by Russel Norman
So we’ve been hearing from the free trade zealots that the trade deal with China has been a great success. But has it? The gross numbers look pretty good. The trade deal came into effect from Oct 1 last year and there’s been a $1290 million increase in exports and a $316 million increase in imports. So overall we have improved our trade balance with China significantly, by about $974 million, since the deal was signed.
| Year ended September |
Imports from China ($m) |
NZ exports to China ($m) |
Total trade between NZ and China ($m) |
| 2008 |
6,095.1 |
2,237.7 |
8,332.8 |
| 2009 |
6,410.9 |
3,527.8 |
9,938.1 |
|
|
|
|
|
| Nominal change ($m) |
315.8 |
1,290.1 |
1,605.3 |
| Percentage change (%) |
+5.2% |
+57.7% |
+19.3% |
The breakdown of the top 10 merchandise exports (that have increased):
|
HS-code |
Category |
Exports, year ended September 2009 ($m) |
Change from previous year ($m) |
|
04 |
Dairy produce |
893.0 |
480.4 |
|
44 |
Wood and articles of wood |
657.4 |
384.0 |
|
19 |
Preparations of cereals, flour, starch or milk; pastrycooks’ products |
297.0 |
194.3 |
|
97 |
New Zealand miscellaneous |
171.2 |
129.8 |
|
2 |
Meat and edible meat offal |
146.8 |
62.5 |
|
5 |
Animal originated products; not elsewhere specified |
145.0 |
45.3 |
|
27 |
Mineral fuels; mineral oils and products |
36.5 |
36.5 |
|
51 |
Wool, fine or coarse animal hair; horsehair yarn and woven fabric |
227.6 |
27.3 |
|
8 |
Fruit and nuts, edible; peel of citrus fruit or melons |
61.9 |
24.2 |
|
35 |
Albuminoidal substances; modified starches; glues; enzymes |
59.1 |
21.2 |
So it was dairy and logs and cereals etc that did most of the lifting – about $1058m (actually more than the total nett improvement of the trade balance and over 80% of the export increase).
The question I have, is how much of this increase is due to the trade deal and how much is due to a. Chinese parents desperately seeking out NZ dairy products as they are seen as safe for their kids; and b. The never ending demand for raw materials such as logs and cereals (Tim Groser recently described Chinese demand as sucking in NZ logs).
I don’t have the total answer to these questions but I think the story probably has a lot less to do with the trade deal than the free traders in all the other parties like to claim and a lot more to do with our clean and green reputation and our position as a commodity supplier.
Published in Environment & Resource Management by Russel Norman on Mon, November 30th, 2009
More posts by Russel Norman | more about Russel Norman
on the trolls and those who are unable to keep on topic
A 60% increase in exports due to our clean, green image when this image is getting worse..? A 60% increase in exports due to one baby product being unsafe..? Why would demand for logs jump so much in one year..? The demand for steel and concrete is paramount in China at the moment…
Nope, you can chalk this one up to the free trade deal, suggesting anything else is obfuscation IMHO…
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Let’s talk real here.. the figures shown for instance: are they gross or net-to-producer repatriations??
If gross – given a nominal $1.6bn – how would that repatriate (in NZ terms). The prior year (08) is given but frankly is not much use on the back ie world context of global commodity trade with China. And the reason for this I have learned from Dennis Olsen, analyst @ institute Agriculture & trade(iatp.org) is the vast overall increase in commodity prices since circa 2006. In particular 46 percent of prices going to largely futures speculation. If that simulates for/to kiwis and offshore(likely) then the net gains are somewhat less than worthwhile for the producers who have also been hit with buck devaluations.
The CAN-DO better area is in this spec pricing which in truth amounts to parasitism upon the billions in hunger.
Good question Russell and more needed. In this area along with others corporate.
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Be the FTA with China good or bad for us, the problem is the undemocratic manner in which these deals are negotiated in secret that is the problem.
Agreements that bind all future governments should have the support of parliament, not just the executive.
peace
W
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Looking at the top chart it doesn’t look very healthy to me, but it looks like China is getting a very good end of the bargain.
Our total imports from China being $m 6,410.9, exports to China 3,527.8 totaling to 9,938.1 of a + & – trade.
Now take away our exports from imports and it comes to a -2,883.1
Thats right that is a trade deficit!!!!
What else do we have to sell to China? What ever happened to our manufacturing sector Hey???????
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Those are excellent numbers. Last years exports to China we just over one third of imports. In just one year they’ve leaped to over half.
There’s some amazingly good figures with increases over 2008 exports for
wool – 800%
fruit – 250+%
dairy 100%
wood 100%
meat 250%
glues, starches – 300%
other animal products 300%
Stunningly good figures.
Considering most of our books, toys, clothes, apliances, small electical goods, tools, kitchenware, etc are made in China, that’s not a bad balance of payments, and it’s moving quickly in the right direction.
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There’s the dollars and cents, sure, but what cost to the nation in the silencing of Parliament’s condemnation of death sentences and the Sino-Corporate management of our Prime Minister’s diary appointments?
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- “Be the FTA with China good or bad for us, the problem is the undemocratic manner in which these deals are negotiated in secret that is the problem.”
The problem is that there are any artificial restrictions on our freedom to trade peacefully with whoever we want.
The economicially sound position – as well as being the only one in keeping with individual freedom – is for the NZ government to unilaterally renounce all such restrictions.
Governments in other countries may continue to hold their citizens hostage and impoverish them with such laws, but there is absolutely no reason why we should copy their stupidity.
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BLiP – the 300 MILLION people who have been lifted out of poverty (the only time in the history of the planet that this has happened in such numbers in such a short time) might think that the dollars and cents are MORE important than anything else.
The 10,000 New Zealanders who now have new jobs because of the increase in just one year might also value the dollars and cents quite highly.
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Ahh, yes: the rising standards of living fallacy. As Noam Chomsky put it: the living standards of slaves were better in the 19th century than they were in the 18th century; is that an argument for slavery?
My point is that democracy in New Zealand and our credibility on the international stage has begun to crumble since our engagement with China. Some things shouldn’t be for sale.
BTW, did you get your figures from the bollocks factory?
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BLip – easy to callously dismiss 300 million lifted out of poverty when it’s not you who’s starving.
Our democracy and reputation is crumbling on the international stage because we trade with China?
You mean that SAME international stage that also trades with China? Is there any country in the world that doesn’t trade with China?
You say the figures are from the bollocks factory – not a kind name for the United Nations World Food Programme –
“Having lifted 300 million of its own people out of poverty in less than a generation – surely one of the greatest achievements of the 20th century..” James Morris, Executive Director of the United Nations World Food Programme
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I am not a fan of making access to our market so complete for China that we do not any longer have the ability to get a toothpick without shipping a log to china.
NZ will not get “wealthy” off the sheeps back. It will not get “wealthy” doing blind obeisance to the principles of comparative advantage as misunderstood by financiers whose understanding of just about everything is totally fncked.
http://www.huffingtonpost.com/ralph-gomory/manufacturing-and-the-lim_b_227870.html
NZ has to do far better in its technical trades, science and engineering to achieve any sort of balanced (and thus resilient) economy, and it needs a number of capabilities preserved against a future in which there may be very little trade possible.
That means that we may have to pay a bit more for some things and we may have to call “free trade” a mixed blessing at best. It is certainly NOT the holy grail that some people think it is.
So far we have bled ourselves dry in service of this comparative advantage meme and our best and brightest have fled, because the choices are shearing sheep, milking cows, selling each other coffee, buying and selling houses and banking. There is stuff-all for a technically trained and competent graduate with a big loan to do, and even less that will actually serve to help him/her pay off the damned loan.
We’re well below critical mass in this…and still measuring wealth as GDP per capita, as though it means something. This is not as healthy a society as it should or could be, and the errors in judgment that have led us here do not have a party name attached to them.
respectfully
BJ
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If only we were selling China actually valuable things, not just raw materials…
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Raw materials aren’t valuable?
Does Australia know?
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Get a life
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Your economic analysis kinda ignores the fact that protein is something the middle class buys an awful lot of.
China has an emerging middle class….
Therefore….
As for value add, it would be a lot easier if you’d leave the capital with those who can grow it, as opposed to taking it from business and handing it to cretins.
Just a thought….
Until then…
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BJ – we need to do the thigs we are good at.
If we are not very productive at manufacturing, then the only way to keep this going is to make artificial barriers to make products dearer for everyone, so our unproductive overpriced products can be propped up.
It’s not a sustainable position though – sooner or later that house of cards will come tumbling down.
Do we really want the “good old days” of low paid factory workers producing overpriced products for consumers?
Better to concentrate on things we are competitive at.
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Unproductive only if we fail to manage it, overpriced (by the standards of Chinese manufacture, fueled by coal and chinese labour from a workforce over a billion strong and paid in pittances).
One has to measure sustainability by a standard other than products vs price.
Made-in-NZ from NZ materials by NZ workers? Not overpriced or unsustainable at all over the long term.
Our market doesn’t sustain the sort of volume efficiencies that China can garner from its other markets. The point here is that we can’t really build ANYTHING cheaper than they can so by your rules we can have no industry whatsoever. That is a security problem as we are then at the mercy of their willingness to sell stuff to us and it is a sustainability problem as our energy sources are significantly greener than theirs. Finally it is a problem in terms of our quality of life as our smartest graduates ARE leaving because there is stuff-all to do here and we aren’t able to pay a decent wage.
Gomory’s point is that we’re fools to put all our eggs in that one basket.
Efficiency is all well and good but it does not help OUR economy diversify. From my point of view it does not help us prepare for the results of our collective failure to move the climate changers out of their positions of power and wealth.
Not better to concentrate on things we are competitive at. Raising sheep and milking cows is NOT going to raise our standard of living until other countries are filled with people who are basically starving to death and willing to pay much much more for our produce.
At which point it is going to be game-over for the current economic models in any case.
I suggest that wealth at that point will be purchased at too dear a price.
respectfully
BJ
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bj says “Not better to concentrate on things we are competitive at.”
You idea, to do things we are NOT competitive at, is financial suicide – it’s just so obviously an appallingly bad idea.
Of course efficiency is neccessary if we are to diversify. If we are not efficient – no one will buy what we are making.
You complain about our graduates leaving because of lower wages, then suggest protectionist policies of countries whose wages are falling further and further behind – and reject policies of countries whose wages are growing fastest.
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Nor did I say that we should CONCENTRATE on the things we are not competitive at… just that we should still do them and accept that it will cost somewhat to do them and we should encourage them through government intervention. This has worked for other countries.
http://www.fsmitha.com/h2/ch27jp.htm
What I do not envision however, is a sustainable boost in exports out of it, simply because the conditions of the rest of the world are different than those which the Japanese faced in the 50′s and 60′s.
I couple my own notions with the implementation of a NZ dollar that is redeemable in NZ electrical power. Which would automatically alter our terms of trade somewhat (I think) to favor local production.
An example of something we should do:
Government should be supporting Wind Turbine manufacture here, and all the parts that go into wind turbines, and the parts that go into those parts, should be available from NZ sources.
Right now we have a viable company which has trouble competing overseas because it is competing with companies that ARE IIRC, supported in fairly unsubtle ways, by other governments and it is competing with housing speculators for capital. It would take very little to boost this and along the way, keep technical and manufacturing employment here in NZ. Not according to the efficiencies theory, as we can buy cheaper turbines from the Chinese.
…and we can only keep them running if the Chinese can continue to support them with spare parts.
In the long term this is fatal. We become a rural 3rd world country because we CAN not build things and consume them in the sort of volumes that allow a place like China to succeed and we DO not provide support for any industries outside of agriculture (Well that’s changing, now we’re going to provide carbon credits to the heaviest current emitters). One wonders if our government collectively could be any any dimmer without being an actual black-hole.
BJ
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BJ,
Your turbine example is a good one, here is another. We have steel manufacturing in New Zealand sourced from local resources, and staffed by New Zealander tax payers and owned by a tax paying company.
Any government tender should only look at overseas tenders for sourcing the steel for the Waikato High tension Lines, railway rails, etc if the overseas tender hase had added to it how much tax revenue is lost if the steel is not made here.
Tax revenue from the coal mines, transport comapnies, eletric power supplier, New Zealand Steel, post production engineering, site assemblers, etc., etc. Not to mention the civil engineering companies involved in design.
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bj – under your ecenario, we will all have to work longer (emmit more) just to stand still and use the same (less effciently produced, more expensive) products. The whole country would become LESS efficient.
Unless we want to turn into a third world country, we need to export goods to be able to afford products that are completely unfeasible to produce here.
If you want to manufacture here, and export, then you need people to work for the same or LESS wages than those people in the factories that have the huge advantages of mass productions and being closer to their markets.
It’a simply a bad idea.
We need to do what some NZ companies are already doing – we come up with the clever ideas, get them made close to their markets, for a much lower price, and compete successfully on an international basis.
A small country that is further away from the worlds population than any other, with first world wages, is always going to find it a struggle to compete with the SAME products produced with low wages near the demand.
Hence we should not produce the same products, but products that have some advantage. i.e. Methven tapware – designed in NZ, manufactured close to market at a much cheaper price, sold to the world with big power and water savings over other tapware because of very clever design, with the profits coming back to NZ.
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photonz
Except for patriotism, what is to stop the tap company from moving offshore not just the factory but also design and admin?
They would be better (from a shareholders ROI viewpoint) to set up the company in any tax haven you can name.
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Gerrit – sounds like a good idea……but
1/ Other countries might see the protectionism and put tarrifs on our exports. It may be actually be harmful to us.
2/ NZ Steel and Tube currently make a profit of around 5% of turnover. Tax is approximately 1.5% of turnover. (just $8m on $500m turnover).
So the only situation where your scenario would kick in, is when S&T tender was between 0 and 1.5% more expensive than an overseas tender.
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Gerrit – so why not keep them here by reducing our company tax rate?
A reduction in tax means the money would be spent on things like
1/ expanding the company or R&D
2/ Wages or Dividends.
If it’s spend on the former, that’s good to the economy, jobs and wages.
If it’s spent on the later, that’s good for workers and shareholders, and they will pay tax on the money anyway (at their top rate).
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photonz
Any country can put on tariffs, for any reason, just look at OZ with NZL apples or NZL with Canadian fresh salmon.
All one asks is that the government of the day, when excepting an overseas tender for supply, takes into consideration the extenalised costs assocciated with not manufacturing that product in New Zealand. Those costs are loss of tax revenue (income) and expenses to maintain the workers at minimum wages (dole), etc.
The Greens are keen to externislise costings for pollution, how about imports that could and should be made here?
With a budget based on borrowings for at least 10 more years, any tax cuts will increase borrowings or result in higher taxation for the few remaining tax payers.
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Greater consumption is neither more nor less efficient. We would be able to consume less of certain things, but as a society we would become more egalitarian and more efficient. We would be more self-contained and would NEED less from places like China.
One error is in assuming that we must consume imported goods at the same rate. We needn’t do that. I’ve seen the stuff we consume in bulk. Often it is the only stuff I can find… at any price.
The Russians have a saying: “I am not rich enough to buy cheap things”.
(My Wife is Russian)
The point should be obvious.
respectfully
BJ
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Gerrit says “With a budget based on borrowings for at least 10 more years, any tax cuts will increase borrowings or result in higher taxation for the few remaining tax payers”
Unless of couse the government reverses the massive over spending of the last five years – an increase of a massive 40% in govt spending when the countries GDP INCLUDING inflation only when up 15%.
Totally unsustainable spending that will give aus a debt hangover for a decade or more.
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photonz
Have argued that the government expenditure is way way to high. But we have the cloth cap unionists like SPC arguing for maintaining government expenditure.
Problem with cutting government expenditure is those people who dont want any cuts to health, welfare (in particular), transport (some want more rail), etc.
So what to cut. I would cut it massively and ask the private sector to take over service provisions that the government does currently.
But with a left wing party that is not going to happen. We will keep borrowing from our childrens children, sigh.
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Actually those were the days of high wage full employment.
Fell apart under Muldoon. The problem is how do we put Humpty Dumpty together again?
peace
W
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Talking about the “comparative advantage meme” is like talking about the “gravity meme” or the “laws of thermodynamics memes.”
Comparative advantage is really just an extension of the observation that we are all a lot more productive, and therefore wealthier, if we all specialise in particular tasks and all engage in free trade of the resultant output; as opposed to all growing our own food and rearing our own sheep to knit our own clothes.
Taxing profitable economic activity to create subsidised jobs in politically influential sectors is typically only going to squander wealth, not create it. What you’ll end up with is things like Winston Peters using taxpayers money to subsidise the horse-racing industry.
NZ is never going to have much in the way of large industrial enterprises based here. Instead, it will continue to have lots of nimble small companies. The last thing such an economy needs is the dead hand of government trying to impose an industrial policy on it and pick winners using other people’s money.
It is helpful to forget notional national boundaries when thinking about trade. If NZ and China were one country you wouldn’t see ignorant and opportunistic politicians bandstanding about deficits; the same way we don’t see them talking about deficits between the North and South islands.
Gerrit,
- “Any government tender should only look at overseas tenders for sourcing the steel for the Waikato High tension Lines, railway rails, etc if the overseas tender hase had added to it how much tax revenue is lost if the steel is not made here.”
When a private producer and a private buyer trade steel, the state imposes a tax. But when the state itself is the buyer then there is effectively no tax (the state can’t make money by paying tax to itself) So the state doesn’t make any taxable income when it buys stuff: it’s all expenditure.
Now, it will certainly be the case that the price of foreign steel includes an element of tax to the foreign government, but that will be included in the total price. If that total price is still cheaper, then it is logical for the NZ government to buy it.
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bliss writes – “Actually those were the days of high wage full employment.”
You can have the same today if you removed all mothers from the workforce and made them stay at home.
And I remember my parents struggling to get by on an average to above average single wage.
Gerrit – the question with spending cuts is, how come in 2005 before we had a massive 40% increase in spending, we weren’t all squealing about the pitiful health / education / social security systems.
Has anybody noticed a massive improvement in all sevices?
Has anybody noticed ANY improvement in all sevices?
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The problems with extending Comparative advantage too far were explained by Gomory a ways up the thread. The reasons that NZ, as an Island Nation, needs to retain some of its insular nature are simple reflections of our market limitations. I have no particular nostalgia for any past form of NZ.
I have a fairly clear vision of what sort of future I want for the country.
Which can’t be had if we reckon “comparative advantage” against countries that have large markets, the resulting economies of scale and no ecological scruples. We aren’t a good place to be building ANYTHING but niche products for export. Rakon lucked out… everything else we do that hasn’t to do with farming, is marginal.
Yet to retain a substantial portion of our best educated and most ambitious, we have to pay them better and give them useful work. Which is all being done in countries which have “comparative advantage”.
So like it or not, we have to use some mechanism, which Photonz and Wat rightly observe will cost us something, to subsidize, support or “advantage” selected forms of industry… and as Wat warns, has hazards associated with potential government corruption.
It is however, not rendered unnecessary by those hazards.
Besides we have one of the least corrupt governments on the planet according to some mob that isn’t to be trusted.
If that total price is still cheaper, then it is logical for the NZ government to buy it.
Logical from a short-term, purely economic view, and logical if there is no advantage to NZ retaining the basic industrial capacity to maintain itself if its trading partners cease to function normally,
This is something that has happened within living memory, and which cannot be ignored. Ignoring such externalities is fine for an economist, but is not so advantageous for an entire nation.
Logical if there is not a social advantage to retaining at least some of its best educated, most ambitious, most productive and most intelligent people.
Gerrits points included the maintenance of people who wind up not being employable because of the absence of industry. I note it is not answered. Only the tax issue is discussed.
Those people are all leaving when they graduate because there is nothing for them here. As I described it above… “because the choices are shearing sheep, milking cows, selling each other coffee, buying and selling houses and banking”… and we know we need to remove the buying-and-selling-houses distortions which we already subsidize so mightily.
So so so… what other answer is there? I certainly see none… we already work plenty hard and have stuff-all tools to work with. The problem in a nutshell, is that for a small and remote country with cheap transport prices, industrial and technical development is a matter of State policy, because the market will never permit it to thrive.
BJ
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