India doesn’t make the top 10 of our trading partners but as our top two- China and the United States – look increasingly troublesome, wooing it seems right.
It’s a pity voters don’t value foreign affairs and trade as high-priority issues, because the announcement that New Zealand and India are entering into comprehensive free trade negotiations – timed to coincide with Christopher Luxon’s trip to the subcontinent and his meeting with Narendra Modi – is a genuine achievement. It’s a gold star on Luxon’s report card, thus-far blotted with “could do betters” and “must try harders”; a peacock feather in his pashmina cap.
Discussions with India faltered during the John Key government and were largely abandoned under Jacinda Ardern, whose government seemed bafflingly indifferent – even disdainful – towards the rising democratic super-power. Winston Peters, Foreign Minister then and now, attempted to reset the relationship in early 2020, but Covid intervened.
Luxon’s campaign promise that he would deliver a free trade deal in his first term was greeted with bemused contempt: everyone knew India was a lost cause. Yet here we are. Much of the credit goes to Peters and Trade Minister Todd McClay, but just as the Prime Minister carries the blame for every overheated or undercooked school lunch in the country, their diplomatic wins are his wins.
Of course, this is not a done deal – just a deal to try to reach a deal – but it’s more than previous governments delivered, and it advances the nation’s economic and security interests at a time when both are sliding towards crisis.
A day after the trade announcement, Luxon addressed the Raisina Dialogue, a global conference on geopolitics and geoeconomics, delivering a speech so bland and devoid of meaning it could only have been written by a large language model – or an Mfat official.
But it explicitly linked trade with defence, and our nation’s shared interest in the stability of “the Indo-Pacific region”, a phrase much disliked by Beijing because it is calculated to exclude China, replacing it with India, its primary regional rival.
During the Cold War, India refused to pick sides and it has continued to assert this nominal neutrality while entering into a security arrangement with Australia, Japan and the United States (“the Quad”), designed to contain China’s expansion.
New Zealand has not been invited to join the Quad – sad trombone sound – but Luxon has pledged to help advance its initiatives.
In listening mode
New Delhi has arguably the most beautiful government precinct in the world (though it’s hard to make out through the dense brown smog), partly modelled on the neoclassical architecture of Washington DC. While a beaming Luxon was swept through its palaces and into the presence of Prime Minister Modi, India’s most significant leader since Nehru, a solemn-faced Peters touched down in the US capital for a meeting with senior US officials.
He was there to listen, Peters told media, to hear what the US wanted from us, and he would relay this to cabinet before disclosing it publicly. Peters was maximally vague about his meeting with Secretary of State Marco Rubio. He was very pleased. It was very meaningful. Dialogue is ongoing.
It’s not yet clear if our exports will face tariffs. Australia enjoys a closer security relationship with the US, and a free trade deal, and it is already facing significant duties on sales into the US. There is a domestic debate about whether it should reciprocate, triggering a trade war.
The US faces a debt crisis: it spent more than a trillion dollars on interest payments last year, more than its entire defence budget. Donald Trump would like to somehow reduce this debt while spending even more money extending his tax cuts from 2017. At the same time, he wants to rebuild his nation’s industrial base and re-establish the US as an export economy. This will be difficult given the inflated value of the US dollar.
Trump’s economic advisers have suggested he achieve these conflicting goals via a radical restructure of the global financial system.
In this, trade tariffs would pay for the tax cuts, but military allies could bypass the tariffs and remain under America’s security umbrella if they exchange their US debt holdings for zero-interest, 100-year bonds and agree to set their currency rates at levels advantageous to US exporters.
‘Sanewashing’ Trump
Agreeing to a US default on its sovereign debt in exchange for trade and security guarantees that Trump could tear up on a whim sounds like one of the worst offers in the history of diplomacy: a protection racket without any guarantee of protection.
Some analysts argue that this proposed framework – dubbed a Mar-a-Lago accord after the name of Trump’s Florida resort – constitutes “sanewashing”: an attempt by pro-Trump economists to build a coherent theory around their president’s behaviour, which has no rational basis behind it.
But the very suggestion is sending panic through financial markets, triggering fears of a global recession.
It’s probably part of the motivation behind India’s interest in accelerating our negotiations. Its Commerce Minister, Piyush Goyal, joked a deal could be done in 60 days, a timetable even Luxon finds unlikely.
Whatever is happening in the US – method or madness – everyone will want to diversify away from America.
China is still our primary trading partner and the US is No 2; India is not even in the top 10. This will take time to turn around. But it would be nice to have an export market with a large population and rapidly expanding economy that isn’t an authoritarian regime conducting cyber attacks against us and performing live-fire naval exercises in the Tasman Sea, or an erratic global hegemon deliberately trying to tear global capitalism down around itself.
