As the walls go up around the world, global trade is feeling the effects. But beyond the short-term pain, what systemic change might we see? Sam Sachdeva reports.
International trade was already facing headwinds before the spread of coronavirus – but the pandemic has knocked it well and truly off course.
Covid-19’s origin in China, and the global superpower’s near-shutdown as a result, has had immediate and striking effects on a number of our export sectors, with forestry, meat and seafood among the worst hit.
But as the virus has spread throughout the world, so too have the likely consequences for the trading system – both in the short and long terms.
As Sense Partners economist John Ballingall tells Newsroom, it is not just Kiwi exporters who have been affected, but the sectors here that rely on goods and supplies from China as part of global supply chains – the printing, furniture and machinery manufacturing industries, just to name a few.
“There are various anecdotes out there … and we’ve certainly heard from places like construction businesses that they’re struggling to get hold of the intermediate inputs they need to start producing again.”
The vulnerability of supply chains is one of the lesser-known trade risks that has developed in the last decade or so, Ballingall says, with longer chains saving money but increasing the risks if a critical link breaks.
Trade and Export Growth Minister David Parker says many countries should be asking themselves where they need internal production capacity for essential items, in the event they cannot rely on international supply lines during a crisis.
Parker is particularly grateful for Whanganui company QSi, a manufacturer of N95 and surgical masks that is now churning out upwards of 80,000 a day.
“They are the most important personal protection equipment for especially our medical staff, but also some of the other service industries that are working through this period, and it is of comfort I’m sure to most New Zealanders that we not only have an enormous stock, we have the ability to build on that stock through our local manufacturer.”
As important as what we sell is how we deliver it, he adds, citing the loan provided to Air New Zealand and a separate freight agreement to ensure the export of high-value and perishable goods.
But that doesn’t mean that we can or should produce everything ourselves, he says, nor that we shouldn’t maintain open trading relationships with the rest of the world.
“Broadly of course, international trade patterns will continue – the two obvious examples being that we will import cars and we will sell food, and I’m not expecting that will change.”
The products may not change, but the methods for buying and selling them may.
Supply chains were already becoming shorter and more regional before Covid-19, Ballingall says, mainly to reduce transport and logistics costs, a trend which may accelerate as companies move from maximising supply chain efficiency to a focus on resilience.
“There are some universities for whom this hasn’t been as dire as others because they’ve had a deliberate policy of limiting their exposure. Other universities have chosen a different course, and of course that was up to them.”
“I suspect that firms will say, yup it might have been cheaper to import everything from China into our supply chain … but they may be prepared to pay a slightly higher price to get it from a range of different sources rather than becoming too reliant on just one.”
That issue of over-exposure has also been at play in sectors where a reliance on China has led to near-crippling crises, such as international education.
Parker is reluctant to weigh in on whether companies should improve their levels of diversification, saying New Zealand is “not a command and control economy”, but makes his feelings fairly clear.
“I think each of those sectors who are experiencing those challenges will look at their peers, and they’ll look at those who have done better than others.
“Even in the university sector that you talk about, there are some universities for whom this hasn’t been as dire as others because they’ve had a deliberate policy of limiting their exposure. Other universities have chosen a different course, and of course that was up to them.”
Some good news
It is not all bad news though. Air freight has been badly affected but Parker says sea freight is working “pretty well”, while the dairy industry has managed to fare better than others – with a drop in sales of products used by the hospitality sector offset by greater demand for long-life supplies.
Trade talks with the European Union are still moving ahead, too – not insignificant at a time when most countries are literally closing their borders and looking inwards.
Some fear that the resurgence of nationalism and protectionism could be aggravated by the pandemic, with US President Donald Trump pushing ahead with a “Buy American” executive order for pharmaceuticals.
As has often been the case recently, New Zealand is trying to lead from the front in pushing back.
In late March, Parker and his Singaporean counterpart Chan Chun Sing announced a joint commitment to keep supply chains and trading lanes open, while also removing any pre-existing restrictions on essential goods like medical supplies.
The idea came about during a phone call between the pair, with Parker describing Chan as “a natural person to reach out early to” given Singapore’s role as a transport hub and significant exporter.
The agreement has grown since then, with six more countries – Canada, Australia, Chile, Brunei, Myanmar, and Uruguay – signing on.
The Government has also temporarily lifted tariffs on all medical and hygiene imports needed for the Covid-19 response, such as testing kits and soaps.
The moves seem laudable, but the big question – as with recent, pre-Covid initiatives – is whether they are enough to sway the big players who have an outsized role in the global trading environment.
But as Ballingall points out, “New Zealand can only control the controllable – we can’t control the actions of the US and China and the EU”.
“What we can control is the message we send to the global trading community … it’s a very important message to be getting out there and one New Zealand has pushed over the last three years.”
The agreements may not be game-changers, but they are still welcome in “fighting back against the tide” and influencing discussions at a multilateral level, he says.
“We’ll end up with technology being as important as shipping, data localisation regulations being as important as tariffs.”
That influence may be particularly potent when New Zealand hosts the APEC trade and economic forum in 2021, culminating with a week-long summit of world leaders in November.
With the 2019 leaders’ summit in Chile called off due to domestic unrest, and the 2020 iteration in Malaysia uncertain as the pandemic spreads, next year’s event could be the first APEC meeting of leaders in three years.
It is anyone’s guess what the world will look like by then, although Ballingall expects the technological fixes deployed during border closures will sooner or later become a new normal.
“We’ll end up with technology being as important as shipping, data localisation regulations being as important as tariffs.”
Coronavirus has “delivered a big knock to those who have been perhaps wedded to more traditional ways of thinking about globalisation”, he says, and any post-pandemic reshaping will need to account for the views of its critics – that the benefits do not accrue equally across society, that the environmental consequences are not accounted for.
“Hopefully people around the world are able to influence policy discussions and shift globalisation to something that openly addresses its ills and is more citizen-centric.”
For his part, Parker says next year’s meetings are “absolutely important to the future of APEC”, as is our country’s role.
“There is a great responsibility on New Zealand to try and advance an agenda post-Covid-19 – which we hope to be out of by then obviously – as to what APEC’s role is and how we use our year as APEC chair to be a force for good in the world, which is also good for New Zealand.”
