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The Coming Global Economic Slowdown and New Zealand

Written By: - Date published: 8:45 am, June 3rd, 2019 - 49 comments
Categories: australian politics, business, capitalism, China, class war, debt / deficit, Donald Trump, Economy, Financial markets, Free Trade, housing, International, us politics - Tags:

New Zealand is currently avoiding the economic effects of a full
politically manufactured economic crisis originating in the Donald
Trump presidency of the United States of America, but not for long.

This emerging economic crisis is likely to decrease the capacity of
the New Zealand economy in the near future.

The United States has put tariffs up on Chinese goods in a range of
fields, and China has followed suit with slightly more restraint as it
has somewhat more to lose.

Here’s the history of these retaliatory trade strikes up to May 14th,
which also includes links to lists of all the affected product lines.

China’s tariffs on US$60 billion of U.S. goods came into effect as of June 1st.

China also has stronger retaliatory measures that it could call on.

One of these is the export and refining of rare earths. China
dominates world and U.S.-export trade in these materials. These are a
group of 17 chemically similar elements which are used for the
manufacture of high technology products.

They include elements critical to the manufacture of loudspeakers,
computer hard-drives, wind turbines, hybrid cars, camera and
telescope lenses, cinema lighting, catalytic converters, crude oil
refining, welding visors, x-ray and MRI scanning systems, televisions,
computer screens, nuclear reactors, and bunches of other stuff the
U.S. makes a shedload of money in manufacturing.

China has about 70% of the global share of all of that set of specific
materials and their refining.

China would have difficulty simply cutting off exports, since a
previous attempt to do so resulted in a World Trade Organisation case
against them.

But Apple is the obvious counter-strike target as a US-owned company
to avenge the targeting of Chinese-owned Huawei, and Apple
manufacturing would at least slow considerably with a major rare earth
trade move. Difficulty in getting Huawei Android upgrades is
important, slowing down the entire Apple manufacturing cycle is
another.

China could also try to sell U.S. Treasury bonds, since it holds
masses of them
. If they did that it would be very possible that
China’s remaining U.S. debt holdings would decrease in value very
fast. But in mid-May China sold off US$20 billion of US Treasury
bonds, and everyone knew who it was.

That’s a big chilly signal to send to the US-dominated debt market
traders. While they are not yet likely to turn US Treasury bonds into
a trade weapon, don’t rule it out if Trump keeps escalating this.

China could also make US businesses uncompetitive inside China by
doing a big go-slow on permitting in business activity which favours
domestic business over US. More inspections, slower port releases,
slower permitting of all kinds of categories of trade. In case we
don’t know how effective that is, New Zealand only needs to remember
what happened to Fonterra’s products when there was merely a scare to
its infant formula products. Despite our own officials swearing it had
nothing to do with government policy, it was really easy for other
commentators to make those direct links back to New Zealand’s own
initial Huawei decision.

But even for the Chinese government there will be limits to how much
economic pressure it can take. Nearly a year ago in July 2018, the
Chinese Communist Party’s Politburo analyzed the current economic
situation and proposed stabilizing employment, finance, foreign trade,
and investment to tackle external changes and ensure stable economic
operations effectively. Within that list, the Politburo ranked
“stabilizing employment” as the first and most important task. In
addition, the report of the 19th National Congress of the CCP also
stated that employment is pivotal to people’s well-being, noting that
instability in employment will affect the standard of living and may
ultimately affect social stability.

From this perspective, stabilizing employment is tantamount to
safeguarding social stability from economic risk. Lest anyone forget,
social stability is all the Chinese government has to keep it in
power, as they demonstrate from the efforts to in suppress the 30th
anniversary of the massacre of Tianenmen Square
this month.

The harder these retaliatory movers hit, the more China will be
exposed because its economy is more brittle and it has only its
economic performance to sustain its governmental social mandate,
whereas Trump’s polls are so low he’s immune from public fallout and
his key economic indicators such as unemployment and national economic
growth are much stronger.

There’s also a state security issue coming straight to the fore as a
trade issue as well.

United States Secretary of State George Pompeo has issued a warning on
June 31st after meeting German Foreign Minister Heiko Maas, that
countries which allow China’s Huawei to build their 5-G networks could
be cut off from crucial intelligence data.

Earlier in May Pompeo had urged U.K. Prime Minister May not to use
Huawei technology to build heir 5G networks.

From both the actions of the U.S. and Chinese governments in trade,
this trade+intelligence security war is likely to escalate rather than
defuse, and (obviously) these two countries represent the largest and
second-largest economies in the world.

Little old Kiwiland is fully reliant on them both, as is our big
brother Australia.

So what does all this mean for the global economy? Well, Goldman Sachs
has analyzed it
:

Our model says that an across-the-board 25% tariff on China with a
limited amount of retaliation would hit US GDP by 0.5% and Chinese GDP
by 0.8%, all over a three-year period,” analysts at US investment bank
Goldman Sachs said in a research note.

This is the net effect from 1) direct trade effects, which are
positive for the US but negative for China, 2) the effects of higher
inflation on real incomes, which mainly hit the US and 3) the effects
of tighter financial conditions, which are also most negative in the
US.”

The unusual part of this global economic slowdown is how much of it is
the result of direct and predicted unilateral political actions by
China and the United States, rather than some massive market failure.

Both countries are still learning daily lessons in how resolute the
other is in this trade war – how much political capital they are
prepared to spend to make the other suffer and bend. So far the limits
are rising higher and higher.

Our Minister of Finance is confident that New Zealand is well placed
to handle a global economic downturn.

His comments follow the chilly IMF global economic stability forecast
released in April this year.

But decreasing economic growth, as even National sees, also means
proportionately decreased taxes, and this proportionately decreases
government capacity to spend on all that good social stuff, unless
there’s also really good headroom for spending by raising debt.

Robertson continues, smartly, to retain the debt headroom to keep this
New Zealand economy in strong order by spending much harder if he has
to in future years. The New Zealand Treasury has near-identical
sentiment, noting in its Budget update that we are particularly
affected by changes to external flows of goods, services and finance:

The outlook for world growth is fragile and has become more
uncertain. Trade tensions and a range of country-specific factors have
seen global growth slow over 2018, with higher frequency indicators
suggesting this weakness has persisted into 2019. The set of forecasts
presented in this chapter assume a stable outlook for trading partner
growth, albeit at a lower rate than experienced over recent years.
Risks to the international outlook remain prevalent and skewed to the
downside.”

He’s going to need it. Winter’s coming.

With the United States – China trade war well underway, the sick chaos
of Brexit is shrinking the U.K. economy and slowing much of Europe’s economy, and smaller economies such as that of Mexico in the crosshairs through further politically manufactured trade disputes, the second half of this year looks for New Zealand nowhere near as rosy as the first half.

49 comments on “The Coming Global Economic Slowdown and New Zealand ”

  1. Sam 1

    Singapore has a population of 5 million and assets worth $1 MOTHERFUCKEN trillion. Let that sink in. They don't produce anything, they don't have agriculture or mineral reserves. They're just better at everything else. So for 10 hours of work in Singapore would be equivalent of 40 hours in New Zealand. That's what makes Singpore more compitive and attractive.

    So from about January to May you're just working to fund some one else lifestyle. And that's okay because people are still flooding in. But go to far and all the smart people making great products and services and making New Zealand attractive and compitive. Make it to hard for them and they might just fuck off. They don't care because we've got money. The only people the tax the rich agenda hurt is the middle classes. And people just need to be aware of all the dangers because you won't get an awareness from people with an agenda.

    • There is no middle class in NZ anymore Sam. There is poor people and non-poor people. Tax the rich more I say.

      • Sam 1.1.1

        I always point out to those that try and model economies and taxes by looking back at the numbers and plucking them out from the past then using those trends to forecast future growth in some nostalgia for the 50's when growth was just awesomeness and go on about how great the economy and things in general were. What was I saying? So don't do that, please.

        So dude, you look back on growth and try and model that golden age and that 90% top marginal tax rate, under a new set of conditions. We don't have the Gold Standard any more, The Top Companies are no longer energy stocks and banks we have service providers, Apple, Facebook, Google, Amazon Microsoft dominating and in New Zealand the top 4 are Fletchers, Progressive Enterprises, AirNZ and Spark, all are service providers.

        So the question is how much taxes is fair so that it doesn't impair the talent pool of the new possibilities in the Internet. We are just entering the 4th industrial revolution so lets say that there's no debate over the economics, that everybody agrees it's overwhelmingly accepted economic fact taxes go up. What remains is that to tax someone at such a high rate while taxing someone else at significantly lower rates is fundamentally unequal and this is where the woke lefties fall over. We have a duty to see that law is applied as equitably as possible. And, no, the progressive tax system is not equitable as the outcome of it's cumulative effect is inequitable through out a growing population, especially for select minorities in this country.

        Whatever we do with our tax and economic policies, the primary goal should be equality with any other considerations a distant second. We just can't grow as fast as our slowest citizens, Y'know? So the real shit heads like Bankers who don't add anything to the economy ought to be taxed, polluters, oil magnets AND bankers who are stealing from future generations ought to be taxed. Okay? It must be fair and equatable. Hope turns into hopium when justice is vacant and hope becomes perpetual. Hope must be meet with justice, they go hand in hand. Y'know every team requires an enforcer so they know not to fuck with us and dish out justice with an even hand.

        The real area you don't want to dis incentivize out of existence are your valuable inventors and entrepreneurs. Thank you.

    • A 1.2

      Singapore doesn't have welfare which is a big chunk of our tax. That being said their corporate tax is 14%.

  2. WeTheBleeple 2

    Can't say any of this is relevant it's just more nonsense to distract from facts. A global economic slowdown will arrive with or without Trump, China, Huawei or the Highway.

    The facts are that we've used all the easy to get at oil. These posturing buffoons posing as leaders mean nothing to this simple fact. America will continue to bully for oil and use its companies to extract global funds and brag about itself on social media till the entire world unfriends it.

    China will continue to develop sustainable initiatives and leave America far far behind.

    Just look at the average American vs Chinese citizen and tell me who's going to help the world and who's going to fuck it.

    We need to return to circular economies with local manufacturing as the hub. This global experiment is an utter failure.

    The world was not built for multi-national corporations no matter how they jostle for positions of power. Divest from anything big. Go local or go to hell (on earth). That's the choice.

    • Peter Christchurh nz 2.1

      It is extremely relevant WTB. If the economy of the China Empire seriously falters, the Chinese leadership may well collapse, as it relies on economic growth to offset the social and political deprivation of it's people. Such a result will have worldwide repercussions.

      It is the 30th anniversary of the Tiananmen Square massacre this week. Over 400 cities mass demonstrations, rebellion of the army and the resultant many many thousands of deaths placed the Chinese leadership very close to collapse in 1989. Only economic growth and liberalisation prevented this.

      Try searching in Chinese media about this. You will find zero mention, and if using Chinese based Weixin, you will likely have your account closed.

    • Pat 2.2

      "Can't say any of this is relevant it's just more nonsense to distract from facts. A global economic slowdown will arrive with or without Trump, China, Huawei or the Highway. "

      Indeed

      • Peter Christchurh nz 2.2.1

        That's because all markets and economies run in cycles. Nothing new there. The downcycle is due. It will be followed 3 years or so later by an upturn.
        The more important thing is the trend line underlying the cycles is still on the up. In other words, the troughs over time do not fall so low.

        • Pat 2.2.1.1

          No…for two reasons…the ponzi scheme has run out of punters (debt) and as WTB noted we are rapidly depleting real resources…there is the cause of the declining growth.

          Trump, protectionism, Huawei are symptoms not causes.

          • Peter Christchurh nz 2.2.1.1.1

            We are certainly depleting the resources we currently rely on, such as fossil fuels, but new technologies will emerge to replace them and we will adapt to the new.

            As an example, there are already Hydrogen powered trains in revenue service in Britain, the US and Europe. As more efficient methods of producing hydrogen are developed, this no doubt will replace the likes of diesel.

            • Pat 2.2.1.1.1.1

              too little too late…..we dont have the capacity to replace that which we currently have and therefore degrowth is inevitable…no 'new tech' will change that

              • WeTheBleeple

                Yes.

                We lack the resources to transition the globe as the globe spent their capital on new sneakers.

                We wait for some magic pie in the sky to solve the problem of no capital – Print more?

                These clowns shouldn't be in charge of a clown car.

                • Pat

                  These clowns are us…sadly

                • Peter Christchurch NZ

                  WTB: when you say 'transition the globe', in what way? And I am guessing by 'no capital' you mean resource type capital rather than money type capital?

                  • WeTheBleeple

                    To transition to solar/hydro/et al. We've already blown much of our excess on being excessive. You know, super yachts, maseratis, advertising, competition, and war.

                    We had a chance to do it smooth. We clung to our baubles instead.

                    The energy to transition the globe to sustainable energy was there, now it is not.

                    • Sam

                      Yada, yada, yada. The U.K. with a far smaller population than China was able to inflate its GDP over and above that of China's GDP using britians coal reserves during the 1st industrial revolution. Now that coal is becoming less and less relevant to the global economy GDP indicators are reverting back to big populations growing the GDP and non has bigger populations than China, India and Brazil. All three of which are members of the BRICS, (B)razil, (R)ussia, (I)ndia, (C)hina, (S)outh Africa. Ya da ya da.

                • WeTheBleeple

                  WTF has that got to do with anything Sam.

                  We do not have what it takes. We can try to transition using fossil fuel energy and we'll pump up the CO2 and burn. Yada yada [deleted].

          • greywarshark 2.2.1.1.2

            Don't understand how chirpy this report is about USA foreign and other debt.

            https://www.graphicmaps.com/countries-with-the-most-debt

            The United States (US)

            The US has a total of 29.27 trillion dollars of external debt, translating to around 45% of the total debt owed. Its two largest creditors are China (roughly $1.18 trillion) and Japan (roughly $1.06 trillion). The US government is wary of heavy reliance on foreign debt and keeps its Net International Investment Position (NIIP) at a manageable level to avoid economic downfall brought about by any sudden foreign debt reduction.

            Then there is this listing of the world's largest economies showing USA at the top which it says has been the case since 1871. But can an economy be regarded as large and strong with such a big debt. What happens if economies are measured on a net basis? Would that show a difference view of an economy then?

            https://www.focus-economics.com/blog/the-largest-economies-in-the-world

            • Pat 2.2.1.1.2.1

              The US debt position is unique and will remain so as long as it is the worlds reserve currency and first resort safe haven….and why they are determined to maintain that position

              • greywarshark

                Does that mean that they want to be the first and last resort? The Financial Tower at the End of the World sort of thing. Has this been agreed to by the Bilderberg Group?

                https://en.wikipedia.org/wiki/Bilderberg_Meeting

                Bilderberg meeting elite focuses on politics – CNBC.comhttps://www.cnbc.com/2018/06/06/bilderberg-meeting-elite-focuses-on-politics.html

                Jun 6, 2018 – Some of the planet's most powerful people will take part in the infamously secretive Bilderberg meeting that begins Thursday to discuss their …

                (If it was really secret we wouldn't know it was on. I think it is just a front to distract from the other top level meetings.)

                Listen to Philomena Clunk who will not attempt to explain this but makes you feel happier about not knowing. Whether you do or not understand probably won't make any difference to the Bilderberg Group and their machinations.

                (https://www.youtube.com/watch?v=RsvEE_v2J8g

    • gsays 2.3

      While I agree with the sentiment of your comments WTB, I am curious about the effects of peak oil.

      I became aware of peak oil approx 12 years ago, the warnings were dire. One that stayed with me was that the peak oil point could only be pointed to in hindsight.

      I am wondering if the make believe financial world (sharemarkets, bonds, national debt etc) is acting as a huge buffer to the real life consequences of us humans and our excesses.

      • WeTheBleeple 2.3.1

        Down cycle, upturn, more economic BS honestly these people are utterly useless.

        Governments are not a buffer, they are entirely complicit in providing a false layer of insurance and assurance that all is well. Fluffy ducklings mate. It is not well.

        Governments kowtow to greed.

        Peak oil has come and gone. Now they're all just fear filled assholes as forward thinking was never required.

      • Pat 2.3.2

        "I am wondering if the make believe financial world (sharemarkets, bonds, national debt etc) is acting as a huge buffer to the real life consequences of us humans and our excesses."

        Yep…delaying (briefly) the inevitable….all the printed money in the world is of no use when theres nothing of necessity to purchase

        • greywarshark 2.3.2.1

          …all the printed money in the world is of no use when …. theres huge uncertainty, the market goes belly-up and all the values drop.

          • Pat 2.3.2.1.1

            not quite the same thing….indeed in a market crash there is a use for unlimited printed money, as the GFC showed.

            • greywarshark 2.3.2.1.1.1

              Thanks Pat I will have to take you seriously if you can explain financial matters to the uninitiated, unintel……

      • Andre 2.3.3

        Ever heard of the Fischer-Tropsch process? It's possible to make petrol and diesel from coal. Germans did it in WW2, South Africans have been making a lot of their diesel that way since the 50s.

        Peak oil won't necessarily cause significant economic slowdown or reduction in climate-changing emissions.

        If we're lucky, peak oil will come about because renewable electricity generation becomes so much cheaper that it becomes financially negligent to continue using fossil fuels. We can help bring that point closer by eliminating fossil fuel subsidies and taxing emissions.

        If we're unlucky, peak oil will happen because we've just carried on with BAU and when increasing oil prices make investing in Fischer-Tropsch plants worthwhile, the fuel they produce will take over from oil-derived fuel.

        • Pat 2.3.3.1

          last half.

        • Pat 2.3.3.2

          And may be worth remembering that the numbers presented dont take account of any social,political or environmental impacts…..can become a little problematic developing large scale complicated engineering projects in a non functioning society.

          Best case scenario?…the world will have less net energy for its needs.full stop.

    • I think both the 'average American' and the 'average Chinese citizen' will not help the work but will fuck it, actually. The American for obvious reasons. And the Chinese because all Chinese citizens are minions of their god-awful state.

      • WeTheBleeple 2.4.1

        Yes, but that 'god awful' state you describe has them restoring vast swathes of land. Has them innovating in sustainable energy at every level, has them planting, has them discussing the will of the state – in this instance to transition to sustainable energy.

        The bringing up of China's history as some warning to the rest of us is completely farcical in the light of US foreign policy and activity.

        The devil you know is an utter fuckwit.

  3. Observer Tokoroa 3

    Donald's War Games

    Of Course, Mr Trump will snub China and chuck USA Tariffs at it.

    But Donald has other pursuits too. I am just hoping he wont grope Queen Elizabeth's Pussy during his visit to Buck Palace.

    He has already grabbed a handful of Huawei.

  4. Tuppence Shrewsbury 4

    same photo, same media, different story.

    https://www.bbc.com/news/business-47622415

  5. WeTheBleeple 5

    There's work, and there's actually paying your way from work.

    The working poor couldn't give a toss about unemployment figures. Wages is where it's at, unemployment is yet another rubbish economic indicator that tells us exactly fuck all about the state of the economy.

    Take a look at real indicators. Loan sharks, gang numbers, bank defaults, prison numbers, accident and emergency arrivals for preventable illness turned into emergency…

    The disappearance of kaimoana from the coast…

    And all the pot bellied pigs of Ponsonby ever fatter and more full of shit.

    Slaves were 100% employed. Can't see them cheering on the govt of the day either.

  6. SPC 7

    A global recession is an opportunity for this government.

    They made a committment to 20% debt to GDP by 2022 and a 30% government to GDP spending cap (whether it should have made it is another issue entirely, I would have preferred 25% and a 33% government spending to GDP cap – arguing government and infrastructure was underfunded, debt is cheap and to allow leeway for coping with a global downturn).

    They have the capacity to stimulate local growth, to offset a global downturn, by loosening their targets. And they should use it.

  7. Well , take your pick , – either Rothschilds printing of cash and charging the USA interest through the Federal Reserve on every dollar they lend , – or BRIC'S alternative… but somehow ?,… I'd place my money ( no pun intended ) on the Rothschilds winning out…

    All roads lead to the Rothschilds ( joke) and their funny little pervy eye in a pyramid and their equally as funny idea of “One Ring to rule them all, One Ring to find them, One Ring to bring them all. And in the darkness bind them.”

    Either way , … the only thing the All Seeing Eye of Sauron wants is to just make us all feel safe and sound and secure ,… safe in the knowledge that the ' nasties' wont get us as we sleep soundly and warmly in our beds at night ,… and all they ask in return is to give them just a teensy weensy smidgen of personal information to them… a bit like the Chinese communist party , really… a little bit of harmless facial recognition technology, cameras, real ID registration, monitoring social media use, and sanctions for behaviour not acceptable to the regime.

    NOW.

    That said , – where is the Chinophile MARK who used to haunt The Standard and The Daily Blog with his railings against the West ( and in particular white Europeans ) and that the 'West is going to get theirs' for events that happened over 100 years ago and that the CHINESE have even gotten over and moved on with , – while ignoring China's ' among the worst ' human rights abuse records ?

    But,you and I, we've been through that
    And this is not our fate
    So let us stop talkin' falsely now
    The hour's getting late"

    The Jimi Hendrix Experience – All Along The Watchtower (Audio …

    • Pierre 8.1

      It's not just the opium wars and the physical colonisation of China by western powers. There are good reasons for the left in China to be wary of the imperialist countries.

      The US ran a SACO camp jointly with the Kuomintang, all kitted out with American equipment. Journalists, radical students, peace activists, trade unionists, communists, all were imprisoned, tortured, and they didn't all survive. The USA did that, on Chinese soil.

      While the CCP was arming the peasantry, the CIA was supporting feudalism in Tibet. There is still a substantial rural population in China, you might see it differently, but these historical experiences do matter. The Chinese government still buys rice and basic crops at a fixed price, while selling it on to the market at a (lower) price. Farmers get a stable income and nobody goes hungry, and that's not simply a case of cynical bribes to guarantee 'political stability' – it's a consequence of left politics. At some point the west will have to accept the possibility that the CCP represents a genuinely popular alternative road to development.

      In 1993, US warships held the Yinhe cargo ship hostage for 24 days off the coast of Iran. The US accused China of trafficking chemical weapons, but in the end there were no chemical weapons. The US never apologised.

      In 1999, the US bombed the Chinese embassy in Belgrade, killing three journalists.

      Today the US continues to sponsor radical islamist movements in Xinjiang. The US military flies its planes and sails its ships around Chinese waters, in a display of constant provocation. Are there People's Liberation Army aircraft carries off the coast of california? No, there are not. And now, the US puts sanctions on Chinese companies… It's not all a case of 'events which happened 100 years ago.'

      Lastly, to talk about human rights: New Zealand has about double the incarceration rate of China.

      • WILD KATIPO 8.1.1

        Now that's good info and thank you. Always good to hear both sides and unless you know where to look you miss out.

        And true about NZ , btw. Weve had our fair share of pretty shoddy dealings with other country's ie : Western Samoa.

  8. My apologies for the massive gaps in posts, – I'm having problems with both spell checker and also because I use Google , it doesnt seem to recognize the cut and paste thingy, therefore multiple links I have to delete. And that causes the horrible gaps . So I am sorry for that. I'm no computer whiz I will admit.

    • WeTheBleeple 9.1

      It aint your fault WK the editing software is on the fritz.

      I'm looking forward to the day an unknown alien presence shoots these feckin eejits out of the sky. I hope they hit every satellite in one salvo then split for fifty years leaving us to contemplate that space doesn't want us.

      I wrote a cracker short story about exactly that but unfortunately I had some mental health issues and destroyed lots of my work… it appears some of the science fiction went in the 'clean out'.

      Trying not to do that anymore. Better to de-clutter the room and leave the files alone.

      Have a great day.

  9. Gosman 10

    Whatever happened to "Peak oil" by the way?

    • WeTheBleeple 10.1

      Peak demand? Or peak supply?

      As all the low hanging fruit (oil) has been taken, peak supply is past. Now it requires more calories to extract x number of calories than it did before. This trend will continue though science tries to play catch up with new technology. We're into deeper wells, shittier sources, remoter locations…

      Peak demand will continue to climb so long as governments refuse to tell the truth to the general public how much danger we're all in. GDP mate! Growth must falter, however, as we're rapidly outstripping our resourcefulness and resources.

      All this is moot to the fact we've more than enough fossil fuels to cook the planet and everything on it. Change must occur, burning what's left is suicide.

      The end IS nigh.

  10. Thanks for posting.

    All signs definitely point to a slowdown and I'm interested to see how it all plays out.

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