra and Beef+Lamb New Zealand.
Will we achieve a satisfactory bilateral agreement with the U.S. or will China revive the TPPA to such a level that the U.S finally finds it attractive? Only time will tell.