Business Daily Media

NZ remains unscathed by US-China trade war, but that's no reason for complacency

  • Written by Hongzhi Gao, Associate professor, Victoria University of Wellington
image

Despite disruptions to global value chains[1], the 18-month trade tensions[2] between the US and China appear to have left New Zealand exporters unscathed so far.

As our analysis of StatsNZ[3]’s merchandise trade data[4] shows, New Zealand has managed an overall growth of 4.7% in merchandise exports over the year ending in August. New Zealand exports to top trading partner China grew by 19.6% (slightly less than 21.1% during the previous year).

There was also strong growth in exports to Thailand (18.7%, compared to negative growth in 2017/2018) and to the Philippines (15.5% compared to 7.2%).

It is not all good news, though. Exports to New Zealand’s second most important trading partner Australia dropped to -0.1% (from 5.8% in 2017/2018). More worryingly, there was a sharp drop from 43.9% to 4.4% for Hong Kong, 39.4% to -10.1% for Singapore, 23.4% to -18% for the United Arab Emirates, and many other countries. Export growths to almost all of New Zealand’s second-tier trading partners have fallen.

Should New Zealand exporters be worried about these shifts in exports? There are several ways we can drill deeper into the impacts of the trade war between the world’s two largest economies.

Politics in the way of trade

First, exporters may be concerned over politically motivated policies[5] that would have an adverse effect on goods from New Zealand. While the impact of tariffs is immediate for US and Chinese exporters, the most worrying aspects for exporters from third-party countries like New Zealand are non-tariff barriers that can be politically motivated[6].

Read more: How to get ready as the US-China trade war spills over to other countries[7]

For more than 70 years, the dispute settlement system of the World Trade Organization (WTO[8]) (previously GATT) provided a process for countries to resolve trade grievances. But the US-China trade war has sidelined these global principles and replaced them with tit-for-tat exchanges of tariffs and political power wrestling[9] between the two big powers. As politics gets in the way of trade flows, companies are encountering an increasing level of political control or intervention[10] (e.g. stricter checks at customs, stricter processes for issuing or renewing licences for importing, and stricter scrutiny over inbound or outbound foreign direct investment).

While many non-tariff trade barriers are not caused by the trade war, they are amplifying fear and worry about protectionist measures[11], with negative sentiment among customers and suppliers[12] (especially from the US and China). New Zealand exporters need to calm their customers and reassure them that the current political stand-off between the two giants does not affect New Zealand’s commitments to their markets.

Patriotic consumer response

Second, consumer boycotts[13] can become contagious during international political conflicts. A disagreement with political powers of a country can be interpreted as an attack on the identity of people in in-group cultures.

Some companies, such as the Danish company Arla, were boycotted in Middle Eastern markets because they were associated, through country of origin, with the Danish cartoonists behind the Muhammad cartoons[14], which offended Muslims. When it comes to China, consumer boycotts can be accelerated and politically directed[15] because of the size of the market and political structure of the country. Consumers often collectively and emotionally follow the guidance of political forces[16].

China is an extra sensitive market[17] because of its relatively closed society[18] (with internet and other censorship), rising nationalism[19] and strong collectivist and in-group culture[20]. The current Hong Kong crisis could easily embroil any foreign company that has either intentionally or unintentionally supported the youth and democratic movements.

Read more: University under siege: a dangerous new phase for the Hong Kong protests[21]

The most recent example is the boycott of the Houston Rockets and National Basketball Association[22] by Chinese official media and sponsors because the Rockets’ general manager Daryl Morey tweeted a message supporting the Hong Kong movement. Cathay Pacific was also targeted, and its CEO resigned following pressure by Beijing[23] over participation by some of its employees in protests.

Rising costs of exports

Third, exporting costs rise[24] as a result of political disruptions in global trade. A trade war creates uncertainty among managers about the global business environment. Information is largely asymmetrical[25], complex and dynamic. Firms have to spend more resources to communicate[26], coordinate and adjust to the threat from political disruptions.

Sluggish export demand[27], negative customer sentiment, decreasing export prices and volatile foreign exchange rates can all contribute to the costs of exporting.

Overall, the current trade war or the evident (or potential) political decoupling between the US and China[28] has made global business and export environments especially sensitive.

Companies in New Zealand should watch closely how the trade tensions develop and avoid politically provocative marketing, communication and public relations while finding ways to address rising export costs.

References

  1. ^ disruptions to global value chains (www.eastasiaforum.org)
  2. ^ 18-month trade tensions (fortune.com)
  3. ^ StatsNZ (www.stats.govt.nz)
  4. ^ merchandise trade data (www.stats.govt.nz)
  5. ^ politically motivated policies (www.nytimes.com)
  6. ^ non-tariff barriers that can be politically motivated (www.scmp.com)
  7. ^ How to get ready as the US-China trade war spills over to other countries (theconversation.com)
  8. ^ WTO (www.wto.org)
  9. ^ replaced them with tit-for-tat exchanges of tariffs and political power wrestling (digamoo.free.fr)
  10. ^ increasing level of political control or intervention (www.sciencedirect.com)
  11. ^ amplifying fear and worry about protectionist measures (www.cnbc.com)
  12. ^ negative sentiment among customers and suppliers (www.scmp.com)
  13. ^ consumer boycotts (www.foreignaffairs.com)
  14. ^ Muhammad cartoons (www.sciencedirect.com)
  15. ^ consumer boycotts can be accelerated and politically directed (www.lowyinstitute.org)
  16. ^ follow the guidance of political forces (fortune.com)
  17. ^ extra sensitive market (www.scmp.com)
  18. ^ relatively closed society (www.usnews.com)
  19. ^ rising nationalism (www.scmp.com)
  20. ^ collectivist and in-group culture (www.emerald.com)
  21. ^ University under siege: a dangerous new phase for the Hong Kong protests (theconversation.com)
  22. ^ boycott of the Houston Rockets and National Basketball Association (www.wsj.com)
  23. ^ pressure by Beijing (www.nzherald.co.nz)
  24. ^ exporting costs rise (economistsview.typepad.com)
  25. ^ Information is largely asymmetrical (www.scmp.com)
  26. ^ more resources to communicate (www.newsweek.com)
  27. ^ Sluggish export demand (www.spglobal.com)
  28. ^ political decoupling between the US and China (www.scmp.com)

Authors: Hongzhi Gao, Associate professor, Victoria University of Wellington

Read more http://theconversation.com/nz-remains-unscathed-by-us-china-trade-war-but-thats-no-reason-for-complacency-125710

Business Reports

Is Maintaining Good Customer Service Difficult?

Good service is the key to success within any customer-facing business. Employees should strive to help in a clear and friendly way, to attract new customers and retain current clients. There are many ways in which you can imple...

Business welcomes Safeguard consultations

A comprehensive consultation process on the Safeguard Mechanism will be critical to achieving our targets and locking in a stronger economy, Business Council chief executive Jennifer Westacott said. “It’s time to move beyon...

Adyen advances in-person payments with the launch of in-house designed terminal range

Adyen (AMS: ADYEN), the global financial technology platform of choice for leading businesses, is pleased to announce the launch of its first in-house designed terminals. Innovated to facilitate diverse payment use cases, the ...

Water education is key to creating sustainable communities

Water has shaped the unique landscape and the culture of the Northern Territory for over 60,000 years and is just as important today. Water is at the centre of the Territory lifestyle. In remote communities, preserving water hel...

Influential oil company scenarios for combating climate change don't actually meet the Paris Agreement goals, our new analysis shows

BP, Shell and Equinor all produce widely used scenarios of energy's future.Christopher Furlong/Getty ImagesSeveral major oil companies, including BP and Shell, periodically publish scenarios forecasting the future of the energy se...

How to Improve Marketing Strategy Using Surveys

Every business owner knows how important marketing is. However, there are more than a few ways to go about forming your marketing strategies. Many marketers will disagree on what the best approach is. However, there is one thing...

Web Busters - Break into local search

WebBusters.com.au