Some tough decisions for a new Government in a gyrating geopolitical world

Aotearoa New Zealand has been labelled by The Economist magazine as the smallest, newest, and most isolated ‘real’ country in the world. So globalisation matters much more to us. Recent decades of East Asian growth have raised around 1 billion people from poverty to middle-class, a massive achievement. It has benefited us too, being responsible for most of the growth in our own GDP over the lifetime of most New Zealanders. Despite all the calls for more value-added, product and market diversification, and supply chain inter-connection, our wealth has mainly derived from exporting commodities to East Asia especially China, delivering favourable terms of trade, and feeding directly into the economic and fiscal resilience that we have seen most recently in our recovery from covid.

But we know there are problems with globalisation – loss of national and cultural sovereignty, pressure on the environment, uneven distribution of benefits, and this means that social license must be at the forefront of governments’ thinking on trade policy.

The Labour Government has worked to balance our trade interests (largely in East Asia) and our security interests (largely with the Five Eyes countries). But this balancing is going to get a whole lot more difficult for a National Government, because the world is getting a lot rougher: the Russian-Ukraine invasion, Chinese-Taiwan tensions, and now Israel-Hamas warfare, are making this a very difficult year to navigate. We will see continuing pressures on oil prices, on exchange rates, on commodity price and availability, and on other measures of risk. Both the US and China are likely to increase pressures on countries like New Zealand to join their political blocs. China’s recent restrictions on Australia are well known. We have been pressured to join the US-led Indo-Pacific Economic Framework; we are now likely being pressured to join a second tier of AUKUS, and also perhaps an anti-Hamas coalition. These are pressures that the ASEAN countries have had to balance for years and we should learn from how they manage them.

Christopher Luxon will likely front at the Apec Leaders’ Summit in San Francisco in a month. In the bilateral meetings he will be pressured by Apec leaders. But hopefully he will give more attention to the plenary meetings where he can continue our support for multilateral pressure against import protection, continue our innovative new approaches with other innovative economies (e.g. the Digital Economy Partnership Agreement), while keeping pressure on WTO reform. This may not sound exciting, but these institutions set the rules of the economic game and protected us for decades. What is being offered to replace them are more inward-looking policies (which The Economist magazine has called ‘homeland economics’). The US is absorbed in its domestic political arguments. China is struggling to adapt to a world of slower growth. Whether it is MAGA or Made in China 2025, there are tough times ahead, and we should resist the calls for a ‘Little Aotearoa’ approach ourselves.

Increasingly trade policies must also focus on climate change. Whether it is the fuel of ships or planes, or embedded in the merchandise products they carry, international trade involves huge carbon emissions. The EU have already designed a mechanism to tax carbon emissions in imported products (the CBAM), and that is only a first step. It will not be long before our dairy industry with its methane and nitrous oxide emissions attracts opprobrium from overseas consumers and restrictions from overseas regulators. The incoming Government needs to take fast action on New Zealand dairy emissions if we are to get ahead of these developments.

New Zealand international aid and refugee migration will also need to be rethought in the face of extreme climatic events. Most of our current concern is with climate disasters in the Pacific Islands. But these will be minor compared with the fragility of life for over a billion people living in the river deltas of South and South-East Asia. Volatile river flows, saline infiltration, heat damage, irregular monsoons, and uncontrolled flooding all look likely to worsen. They will cause geopolitical tensions (China controls the headwaters of most East Asian rivers) and major refugee displacement. Is our immigration policy fit for future purpose? Could the region’s economic benefits of the last four decades be reversed? Some tough stuff for the new Government to think about!

• Alan Bollard is Professor of Practice at Te Herenga Waka—Victoria University of Wellington. He is also Chair of the NZ Pacific Economic Cooperation Council, Chair of the Centres for Asia Pacific Excellence, and NZ Governor of the Economic Research Institute for ASEAN and East Asia.