Our politicians sometimes tell us we’re a trading nation – usually when they’re embarking on a trade delegation. It’s a pleasing self-image: plucky little New Zealand wheeling and dealing to pay our way in the world, championed by wise Helen Clark, wily John Key, charismatic Jacinda Ardern and now jolly Christopher Luxon.
But our trade as a percentage of GDP is below the OECD average and significantly lower than that of other small, open, liberal democracies. This measure was flat for 30 years; it’s been in decline for the past 10, despite our free trade deal with China. Signed back in 2008, open access to the world’s fastest-growing economy with its huge population has kept our noses above the waterline. Just.
But China’s post-Covid economic slowdown, accompanied by tensions with the West, are complicating the relationship. The ominous geopolitics and our desperate need to grow and diversify our export markets were the backdrop to Luxon’s recent visits to Singapore, Thailand and the Philippines and his interest in engaging with Indonesia, Malaysia and Vietnam.
There were two grand assumptions baked into the West’s engagement with China. The first was comparative advantage. As nations open their markets to one another, each will have strengths and weaknesses in different sectors – so both are better off taking advantage of each other’s expertise and resources, producing more than they could in isolation. The second assumption was liberalisation: capitalism requires the free flow of information, so as the world’s second-largest nation’s markets developed, it would have to allow independent media and freedom of speech. This would lead, gently but inexorably, to democratisation. Selling baby formula in Shenzhen would usher China into the End of History.
But China has not liberalised. Its paramount leader, Xi Jinping, has abolished the traditional term limits for his job and concentrated political power in his own position.
Under his leadership, China has adopted a policy of mass detention of Uyghurs and other Muslims in its western provinces and cracked down on democracy protesters in Hong Kong.
In early 2022, it announced a “no limits partnership” with Russia immediately before Putin’s invasion of Ukraine.
In 2016, three US economists published a landmark paper describing “the China shock”: calling the comparative-advantage theory of free trade into doubt. It showed that the loss of manufacturing jobs to China hit the US hard, causing “higher unemployment, lower labour force participation, and reduced wages in local labour markets”.
Subsequent studies have shown similar results for European economies engaging with China. The West appears to have enriched an emerging superpower which has values antithetical to its own while inflicting enormous damage on its own economies.
Changing allegiances
So our traditional allies are backing away from China for geopolitical and economic reasons. This is the backdrop to the debate around Aukus, the new tripartite defence agreement between Australia, the US and the UK. The core component, Pillar 1, involves transferring nuclear propulsion technology to Australia, enhancing the deterrence capabilities of that country’s submarine fleet in the Indo-Pacific region. But Pillar 2 will involve the sharing and development of cyber capabilities, artificial intelligence, quantum technologies and additional undersea capabilities alongside a deep-space radar programme.
Luxon expressed his interest in joining during a state visit to Australia late last year. China warns that the agreement reflects a “Cold War mentality” that may damage peace in the region – but it also conducted a cyberattack on our Parliament in 2021.
New Zealand’s foreign affairs, defence and intelligence establishment is always desperately eager to involve us with our traditional allies (some politicians complain of a culture of “attaboyism” among our senior officials, who seem more interested in pleasing Canberra and Washington than in advancing New Zealand’s interests). Helen Clark, a staunch critic of Aukus, notes that “blocs that shared New Zealand’s democratic values, like the US, the UK, the European Union and India, had very rarely opened themselves up to trading with New Zealand.”
There’s also the question of the US’s strategic judgment – its tendency to blunder into bloody and catastrophic military adventures is not an ideal quality in an ally – and the dysfunctionality of its domestic politics. What happens if we irritate China by signing up to Aukus and a re-elected Donald Trump simply rips the agreement up?
Desperate scramble
Foreign policy under the previous Labour government was not very consistent. In the first term, then-foreign minister Winston Peters announced a “Pacific reset”, focusing on our near neighbours in the region. Under Covid, we became the “smug hermit kingdom”, as John Key put it, and when we opened up again, Ardern’s focus was on the US and Europe. Foreign minister Nanaia Mahuta promoted an “indigenous foreign policy” that mostly involved staying in New Zealand. Now, we’re desperately scrambling for new export markets because we’re entering into a new and still vague military alliance against our most important trading partner.
Luxon has told his diplomats and trade officials he wants upgrades to existing agreements with Singapore, Thailand and the Philippines within two years. He’s formed a foreign affairs group of ministers – Peters, Trade Minister Todd McClay and Defence Minister Judith Collins – to drive the work.
Labour was cautiously supportive of Aukus when it was in government but is more sceptical in opposition. It recently hosted a discussion at Parliament, at which Clark aired her reservations and former Australian foreign minister Bob Carr attacked Pillar 2 as “fragrant, methane-wrapped bullshit”.
It’s hard to know how serious this is: in 2017, Labour led a massive protest campaign against the Trans-Pacific Partnership agreement then reversed its position a few weeks after forming a government. When it’s back in power, our trade and defence policies may pivot yet again. A real trading nation would treat both issues more seriously.
