COMMENT:

The shadow boxing between Donald Trump and Xi Jinping is finally over.

But how long before New Zealand exporters become swept up in the fallout from the United States-China trade war?

This is the critical question when it comes to risk management around the board tables of top corporates like Fonterra and Air New Zealand.

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Particularly so in the wake of the US move to finally slap levies on US$34 billion worth of China's exports at 4pm NZT yesterday (midnight Thursday night, EST), and China's vow that it will follow suit.

Apec executive director Alan Bollard — the highly regarded former Secretary to the Treasury and one-time Reserve Bank governor — gave me a calm readout on the clash between the two giants of Asia-Pacific trade.

Bollard is quietly confident that New Zealand will not feature among early collateral damage in a stoush that could grind on for months — certainly well past the US midterm elections — unless there is a tactical shift in Washington, DC.

He points out that New Zealand is a bit unusual.

First, because New Zealand tends to be right at the start of many global supply chains.

Second, because New Zealand is not really integrated into the complex manufacturing supply chains that, for instance, feature between the US and Mexico and also Asean and China. "In one way that's a bit simpler and it also means we're a bit further from the sources of some of the trade frictions," Bollard told me in an interview at last weekend's Otago Foreign Policy school.

But he has some concerns about the trade distortions and trade diversion which might arise depending how the US commentary on Canada over its dairy protections ultimately plays out. "It makes a very big difference to what we (New Zealand) gets out of CPTPP if Canada makes concessions to the US.

"I think from New Zealand's point of view generally, we are going to feel the effects later rather than sooner.

"We've got a little bit of insulation because of the nature of our production and exports here."

But Bollard does caution that non-tariff barriers are on the rise. His team is hearing a lot about investment decisions being held up while corporates try to understand what it could all mean for the current model of multinational expansion across the Pacific.

"Now they are having to decide what they locate in the US or what would they deliberately keep out of the US.

"And that has meant quite a re-examination of supply chains which have now got so complicated that you can't necessarily assume that an end business understands where their products are going or their inputs are coming from."

Bollard is now in the final months of his second three-year term as executive director of Apec — the forum which knits together 21 Asia-Pacific rim nations in the interests of freer trade.

Or, as the Apec website rather prosaically puts it: "to create greater prosperity for the people of the region by promoting balanced, inclusive, sustainable, innovative and secure growth and to accelerate regional economic integration".

He is highly regarded not simply as a persuader — the role does require some sophisticated arm-twisting — but a leader who operates from principle.

Unlike some predecessors, he did not come into the role as the result of a political fix: he was appointed on ability.

But he has a difficult road ahead.

His final Apec meeting will be in Papua New Guinea.

The Apec Leaders are the headline act. Not only are Trump and Xi expected, but also other heavyweights like Vladimir Putin. And of course, there will be players like Malcolm Turnbull, Jacinda Ardern and Justin Trudeau.

Along with leaders from host PNG, there will also be Brunei, Chile, Hong Kong, Indonesia, Japan, South Korea, Malaysia, Mexico, Peru, the Philippines, Singapore, Chinese Taipei, Thailand and Vietnam.

In Vietnam last year there was some nervousness about whether Trump would come and what tack the US would take in talks.

The US President chose Apec to open up on another, arguably competing construct of the Indo-Pacific, which does not include China.

But Bollard notes that after some six nights of laborious drafting, the leaders' statement was finalised.

Other economies had exerted pressure on the US by indicating they were prepared to fight to uphold multilateralism and the World Trade Organisation.

Bollard's contention is that the United States has decided Apec is important — partly because positions there are not legally binding. They are voluntary and based on consensus.

"I think this is a way they can keep channels going — but there is no guarantee about that, they haven't actually said that formally."

New Zealand has skin in the game when it comes to Apec's future. It will host Apec in 2021.

The organisation is four times larger than it was when NZ first hosted Apec in 1999.
Bollard says that reflects mission creep and the secretariat is trying to rationalise the workload but has yet to get agreement on which bits get cut.

The challenge is to become fit for what he calls the "new globalisation" — a world where data flows are driving business.

He believes New Zealand should focus on the new cross border agenda — not just things like milk powder — and new issues like climate change.

Bollard will have long stepped down by then. He has no plans to retire, does not want to run another large organisation, but will return to Wellington to live.