How the US-China trade war spills over to NZ and other countries
There are opportunities as well as challenges, write Associate Professor Hongzhi Gao and research assistant Ivy Guo from Victoria University of Wellington's School of Marketing and International Business and Dr Tarik Soliman from Manaaki Whenua–Landcare Research.
International institutions, including the WTO and the International Monetary Fund (IMF), have warned that the consequences of the conflict could include growing economic nationalism, rising protectionism and a downturn in global growth.
This will have flow-on effects for other countries such as Australia and New Zealand.
Both countries have developed close political ties with the US while fostering strong economic ties with China. As China is a top trading partner for Australia and New Zealand, the impact of the US-China trade war on their exports could be significant.
Although the dollar value of any effect of the trade war is difficult to gauge, a qualitative analysis is important so that policymakers, investors and businesses can develop an informed view of this live event.
To analyse the impact of the trade war on the exports of third-party countries, we have developed a new framework.
European Union consumers and downstream businesses of the soybean industry, such as producers of animal feed and biofuels, have enjoyed the benefits of a lower price of soybeans as a result of the additional supply from the US.
The third factor is whether the trade tension has disrupted the global supply chain of an industry (e.g. smartphones) that is important to the third-party country. The levies imposed by the US government on imports from China are said to destabilise international supply chains inside and outside of China that companies have invested in over years. Countries such as Thailand, Cambodia and Vietnam are catching up with China in terms of manufacturing expertise and capacities. Companies from already industrialised economies such as Taiwan and South Korea are considering revamping their home country’s competitive advantages.
Uncertainty in the price and supply of intermediary goods from these countries into the third-party country’s supply chain are critical for determining the spillover effect on the third country.
The last factor is whether the focal industry in the third-party country has developed a proactive response to the risk from the trade war. A proactive response would mean that companies in the focal industry in the third-party country have started to adjust strategic investment in research and development, sourcing, and manufacturing in or outside the US or China.
The trade war will create risks and opportunities to third-party countries such as Australia and New Zealand. Filling the supply and demand gaps caused by higher tariffs on both sides of the trade war is an opportunity for a third-party country. But this requires flexibility in production and export capabilities in companies and industries.
As the trade spat continues, it remains a balancing act for the third-party country dangling between two political and economic powers. We have already seen the tensions between the US and China spill to this region in the context of the US ban on Huawei and its persuasion of Australia and New Zealand to follow suit.
Companies such as Air New Zealand and Sanford have been reported to face challenges on “operational” matters when the country’s political relationship with China is in question.