Our new podcast On the Map takes you into the world of trade wars, good deals and bad deals, and New Zealand's place in the world.  This week, the global economy is on a knife edge. Trade wars escalate. And the World Trade Organisation limps on. How does New Zealand stay out of trouble? Economist Shamubeel Eaqub, former CEO of Xero Rod Drury, and NZ Herald business editor-at-large Liam Dann join Josie Pagani in "Trade or Tragedy?".

The post World War II consensus that global trade is good for us and stops us going to war with each other is under threat, according to trade experts.

"The global economy is on a knife edge," economist Shamubeel Eaqub says.

Trade wars between the United States and China, accusations of currency manipulation, and the imminent collapse of the World Trade Organisation (where disputes between countries are sorted out), are all contributing to a drop in confidence globally.


"This piecemeal approach to dismantling the post-war trade system will have a negative effect on New Zealand. We get a relatively high level of influence when it comes to formalised systems like the WTO. We get to influence policy," Eaqub says.

If the WTO collapses, so does our ability to influence the global rules on trade, he says.

The WTO is barely able to function,  after the United States refused to rubber stamp new judges. With two of the three remaining judges due to end their term in office in December, the WTO will be unable to take on new cases, as a minimum of three judges is required.

New Zealand is currently involved in six disputes at the WTO - one as a principal complainant and five as a third party to other members' disputes.

The WTO is like a Supreme Court for the world trade system but that could soon change.

"Enforcement is disappearing before our eyes. It's going to collapse by the end of the year … and a world without  trade rules is scary for small countries like New Zealand," US economics editor for the Economist magazine, Soumaya Keynes, says.

Soumaya Keynes, US Economics Editor for the Economist Magazine says the collapse of the WTO is imminent, and while Trump may be temporary, the damage done to the international trade system isn't. Listen to the full interview with Soumaya Keynes on the episode "Keep lots of Friends!".
Listen to "Keep lots of friends" on Spreaker.

Liam Dann, NZ Herald business editor-at-large, agrees.


"There's been some kind of downturn lag … It's just starting to hit New Zealand now."

Reserve Bank governor Adrian Orr shocked businesses and commentators recently when the bank cut the OCR to a record low 1 per cent, even though the New Zealand economy appears to be strong.

The trade war between the United States and China has delayed any chance of the big companies like Microsoft, Amazon and Google getting their servers into China, which makes it tougher for companies like Xero to be the "fast followers" of the big US companies, says Rod Drury, former CEO and chairman of Xero.

"We're the meat in the sandwich when it comes to the US and the West saying we can't deploy Huawei, for example."

But there is hope, says Drury.

Compulsory savings in Australia and more recently in New Zealand with KiwiSaver and the "Super Fund" mean there is now a lot of domestic money looking for a home.

"The opportunity for doing domestic investment is hugely exciting," he says.

"There's also a real opportunity for New Zealand to be the bridge between east and west. We have an FTA [Free Trade Agreement] with China - and good relationships with the United States."

Dann finds hope in our practical approach to trade.

"There's almost no one we won't trade with (except maybe Iran and North Korea). New Zealand is very pragmatic about these things, and across (political) parties too. We're pragmatic traders."

Prime Minister Jacinda Ardern speaks at the China Business Summit 2018. Photo / Herald file
Prime Minister Jacinda Ardern speaks at the China Business Summit 2018. Photo / Herald file

The future for trade still looks shaky, according to Keynes.

"Is this the end of golden weather for trade? I don't know, but it's certainly getting cloudy," she says.

"This is not just about Trump. People didn't notice the clouds before. Frustrations had been building for a while. Trump has just been more aggressive about it.

"The 'norms' haven't totally broken down yet, but I'm very worried."

Her advice to New Zealand?

On the trade war, "Straddle the US and China hard" and as much as possible "sit this one out". Most importantly, "keep lots of friends".

"The rules-based system is designed to protect smaller countries when big countries throw their weight around."

The On the Map podcast was made for the Herald with the support of the Ministry of Foreign Affairs and Trade. If you would like to send comments or ask questions about this podcast, please contact Josie Pagani on josiepagani@gmail.com or at twitter @josiepagani