The implicit trade-offs in our relationship with China

By Julian Wood August 18, 2021

Since the 1990s, New Zealand has pivoted our major exporting efforts toward China and we’ve seen significant financial benefits from what became a free trade relationship. As pointed out in media last week, the trading relationship has been so successful that China now accounts for around 30 percent of all our exports.

Part of our early willingness to grow trade with China was simple self-interest and the need for diversification after the loss of open British markets. We were also persuaded by the popular global narrative that when once-closed countries opened up to trade, the burgeoning middle classes that benefited from the exchange would rise up and demand their leaders open up politically—free trade bringing about even more freedom. It’s time we acknowledged this theory was naïve at best, and that our trading relationship with China makes it costly to engage in honest foreign policy.

Not speaking out will also have costs.

As a small exporting nation the simple truth is this relationship will sour and we will take a financial hit should we stand up for some of the democratic freedoms we take for granted or speak out against the actions of what appears to be an increasingly expansionist or hard line Communist Party. Not speaking out will also have costs. We are in danger of being seen as wanting to have our cake and eat it too by our traditional allies, and face a potential trade squeeze from them.

It’s also important to acknowledge that the current tensions between trade and freedom are not a unique or new situation. In our recent past New Zealand exporters had the potential to suffer greatly at the hands of the EU following our calls to retain certain French citizens following the bombing of the Rainbow Warrior.

A similar choice was faced in a Confucian proverb by a lamenting widow on Mount Tai. She was asked by Confucius why she was weeping so bitterly. She explained that her father-in-law had been killed by a tiger, then some time afterward her husband had also been killed by a tiger and then, her son. Asked by Confucius why she remained living on a mountain surrounded by deadly tigers, she answers simply: “Because here, there is no tyrannical rule.”   

The Government has been walking a tight-rope with China but the risk of falling off is increasing.

To date the Government has been walking a tight-rope with China but the risk of falling off is increasing. In the clearest signal to date, they have openly encouraged our exporters to diversify, trying to offset the trade-offs before our relationship with China reaches an inflection point. This is a prudent strategy and a warning that exporters should heed.

The Government needs to play its part in expediting new trade relationships with parts of the world we currently don’t trade in high volumes with. The problem we face is this that this relationship building doesn’t come quickly, and for now, the short term gains from trade with China remain high. However, now more than ever, how we behave internationally is a litmus test of what we truly value.

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