Trade Minister David Parker with junior ASEAN diplomats at the Otago Foreign Policy School last year

Otago University’s prestigious annual Foreign Policy School over the weekend was all about President Trump even though his name was hardly mentioned.

Top of the agenda was how to deal with the growing trade protectionism that Trump and other populists have inspired with the US withdrawal from the CPTPP; US tariffs against China and other countries, Brexit,  and, most importantly, Trump’s attack on the World Trade Organisation.

But there was an awkward undertone, as once again, Foreign Minister Winston Peters appeared to be not in synch with the Ardern Government’s policy on trade agreements and the US and China.

The trade debate in Dunedin echoed the weekend G20 summit in Osaka which broke up without making any progress on those issues and one participant,  Singapore Prime Minister, Lee Hsien Loong, warned Singaporeans that they must be “psychologically prepared” for the uncertainty to come.

There also wasn’t much of a consensus in Dunedin on what to do; it even seemed there wasn’t a consensus within the New Zealand Government going by the two Ministers who spoke.

But what everyone agreed was that we are on the edge of cliff and that ultimately that can only spell huge dangers for a small country like New Zealand.

orld Bank Vice President East Asia, Victoria Kwakwa

Those dangers were spelled out by Victoria Kwakwa, the World Bank’s Vice President for East Asia and the Pacific.

She said that rising protectionism was coming at a time when the world economy was slowing anyway.

The World Bank was projecting global growth to slow to 2.6 per cent this year.


“At a time when the global economy is somewhat challenged, we are also finding that rising protectionism and this move away from some of the foundations that have supported global growth feed off each other,” she said.

She said that protectionist measures last year covered 3.8 per cent of world merchandise trade.

This was the period when there were rising tensions between the US and its main trading partners.

“The trade tensions between the US and China are the principal cause of the rise in protectionism.”

And she noted that the US was now also targeting India.

Some countries were benefitting in the short term because they were able to displace US exports to China or Chinese exports to the US, but World Bank research showed that the biggest losers were the US and China, she said.

“But I think one of the impacts of these tensions and the ongoing disputes is the uncertainty that they create and therefore the negative impact on potential investment.

“People will not make investment decisions they are waiting to see how things pan out.”

Sitting in the audience, Trade Minister David Parker, said that the drop off in investment would pose economic challenges, but he asked Kwakwa what the implications of this might be for monetary policy which as a consequence of the Great Financial Crisis and Quantitative Easing had left interest rates “incredibly’ low.

Kwakwa said there had been some winding back of these policies, but now, with the protectionism and the prospects of a slowdown, there was “some rethinking” going on.

“There is a clear recognition that the rate at which you move back from quantitative easing needs to factor in what is happening globally with the uncertainties.

“So our sense is that you will have to continue to look at this very carefully.

“You probably can’t go as fast as you were before and there has to be flexibility through monetary policy to respond to these uncertainties and some of the downside risks.”

Parker himself had already treated the School to a sweeping account of not only his policies on trade but also some of his own more personal political philosophy.

However, he opened up a gap between himself and Foreign Minister Winston Peters who is off to Washington shortly to press Vice President Mike Pense for a free trade agreement.

Parker set out a list of his priorities for trade agreements which included the EU Free Trade Agreement; the revived Regional Comprehensive Economic Partnership which includes China and India; the Pacific Alliance with four central and South American countries; the ASEAN and China free trade agreement upgrades  and  the possibility that more nations may seek to join the Comprehensive Progressive Trans Pacific Partnership (CPTPP).

That a deal with the US was not on the list may reflect the wariness of East Asian countries, in particular, about doing bilateral deals with the US. Japanese officials persistently emphasise to journalists that this will be a goods-only agreement, not a full free trade agreement.

Trade Minister David Parker at the Otago Foreign Policy School

Parker’s fundamental trade philosophy is that, particularly in a period, when trade tensions are on rise; New Zealand must defend and support the rules-based international system.

Of particular concern is the refusal of the US to support the appointment of judges to the World Trade Organisation disputes settlement panels. Because the WTO works on consensus, the US  move is effectively a veto.

Parker said if this was not resolved by December 11, this year, there would be no panels and this would diminish the incentives for WTO members to adhere to the organisation’s trade rules.

“So if we don’t find a solution, eventually the rules-based system will crumble, and we will be faced with a return to power based trade and small export-oriented countries who do not have as much power as the big nations will struggle to prevail,” he said.

Parker said he believed that the rise of populism and the pressures on Trump over trade had their origins in much the same politics that drove thousands of New Zealanders to protest against what was then the TPP when National was in power.

“My view, and I’ve thought a lot about this, was that what was driving them was the insecurity of the middle class.

“To deal with that, you have to identify what are the underlying causes.

“And some are pretty easy to identify; enormous rises in inequality with so much wealth going to the one per cent not just overseas but also in New Zealand exemplified by dropping homeownership rates and a sense among the public that trade agreements work mainly for the benefit of multinationals rather than for smaller businesses.

“It’s actually not true.”

Parker said our biggest company, Fonterra, was a huge beneficiary of trade agreements but so also were our small and medium-sized high tech companies.

“However (that insecurity) is made real by things like the Panama Papers showing there is much tax avoidance and the Apples and Googles of this world pay very low rates of tax by basing themselves in low tax jurisdictions legally in addition to the illegal behaviour that was made evident by the Panama Papers.

“The effect of monetary policy following the GFC dropped interest rates and enabled assets to be leveraged further.

“People worried whether governments were going to be able to regulate over environmental outcomes or tax issues, and there were concerns that investment protocols had gone too far and that rising inequalities around the world were starting to feed back into the New Zealand economy by one percenters from overseas coming here and outbidding New Zealanders for our best land assets.”

Parker’s comments inspired Otago University Politics Professor Robert Patman, one of the directors of the School, to say that a future school needed to focus on populism.

And the comments were also echoed in his final speech in New Zealand, by outgoing Treasury Secretary Gabriel Makhlouf last Thursday. 

“Benefits from free trade tend to be diffuse and long-term in nature, but losses are often sharp and concentrated on particular individuals, firms, and regions,” he said.

“Moreover, the people most affected are sometimes those with the least capacity to adjust on their own.”

But Parker did also offer some of his own personal thoughts on other issues, particularly social media and in doing so seemed to endorse a controversial comment from Foreign Minister, Winston Peters, at the School.

“They (social media) have taken the revenue of the fourth estate yet they have none of their control mechanisms and they are undermining public confidence in the democratic institutions that I thought Winston Peters spoke wisely about in the last question that was put to him last night.”

The Peters comment was in response to a question from a member of the ASEAN young diplomats programme which had a number of members at the School.

She asked how New Zealand intended to navigate between its political relationship with the United States and its economic relationship with China to ensure its neutrality.

Peters replied: “That is not the first time I have heard that question and I want to give you now my personal answer and not one I can say that has been discussed with any of my colleagues; the Prime Minister, the Cabinet or any other politician.

“When you say we must choose sides, I want to say to you  from a personal point of view choose freedom, I choose democracy, I choose the rule of law, and from that, I hope my country never parts.”

Peters’ comment contrasts markedly with that of Prime Minister Jacinda Ardern who was interviewed by the Chinese website, Caixin Media when she was in China in April and told them that “New Zealand does not pick sides.”

That was a subtle “clarification” of earlier Peters comments which China regarded as critical; another clarification may now be needed.