25 May 2017

Trade outlook: New Zealand well-placed to resist protectionist wave

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Monique Dalton

Head of Global Trade and Receivables Finance, HSBC New Zealand

New Zealand is in a strong position to gain from trade opportunities across the globe in emerging and developed markets alike, according to HSBC New Zealand's Monique Dalton.

The uncertain future of the Trans Pacific-Partnership (TPP) post-Trump, and the market confusion which followed Brexit are both cause for concern for New Zealand, which potentially stands to lose from reduced trade with the US and the EU. But while those chill winds blow for all trading nations, there is much about which to be optimistic.

The continued enthusiasm for the TPP from Japan suggests the agreement might not be dead yet. Similarly, UK PM Theresa May's recent commitment to a "bold" bilateral agreement with New Zealand suggests that the perils of Brexit might have been oversold. A recent Economist1 article spoke of such an outlook: "Mrs May's government makes much of the prospects of concluding trade deals with non-EU countries including, in fact, New Zealand."

There's also news of progress on a Free Trade Agreement (FTA) with the EU2, New Zealand's second-largest source of foreign direct income (and third-largest trading partner) which is worth watching closely too. That's why HSBC New Zealand remains optimistic about the country's trade outlook. Exports to the EU have grown modestly from $8 billion in 2011 to $8.3 billion by the end of 2016, while imports from the EU have grown from $9.4 billion to $11.7 billion in the same period3.

"While New Zealand businesses tend to have an Asia-Pacific focus, and recent economic strife in Europe is provoking hesitance among exporters, it is encouraging to see improved dairy and meat exports to Europe", says HSBC's Dalton, the bank's New Zealand Head of Global Trade and Receivables Finance. "New Zealand is one of only six World Trade Organisation (WTO) members without an FTA with the EU, so a bilateral agreement would foster competitiveness for Kiwi exporters and enable further diversification from Asia-Pacific markets."

Across the Tasman, Australia is celebrating the completion of an FTA with China, which may erode some of New Zealand's competitive trade advantage there. However the upcoming NZ-China FTA upgrade will help mitigate this risk. When combined with China's ambitious Belt and Road Initiative there's a major opportunity to capitalise4 on the growing demand for New Zealand's technological expertise and common-sense attitude.

New Zealand's reputation is paying off. Trade with China continues to mature, with exports to the country growing from $6.9 billion in 2011 to $12.3 billion in 2016, and imports growing from $7.4 billion to $10.5 billion in the same period.

New Zealand is well-placed to gain from international expertise in infrastructural projects over the next decade, spurred by Belt and Road, with partnerships between local and international construction companies resulting in better outcomes for Kiwi infrastructure

Monique Dalton, Head of Global Trade and Receivables Finance, HSBC New Zealand

"Chinese companies have amassed a large amount of wealth in the last decade and are now looking internationally to maximise their returns by investing in innovative projects. New Zealand's reputation for rolling its sleeves up and completing overdue major infrastructure projects makes it an attractive recipient for Chinese investment."

But while China is becoming a sophisticated market – with an emphasis on infrastructure, other emerging economies like India are growing up in different ways, says Ms Dalton.

"IT and other technologies are likely to underpin the growth of the Indian market, with massive gains on offer as trade opportunities open, such as the NZ-India FTA currently in negotiation."

Existing trade with India is nominal compared to New Zealand's trade with China5. In 2016, exports to India totalled $1.7 billion, and imports $813 million. New Zealand businesses will be eager to make the most of future agreements between the two countries.

According to Ms Dalton, "businesses interested in developing systems, services, and software are likely to benefit substantially from improved market access with India. There may also be better opportunities in the country's considerable market for consumer products, and improved trade conditions for exporters of raw materials".

"The Belt and Road Initiative is an unprecedented opportunity for New Zealand businesses to expand their relationships with China and the world. But even outside the Asia-Pacific region, trade outlooks appear to be promising. The emerging Indian market has much to offer New Zealand, and prospective FTAs with the EU and UK are favourable grounds for trade diversification."

The upshot is that while the clouds of trade uncertainty gather in some nations, particularly for traditional allies like the US, they're outweighed by huge opportunities opening up in both traditional and emerging markets.

1 http://www.economist.com/news/finance-and-economics/21716620-how-new-zealand-coped-loss-preferential-access-its-biggest

2 https://www.mfat.govt.nz/en/trade/free-trade-agreements/agreements-under-negotiation/eu-fta/

3 http://www.stats.govt.nz/~/media/Statistics/browse-categories/industry-sectors/imports-exports/fact-sheets-main-trading-partners/eu-nz-trade-invest-migr-yedec16.pdf

4 https://www.mfat.govt.nz/en/trade/free-trade-agreements/free-trade-agreements-in-force/nz-china-free-trade-agreement/

5 http://www.stats.govt.nz/browse_for_stats/industry_sectors/imports_and_exports/goods-and-services-trade-country-info-releases.aspx

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