NZ's Trade Shock Resilience: Are We Ready?

New Zealand’s position as a trading nation has never been a static one, but in recent years, it has grown increasingly complex as the international environment changes, particularly across Asia.    

A convergence of factors, from geopolitical tensions to technological advancements, has transformed the way New Zealand conducts its international trade, and not just in Asia.

Recognising the potential hazard posed by a “trade shock”, be it conflict, climate, transport, or supply chain collapse’ the Ministerial Strategic Advisory Group on Trade (MSAGOT) followed on from the MFAT-initiated “Trade for All” consultation process which was running before Covid-19 arrived on our shores.

MSAGOT was convened as an advisory board to Trade Minister Damien O’Connor, and charged with looking closer at the risk to New Zealand business posed by a market disruption.

MSAGOT’s final report, released earlier this week, makes for challenging reading in parts, as it documents the scale and severity of possible future threats to New Zealand’s trade infrastructure, and the fact that many businesses are busy making money right now, rather than worrying about a potential “Black Swan” event that could disrupt operations.  

One of the defining features of the current trade landscape is the rise in geopolitical tensions. Trade disputes and protectionist measures have become more common, with major economies engaged in tit-for-tat tariff battles.

The United States and China, for example have been embroiled in a trade disagreement that has shaken stock markets across the globe. China’s move earlier this month to prevent millions of state workers from using I-Phones sent Apple shares tumbling and was just the latest salvo in that particular scrap.

The landscape of trade agreements is also shifting. While New Zealand has scored a couple of notable wins in the last few months, regional blocs are gaining prominence.

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP) are perfect examples of the growing importance of regional trade agreements.

These agreements often involve multiple countries with varying economic strengths and objectives, making negotiations more complex.

Meanwhile many nations are shifting focus from trade “openness” to a re-emphasis on protecting their own markets and producers, often with tariffs or other trade mechanisms. 

But while the international geo-political picture is a challenge, the MSAGOT report singles out a far more mundane concern as being the primary threat to trade for a country located at the bottom of the South Pacific : supply chains breakdowns.

New Zealand’s reliance on imports is still hugely significant, and in the latest crisis, the Covid-19 pandemic has led to port closures, container shortages, and delays in shipping schedules, which had a huge knock-on effect, leading to export contracts being cancelled, a severe scarcity of some imports, and massive extra costs to business, and thus to kiwi consumers .

To address these supply chain concerns, New Zealand's government, businesses, and logistics providers are working to enhance the resilience and efficiency of the supply chain network.

This includes investing in infrastructure, improving coordination and communication among supply chain stakeholders, revamping technology, and diversifying trade partners and routes to reduce reliance on any single source. Additionally, building stronger contingency plans and risk management strategies has become imperative to mitigate disruptions.

The pandemic exposed the vulnerabilities of global supply chains, and New Zealand is an ideal case study in the impact of that. Disruptions in the production and distribution of goods sent shockwaves through the world economy.

As a result, businesses in trade-reliant nations like New Zealand are re-evaluating their supply chain strategies, with an increasing emphasis on resilience and redundancy. The "just-in-time" model is giving way to "just-in-case" strategies that build in more flexibility and adaptability.

The MSAGOT report also reveals no particular concerns in the governmental response to trade shocks and market disruptions, and also shows two thirds of New Zealand firms are already well involved in developing a “Plan B” , which often involves diversifying into alternative markets , or employing the “Diversify, Deflect, Do-Over or Disengage” strategy to protect their business.

Most firms indicate they will attempt to diversify if faced with serious trade disruptions (69%, followed by those who would deflect trade through intermediary markets (22%) or disengage from the market altogether (19%.). Only 6% of firms said they would transform, or “do over” their production, with larger businesses saying they were more likely to do so.

MSAGOT found that some 90% of NZ firms are considering exporting to different markets, even if they haven’t started the process. NZ’s recent FTA’s with the UK and EU will be prompting some firms to look to Europe, while others are increasingly attracted by Asia.

With the Indian economy on the cusp of a significant expansion it’s widely forecast that India will overtake Japan to become the world’s third largest economy by 2030, with the nation’s GDP projected to rise from $3.5 trillion in 2022 to $7.3 trillion by 2030.

There’s also a favourable economic outlook across much of Southeast Asia, and NZ businesses can look to Indonesia, Philippines, and Vietnam to be among the world’s fastest growing emerging markets in the next decade.

With or without an FTA, NZ firms will doubtless be involved in that economic rebirth, as well as other emerging markets in the Pacific and Africa.

As the world trade situation grows increasingly complex, adaptability and cooperation become paramount. The report points to a perhaps unsurprising conclusion that the NZ Government, and the business sector, must navigate a landscape marked by geopolitical tensions, supply chain disruptions, digital transformation, and environmental challenges presented by global climate change.

Multilateral approaches to trade, coupled with innovative strategies to enhance New Zealand’s resilience and sustainability, will be crucial in meeting the challenges of a new post-COVID era of global commerce.

Just under 100 businesses responded to a survey by MSAGOT, and many said they see an important role for government in risk mitigation, with the ability to spark and maintain international trade connections. Firms also see value in more in-market economic diplomacy, using knowledge of local markets and networks to generate insights into the opportunities on offer.

In Asia, the work of agencies like NZTE and the Asia New Zealand Foundation continues to bring real value to Kiwi businesses navigating sometimes difficult terrain, and these agencies will become more valuable to this country in the coming decades.    

The ability to strike a balance between national interests and international cooperation will determine how successfully this country can navigate this intricate maze of the modern trade environment.

But the future looks positive, albeit with the risks identifies by this and other reports. The challenge for NZ business is to address the solution to supply chain and other issues before those issues become centre stage due to a “Black Swan” event. 

- Asia Media Centre