IPEF ignores issues around tariffs in favour of standardising rules and strengthening supply chains.
Pete McKenzie is a freelance journalist who writes for the New York Times, the Guardian and the Economist, among others, about the Pacific.
OPINION
In 1980, then-Prime Minister Robert Muldoon observed of New Zealand that “our foreign policy is trade. We are not interested in the normalforeign policy matters to any great extent, we are interested in trade.”
In the four decades since, New Zealand diplomats have been remarkably successful on that front, negotiating comprehensive trade agreements with China, Australia, Singapore, the European Union, and the United Kingdom, among others.
The great hope of New Zealand trade negotiators has always been that they could add the United States to that list. They won’t. No matter who wins the American election this November, a free trade deal with the US is off the table, according to American officials and trade analysts.
“For most of my career, whether I worked for Republicans or Democrats, we pursued a pretty consistent trade policy … But [former President Donald] Trump blew this all up,” said Wendy Cutler, the vice-president of the Asia Society and former deputy US Trade Representative. “And it’s not just a blip in trade history.”
“There’s really no trade policy to speak of in this current Biden Administration,” added Bruce Stokes, senior fellow at the German Marshall Fund. “They’ve engaged in performative trade policy.”
America’s near-total withdrawal from the world of international trade negotiations appears irreversible in the short-term, and will cause major challenges for both America’s effort to deepen its influence in the Pacific and New Zealand’s attempt to navigate the increasingly narrow path between the diplomatic demands of the US and China.
Until relatively recently, a trade deal between New Zealand and the US seemed likely, in the form of the Trans-Pacific Partnership Agreement.
The trade deal began as a deal between New Zealand, Chile, Singapore, and Brunei: a relatively minor grouping. But in large part through the efforts of New Zealand and previous trade ministers Phil Goff and Tim Groser, the group eventually grew to cover roughly 40% of global GDP and 11 nations.
“New Zealand clearly punched above its weight,” said Cutler, who played a significant role in the pact’s negotiation. “It played a central role.”
Among the nations New Zealand helped bring in was the US, which saw in the pact an opportunity to lay down a trade framework that would define the world’s economic future amidst China’s rapid global rise.
“Was China always in the back of our minds? Yes,” said Cutler, who nonetheless insisted that containing the growth of China was not the pact’s main focus.
Wendy Cutler, vice-president of the Asia Society and former deputy US Trade Representative.
In exchange, the US offered greater access to American markets for many New Zealand goods.
Despite major concerns in New Zealand over sovereignty issues, the agreement was set to pass. Then Trump was elected in 2016. One of his first acts in office was to withdraw the US from the agreement.
That had an immediate cost. “It clearly had a devastating impact on American influence in the region,” Cutler said. “When Trump on his third day in office signed an executive order to instruct our exit from the agreement, I think the other countries were left scratching their heads.
“We’ve never been able to regain that ground. To this day, countries still view us as unreliable.”
Under President Joe Biden, America has tried to offset the damage by negotiating the ‘Indo-Pacific Economic Framework’ (IPEF) with many of the same countries.
But the framework largely ignores issues around tariffs and quotas in favour of standardising rules and strengthening supply chains. New Zealand officials speaking on condition of anonymity said the country’s trade negotiators have largely given up on pursuing American market access.
Now, American experts worry the country’s absence from substantive trade negotiations may harm its presence in the Asia-Pacific, where it has been trying to ramp up its influence to compete with China.
“In terms of security, we get it and we are working with partners in very sophisticated ways,” Cutler said.
“But the missing piece of the puzzle in all of this is a robust economic agenda. There’s no doubt in my mind that when push comes to shove, that’s what Asian countries are interested in. Without a strong economic component, there’s a view that we’re not totally engaged.”
Stokes said: “I don’t know that the rest of Asia can keep China out for four more years, if the US is not willing to get involved”.
The implications for New Zealand are profound.
Despite a recent uptick in trade with the US, which now ranks as New Zealand’s second-largest trading partner, China still easily holds the top position: the value of New Zealand exports to China is more than double that of exports to America.
That dependence on China has left New Zealand vulnerable to political pressure of the kind experienced by Australia, which China sought to punish for perceived aggression under the former Coalition government.
The country banned imports from Australia’s largest meatworks over alleged labelling concerns, placed tariffs of up to 200 per cent on Australian wines, and implemented an unofficial prohibition on Australian coal.
Some of those restrictions have since been loosened, but the moves cost Australia billions in lost trade. New Zealand took note. In 2021, then-foreign minister Nanaia Mahuta warned the country’s exporters that it “may only be a matter of time before the storm gets close to us”.
The current National-led Government is bringing New Zealand much closer to America. This month, in a signal of his Government’s foreign policy direction, Prime Minister Chris Luxon travelled to Washington to attend the annual meeting of the Nato military alliance.
Such moves are likely to attract scrutiny from China, forcing New Zealand into a delicate balancing act as it deepens ties with its traditional Anglosphere partners while working to avoid Chinese economic repercussions.
The balancing act would be much easier if New Zealand was able to further diversify its exports with the help of an American trade deal. But serving US officials emphasise that is not on the table.
Speaking on condition of anonymity to speak frankly, one US official recently said that New Zealand had to appreciate that trade had become a matter of domestic politics in the US, and was accordingly caught in a quagmire it was unlikely to escape from for years.
That is true regardless of the outcome of November’s election, according to American analysts.
“All bets are off if Trump gets re-elected,” Stokes said. Among other things, Trump has proposed an across-the-board 10 per cent tariff on all foreign imports, an unprecedented move that would likely reverse the recent uptick in New Zealand trade.
Bruce Stokes, senior fellow at the German Marshall Fund.
“A second Trump term, and having him kind of blow up these relations again, I’m not sure the world can take that,” added Cutler.
But even if expected Democratic nominee Vice-President Kamala Harris wins the election, a revitalised trade agenda is an impossible dream.
“There’s no way we’re going back to where we were under Obama in previous years,” Cutler said. “That’s just not happening.”
Disclosure: Reporting for this story was supported by the New Zealand-United States Council, a think-tank.
