The US-China trade conflict is developing into a ‘cold’ war for global economic supremacy and could result in New Zealand being forced to pick a side between the two global superpowers, according to Rabobank’s Head of Financial Markets research for Asia-Pacific Michael Every.
And with this threat on the horizon, Mr Every says New Zealand’s agricultural sector should aim to reduce its reliance on individual trade partners and place an increased focus on diversification of its export markets.
Visiting New Zealand last week to speak at a number of Rabobank events in both North and South islands, Mr Every said he expected US-China relations to deteriorate further.
“The clash between the US and China is not going away, it’s not an aberration, it’s going to get worse,” he said.
“China and the US both want to be number one, they both want to be sitting in the driving seat for who gets to set the rules for the global economy and who everyone looks to as the global leader and there’s only room for one in that chair.”
Mr Every said increasing tensions could produce a scenario where New Zealand is forced to choose sides.
“China is aggressively pursuing trade expansion and there may come a time when a gun is put to New Zealand’s forehead and you’ll be asked are you with us, or are you with the US,” he said.
“If you answer the US, the Chinese could slam the door shut.”
Mr Every said China’s growing global influence and use of policies inconsistent with free trade had provoked the US to retaliate with tariffs on Chinese imports and other as anti-China trade policy.
“Last month the US concluded a new trade deal with Canada and Mexico, which requires them to notify the US before entering into any agreements with non-market economies such as China. This was economic warfare dressed up as trade and the type of move the US may try to employ in the Asia-Pacific region.” he said.
In March this year, 11 nations, including New Zealand, signed up to the Trans Pacific Partnership (TPP).
The TPP was originally intended to include the US, but it withdrew from negotiations in 2017. In January, however, US President Donald Trump signalled he could push harder for “substantially better" Pacific trade deal for the US.
“At some point the US is going to come crashing back into the Asia-Pacific region because it’s so geopolitically important,” Mr Every said. “And the message may well be that the price of protecting New Zealand is a new trade deal on their terms and which forbids, or greatly restricts, dealing with China.”
An ultimatum from either of the US or China would place New Zealand in a perilous position given its significant trade ties with both countries.
New Zealand’s agricultural exports to China have grown rapidly in recent years and China is now New Zealand’s most important trading partner. New Zealand also has a significant trade relationship with the US as well as historically strong diplomatic and cultural ties.
Mr Every said New Zealand farmers and exporters should look to diversify offshore markets, before any concessions are demanded by the US or China.
“New Zealand’s agricultural sector should be looking to further develop links into new growth markets like Japan, Indonesia and India,” he said. “While this may take a lot more effort in the short-term, it will leave agricultural exporters in a better position should the US or China start making demands down the track."
“New Zealand needs to look at it as an opportunity, rather than a threat, and ask ‘what brand can we build for agriculture that allows us to thrive’, because trade protectionism won’t go away.”
Mr Every said with increased market volatility likely, New Zealand farmers should also be taking a close look at their balance sheets.
“Farmers would be wise to shore up their balance sheets so they are robust enough to cope with a scenario where one of New Zealand’s major trading partners withdraws from the market,” he said.
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Publication date : 11/13/2018