Strong wool eyes China
China looks set to play a key role in helping the New Zealand wool sector shift away from trading as a commodity supplier.
To the US, Prime Minister Jacinda Ardern has committed to upholding democratic values and human rights; to China she is committing to mutually beneficial trade ties.
And all along, Ardern has faced a tricky balancing act maintaining New Zealand's trade relationship with China, while not seeming to support a government accused of human rights violations. China continues to receive the largest share of New Zealand exports: in June 2021, China received 44% of New Zealand's dairy, according to Stats NZ. Milk powder, butter and cheese made up bulk of exports.
But things are evolving on the global stage and Wellington's policy of appeasing both Washington and Beijing, without stepping on the toes of either, is irking some players.
This month, the US, Australia and the UK (without NZ) announced a major security deal that will see the US and UK assist Australia in acquiring nuclear-powered submarines, which will allow Australia's navy to help counter Chinese nuclear-powered vessels in the region.
China has unsurprisingly denounced the deal and its rocky relationship with Australia has almost hit rock bottom.
China is Australia's largest two-way trading partner, but things aren't cosy since Beijing slapped tariffs on more than $20 billion worth of exports including Australian barley, wine, cotton, coal, and beef.
China is also New Zealand's largest export market, buying almost $17 billion of goods annually.
The NZ/China free trade agreement, updated earlier this year, means all safeguard tariffs in dairy are set to be eliminated within one year for most products, and three years for milk powder. This means that by 1 January 2024, all New Zealand dairy exports to China will be tariff free.
In the coming months, the spat between Australia and China will grow bigger and NZ will come under increasing pressure from both sides not to be seen supporting the other.
So how will NZ react? Perhaps it's a good time to relook at what Agriculture Minister Damien O’Connor said in an interview earlier this year: “I can’t speak for Australia and the way it runs its diplomatic relationships, but clearly if they were to follow us, show respect, and speak with a little more diplomacy from time-to-time and be conscious with wording, than they too could be in a similar situation.”
It seems NZ’s trade ties with China will prevail, which should be good news for the dairy sector.
