Really Small States in Really Big Conflicts

Written By: - Date published: 7:50 pm, April 20th, 2023 - 10 comments
Categories: China, Deep stuff, Europe, Free Trade, Russia, trade, us politics, war - Tags:

In case we just missed it, New Zealand really has picked a side.

Prime Minister Hipkins will in May head to London for the coronation of King Charles III, and then it’s on to the NATO summit in Lithuania together with Australia, Japan and South Korean leaders. Also Vladimir Zelinskyy is intending to go as well.

We didn’t need the Russian invasion of Ukraine to tell us that great power competition is back, since China and the United States  and Russia had been going at it well before even COVID temporarily messed up the multilateral trade system upon which we had built our little country.

But it’s made it worse, and so we’re picking a side, and that side is NATO.

As relations between China and the United States grow more antagonistic, the rest of the world watches with unease. Australia has made a recent arrest about one of their own citizens selling defence secrets to a foreign secret service while operating in China.

Two weeks ago the PLA completed major military exercises around Taiwan designed to show that it could completely cut this island off.

Beijing has alleged that Washington is working to cut it off from international markets. A violent showdown over Taiwan looks likely.

Where does a small country like New Zealand that is completely reliant on multilateral trade rules and networks position itself when great power rivalry is intensifying and the multilateral system is less and less reliable?

The quick answer is that New Zealand has no choice but to do both at once. We had good reason to be optimistic that the signing of the Comprehensive and Progressive Trans Pacific Trade Partnership would strengthen trade diplomacy.

We also had good reason to be optimistic at the result of Ministerial Conference 12 of the World Trade Organisation in Geneva in June last year. That meeting pretty much shocked everyone by revealing the Geneva Package. This was a series of negotiated agreements on global emergencies including food insecurity, the covid-10 pandemic, on e-commerce, and on fisheries subsidies.

I would not be surprised if the current government appoints Jacinda Ardern to be its rep to the WTO, or to the UN, or similar. Her skill at international relations is an important and rare asset that needs to be used at least as well as that of Helen Clark.

It is also worth noting that the world now has major treaties on climate change and a world trade system in carbon. Its hybrid governance structure is revolutionary: it combines top-down elements in monitoring and verification, with bottom-up commitments—namely the Nationally Determined Contributions—which were approved domestically by each signatory state on a voluntary basis. Argue about how effective they are all you like; they are massive multilateral achievements.

Exceedingly important for New Zealand and our realm countries is another hard won recent multilateral agreement, the High Seas Treaty.

This is to say, that the world really isn’t falling apart, our part within a multilateral order is still strong, and New Zealand can for the foreseeable future rely on that to continue.

New Zealand will never have the strength, the capacity or the need to worry about some upcoming defence posture about China. It is in New Zealand’s interests that, simply, it stay sufficiently friendly with Australia and the traditional alliances within Five Eyes and AUKUS. But it is even more in New Zealand’s interests that it keep trading with China, Australia, India, Indonesia, the United States, Canada, Japan and Europe all at once.

In reality there is little evidence of deglobalisation occurring. World trade flows (excluding international tourism) have been robust through the pandemic – and Foreign Direct investment flows are also recovering. It’s possible that world merchandise trade as a share of GDP has peaked, but that’s not the same as deglobalisation.

If anyone has visited Auckland International Airport or Queenstown Airport recently you can feel the international trade in services through tourism really accelerating as all those thousands bump around you with their suitcases. Tourism is what will help soften New Zealand’s recession more than anything else.

For the most part the rise of China, India and Indonesia compared to the United States as our near trading neighbours is consistently in our interests. And yup, there’s plenty of Chinese holidaymakers in those airports.

New Zealand is in the right place at the right time.

Yes, we should expect US global trade hegemony to continue to gradually weaken. No, that’s not a problem for us.

There is still a global order sustained by a multilateral system, and New Zealand remains one of its primary beneficiaries. Fact is, everyone needs it large and small.

A core part of multilateralism is to stop conceiving of the world in military terms, even as the Ukraine-Russia war drags on. The core relevant part of multilateralism is trade and trade institutions. The United States in particular stalled reform of the IMF until late 2015. It was only in late 2015 that the US Congress approved a transfer of 6% of the voting share from developed countries to emerging ones. This has enabled China to become the country with the third-highest voting share, behind the USA and Japan.

Arguably because they were kept waiting, China decided to create the Asian Infrastructure Investment Bank and the New Development Bank, as well as a framework to provide liquidity support in response to potential short term balance-of-payment pressures: the Contingent Reserve Arrangement.

The way I see it there is little to fear in a competition of east-west development banking facilities and institutions, particularly for small states like ourselves.

So Prime Minister Hipkins is doing precisely the right and predictable thing going to the big NATO track meet: he is continuing the time honoured New Zealand position of being friends with our own bilaterial mates with big sticks, but sustaining this tiny economy to particularly good friends with big wallets who want to buy our stuff.

That is how you remain a small successful state within a really big conflict.

10 comments on “Really Small States in Really Big Conflicts ”

  1. tsmithfield 1

    Good article Ad,

    One thing that has concerned me for quite awhile is our high reliance on China as a trading partner. Last time I looked, I think China was worth over $20b pa in exports with the next biggest being Australia at around $9b, and I think China accounts for over 30% of our exports in total.

    So, I absolutely agree with the government's recommendation they gave awhile ago that firms look to diversify away from China.

    We stand to be royally screwed if there is war with China. Firstly, our allies will likely put pressure on us to sanction China. Secondly, even if that doesn't happen, a likely response of the Quad group will be to blockade China via the Malacca strait, which they are well positioned to do. So, not much of our trade may get through anyway.

    • Ad 1.1

      The EU and UK Free Trade Agreements are signature successes of this government.

      What the New Zealand economy desperately needs is better things to sell, given that we are in one of the largest trade deficits we've ever had. But for that frankly we probably need a National government given that the Labour government is having to spend two terms just fixing domestic disasters.

      • tsmithfield 1.1.1

        Great to have those agreements. Probably the biggest issue there is the distance required for freighting.

        Better would be agreements with India and other South East Asian Countries.

        • Adrian 1.1.1.1

          As an exporter we have found that distance isn't as great a contributor as you would think, it is the cost of getting your stuff on to and off the boat or plane and the associated paperwork and charges that inflates the cost.

          • tsmithfield 1.1.1.1.1

            True.

            Probably the long-term outlook for exporting and importing around the world. It looks like we are coming to the end of globalisation as we have known it. So, we may not have much option but to deal locally.

            A worry for my company because we import equipment from Germany.

            • SPC 1.1.1.1.1.1

              It's more a partial disconnection of the Chinese market from western globalisation and related impact on transportation (and a decline in the dollar role).

              The FTA's with the UK and EU are insurance from a potential diminishment of the WTO (American economic isolationism).

      • SPC 1.1.2

        Or just protecting sectors from predatory behaviour – Oz tax rules in the gaming industry.

        The future is also allowing people to migrate here and work overseas (earning offshore and paying tax locally).

  2. sun 2

    Idealists always feel that they can have both ways, big and small! While accepting the military protection of Australia and the United States, while earning money from China. Just like playing chess, you will expect how you can capture the opponent's pieces and control the overall situation, but you can never predict when your opponent will suddenly threaten your queen.

  3. SPC 3

    A bit like Macron we need to support NATO in defence of collective security (Ukraine), but not to necessarily to side with the American (Cold War reprise) narrative on Taiwan (as we did not on Iraq in 2003).

    The Americans supported democracy in Hong Kong and provoked a reaction that undermined hopes for Taiwan within China via something similar to the Hong Kong 50 year model (1997-2047). That and the invasion of Ukraine has the Americans and China resorting to the Cold War SOP (standard operating procedure) on Taiwan.

    Instead we should seek partners from abroad to provide China-US mediation over Taiwan and a peaceful path for resolution (maybe agreement on a 2029-2049 transition).

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