Like many countries around the world, New Zealand is taking steps to address the resiliency and security of its economy. Yet the current environment presents both domestic and international challenges to the country's ambitions.
Four years on from the start of the Covid-19 pandemic, the concept of economic security has garnered significant attention from policymakers in the Indo-Pacific and beyond. A combination of factors such as supply chain disruptions during the pandemic and the sharpening of the US-China rivalry have resulted in several governments introducing new policies prioritising economic security.
For instance, there have been calls by several governments to ‘diversify supply chains’ and adopt a ‘China plus one’strategy. The US and the EU have gone further and adopted policies aimed at ‘decoupling’ and ‘derisking’ from China.
Like other Indo-Pacific countries, economic security has also gained prominence in the national security debate in New Zealand. New Zealand’s 2023 National Security Strategy names economic security as a national security priority, with the aim of preventing “economic coercion by foreign states”. In 2023, the government’s Defence Policy and Strategy Statement noted that it would prioritise supporting economic resilience by cooperating more closely with its Indo-Pacific partners and through re-evaluating the geopolitical risk associated with supply chains.
This challenge of ensuring economic security in a contested geostrategic environment is acutely felt in New Zealand on account of the fact that nearly a third of all New Zealand exports are headed for the same market. As shown in Figure 1, China has emerged as the largest export market for New Zealand products since New Zealand signed a Free Trade Agreement with China in 2008. New Zealand also imports products such as electrical equipment and machinery and several New Zealand industries rely on these critical imports. As one scholar notes, China’s position as New Zealand’s top trading partner has become more ‘consolidated’ in the post-pandemic years New Zealand’s trade relationship with China has become even more crucial.
Figure 1: New Zealand goods exports to its top five trading partners
The challenges emerging on account of this flourishing trade relationship with China have been well documented. In effect, New Zealand’s China relationship consists of two interwoven realities: one being that New Zealand is heavily reliant on a single market for its exports and the second being that there are more differences emerging in this relationship as China continues to adopt a more assertive posture. These differences range from Taiwan Strait to human rights violations in Xinjiang and China’s conduct in the South China Sea.
Critics argue that New Zealand has prioritised its economic interests with China at the cost of advocating for the moral values, such as adherence to the rules based international order and human rights, which has traditionally resulted in the country being called a ‘good international citizen’. On account of its significant economic relationship with China, New Zealand has been accused of being ‘too scared’ to confront those thorny issues on which it disagrees with China. Similarly, New Zealand has also been labelled a ‘weak link’ for not joining its Five Eyes partners and collectively condemning China on issues such as the Hong Kong protests in 2020.
Beijing’s weaponizing of its trade relations with Australia in response to Canberra’s call for an independent inquiry into the outbreak of the Covid-19 pandemic was another turning point as it highlighted the dangers of being over-reliant on any single export market. China’s economic coercion against Australia, coupled with the growing differences in the New Zealand-China relationship has further fuelled this reassessment of economic vulnerabilities, leading ministers and officials to call for a diversification of New Zealand’s trade interests.
Referring to the complex nature of the New Zealand-China relationship, New Zealand’s former foreign minister acknowledged that depending on “any one market puts us in a very difficult position”. Similarly, former prime minister Chris Hipkins advocated for trade diversification by stating that, “making sure our eggs are spread across a range of baskets offers us a greater level of protection.”
However, there are two challenges to this approach of ‘spreading eggs’ in different baskets which New Zealand policymakers must address. The first challenge is that the international environment is currently less favourable to free trade than it has been in the last two decades. There has been a noticeable uptick in protectionist and inward-looking economic policies, with several countries adopting mercantilist measures aimed at safeguarding domestic economies and shielding them from international competition.
This is demonstrated most clearly by America’s absence from those multilateral trading arrangements containing market access provisions with countries in the Indo-Pacific since the Trump administration pulled out of the Trans-Pacific Partnership (TPP). The Biden administration has continued to follow these isolationist policies and- due to domestic pressures- has been forced to abandon the addition of market access provisions to its flagship Indo Pacific Economic Framework (IPEF).
This swing towards protectionism and the loss of appetite for free trade across the globe is even acknowledged by one of New Zealand’s top trade officials, who stated that the ‘golden weather’ for New Zealand’s trading policy is now ‘over’. As the country’s 2023 Strategic Foreign Policy Assessment itself highlights, this shift in global perceptions away from free-trade makes the future of a small, export-dependent trading nation like New Zealand ‘less stable’.
To be clear, on account of the prevalent international economic context, finding new baskets or new markets in order to reduce over-reliance on exports to the Chinese market may be challenging to begin with. This will affect the extent to which New Zealand can find new trading partners and spread its eggs in different baskets, especially if countries like the US are not in a position to offer any tangible market access.
The second challenge to this trade diversification strategy comes from the constrains of New Zealand’s own existing domestic industrial structure. Over the years, New Zealand has developed a comparative advantage in the primary sector, which includes dairy farming, horticulture, forestry, meat and wool. Along with its economic heft, the primary sector and particularly the agricultural sector, has also wielded political power both through direct participation in electoral politics but also through key lobby groups such as The Federated Farmers.
As Figure 2 demonstrates, the primary sector collectively accounts for a significant proportion of the country’s exports to its top five trading partners. Primary sector exports account for over 50% of all exports to four out of top five export markets. Over 70% of all exports to China come from this sector.
Figure 2: Percentage of primary sector exports to New Zealand’s top five trading partners 2022
While the primary sector adds significant value to New Zealand’s economy, it is also important to recognise that the primary sector continues to remain one of the most protected sectors and several countries have such protectionist measures in place to shield their domestic markets from foreign competition in this sector. In effect, given that New Zealand’s comparative advantage is in a sector that has historically been one of the most protected sectors, finding new baskets or new markets for trade may also emerge as a challenge.
Indeed, New Zealand’s free trade deal negotiations with India is a case in point. The new incoming National-led government has made securing a trade deal with India one of its key priorities. However, since negotiations began in 2010, access to India’s dairy market has emerged as a key sticking point as India has a large dairy sector and is reluctant to lower barriers in this sector.
While it is crucial to recognise that eggs must be spread in different baskets in order to reduce over-dependency on any single export market, it is also vital to acknowledge that spreading these eggs across different sectors also reduces economic vulnerabilities. As one group of scholars note, primary sector products which New Zealand exports are low valued added products and unlike some of the mineral exports of neighbouring Australia, these products are primarily consumer goods and not capital goods which form a component of critical supply chains.
This, in turn, increases economic vulnerabilities as exporting markets may be able to replace these consumer goods by finding alternative sources, especially if trade continues to be used as a coercive tactic in the age of great-power rivalries. In effect, it is important to diversify countries that New Zealand trades with as well as the products which New Zealand sells to these countries.
There is no denying that it is prudent for New Zealand policymakers to have robust discussions about economic security. Indeed, history serves as a good reminder of the risks posed by over-reliance on a single market and New Zealand’s own experience of losing access to the British market in the 1970s demonstrates this. However, acknowledging the difficulties involved in diversifying trade by spreading eggs in different baskets is equally important. A combination of international pressures and domestic constraints may result in challenges which will ultimately affect how successful New Zealand is in addressing its economic security challenges.
DISCLAIMER: All views expressed are those of the writer and do not necessarily represent that of IIPA and this platform.