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Don’t Toy With NZ’s Trade Network To Fix Covid-19 Recession, Says New Report

Now is not the time to rethink New Zealand’s hard-won network of trade ties around the world with protectionist policies, warns a new report Reinforcing New Zealand’s trade relationships after Covid-19 by the New Zealand Initiative.

While the Covid-19 crisis exposed vulnerabilities in the global supply chain, the answer isn’t to create new trade barriers, said the report’s author and chief editor Nathan Smith.

Smith said there is a definite and growing reaction emerging among some policymakers and experts that surviving the next economic shock requires New Zealand to rethink its global connections.

Earlier this month, NZ First MP and forestry minister Shane Jones tabled an idea for export controls on New Zealand’s $5 billion raw log industry.

Other trade experts have suggested the Covid-19 crisis is an opportunity for New Zealand to diversify its exports beyond China. Still, he did not go so far to suggest new tariffs or barriers to encourage Kiwi firms to do this.

“It’s a natural feeling in times of stress to look for a scapegoat, and many are pointing at free trade."

“But efficient supply chains and trade relationships are not what caused, for instance, the lack of personal protective equipment (PPE) when this crisis began. Simply put, markets respond to demand and there wasn’t a high demand for masks before the crisis. It’s the government’s job to prepare these sorts of things,” Smith said.

Placing new controls on Kiwi goods to encourage domestic production is not the best way for New Zealand to recover from the looming economic recession.

This week, trade minister David Parker, together with counterparts in Australia, Singapore and the UK, expressed a commitment to ensure free trade while acknowledging the importance of retaining some aspects of critical goods manufacturing domestically.

The four ministers resolutely said the present crisis only strengthens the need for better trading relationships and urged countries around the world to “stand still on trade barriers and, ideally, roll them back.” Such positive reinforcement of an open trading system should be encouraged.

The Ministry of Foreign Affairs and Trade has toiled diligently for decades to secure a network of high-quality free trade agreements with most of New Zealand’s major trading partners.

These agreements are an insurance policy for precisely the economic stresses occurring today by giving Kiwi companies options. And since many of the agreements come with compromises and promises, adding new political barriers risks creating distrust towards New Zealand.

“We know where protectionist ideas lead. The last two centuries show clearly they only exacerbate economic problems, not fix them,” he said.

New Zealand instead has an opportunity to reinforce the international trade system.

This is doubly important because the Covid-19 crisis also exposed the weakness of international organisations like the WTO, IMF, UN and WHO. They all failed to coordinate together and lead a response.

A global pandemic is a perfect time for global institutions to work as designed – by leading from the front. But that leadership didn’t happen, which partly explains why some are now toying with protectionist ideas.

“As New Zealand emerges from its lockdown protocols, the Government should be watching for any opportunity to start new conversations about building or repairing effective international bodies to avoid this happening again,” Smith said.

“This country is known for its openness, respect for the rule of law and trade relationships. New Zealand could once again punch above its weight if it rejects outdated protectionist ideas.”

Read more:
Reinforcing New Zealand’s trade relationships after Covid-19 is available here.

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