TLDL & TLDR: The reverberations from yesterday’s big AUKUS deal to arm Australia with nuclear-powered submarines have already started for us. China just put us on the spot to choose it over Australia, the United States and Britain in a trade deal.
Early this morning, China formally applied to New Zealand to join the CPTPP trade deal, that Australia is a part of and Britain wants to join, but which America opted out of under Trump. New Zealand is the keeper of the documents for the deal and has a special role as a sort of gatekeeper on who can apply to join. (SCMP)
Allowing China in against the wishes of America, Britain and Australia would be embarrassing, but the alternative would mean outright rejection of the wishes of our largest trading partner. PM Jacinda Ardern will have to do some fairly fancy footwork to avoid offending all or some of our friends and trading partners.
What should we do? Comments below please.
My view: We should agree to let China apply and say it’s up to all the members to agree to join. We should also invite America to reapply and see whether Joe Biden is more amenable than Donald Trump. That then puts us in a position to get a sort of free trade deal with America via the CPTPP, which is the one big one we lack. We may as well use some leverage.
We can legitimately claim we’re all for free trade and the more the merrier. America would then have to reject our call to join an agreement that was originally designed as a US-led bulwark against China, but was then crippled by Trump’s decision to pull out. Australia already has free trade deals with America, China, Britain and (of course) us in the form of CER (so many years ago…) Hard to see them complaining at us wanting free trade with everyone. And by the way, Britain needs to get a move on and give us our FTA. They’ve already done one with Australia.
Our only real power is as a rules-based free-trading ‘honest broker’ who wants to be friends with everyone and prefers ‘jaw jaw’ to ‘war war’. Choosing to reject China would really mean we have sided with the Anglo-alliance, which is very much nuclear powered and armed. That’s something we have a law against.
Breaking in our political economy this morning
Finally we have a target - Ministry of Health Director General Ashley Bloomfield said he wanted more than 90% of New Zealanders vaccinated. That will be tough. The latest vaccine hesitancy survey shows only 79% want the jab, while 14% say they're unlikely to get it and 7.4% have ruled it out completely. (Newshub)
Legitimate crypto reasons? - A cryptocurrency entrepreneur and his employee flew by private jet from Auckland to Wanaka last Saturday morning, but Police say they did not breach lockdown rules because the flight was for “legitimate business reasons.” However, MBIE is now investigating. (Stuff)
‘Outraged and betrayed’ - China accused Australia, Britain and the United States of “gravely undermining regional peace and stability,” with their AUKUS deal for Australia to develop nuclear-powered submarines, but not nuclear weapons. France said it felt stabbed in the back by the deal, which means Australia abandoned its plan to build A$90b worth of French conventional submarines. (Reuters)
‘No skin off our nose’ - New Zealand was not asked to join, but PM Jacinda Ardern said our anti-nuclear legislation wouldn’t allow it anyway. She saw no ill effects on either ANZUS or Five Eyes. Taiwan welcomed the deal. (SMH)
“No, we weren’t approached but nor would I expect us to be. This is not a treaty-level arrangement. It does not change our existing relationships including Five Eyes or our close partnership with Australia on defence matters.” Jacinda Ardern at her 1pm presser yesterday.
Rates rising - ASB and ANZ have increased their mortgage rates slightly and financial markets are this morning pricing in a 40% chance of a 50 basis point rate hike by the Reserve Bank on October 6. This followed much-stronger-than-expected GDP growth figures for the June quarter. (Interest)
Rear view mirror - GDP rose 2.8% in the quarter, the third fastest on record after the September quarter of 2020 and the September quarter of 1999. The opening of the Australian bubble (now closed) boosted activity in the June quarter, along with plenty of retail spending and employment growth here. Economists had expected growth of around 1.1% and the Reserve Bank had forecast (in August) 0.7% growth in the quarter.
Higher currency - The two-year Government bond yield jumped almost 80 basis points to 1.12%, near a two-year high. The NZ dollar rose almost a cent to 71.4 USc yesterday, before easing back overnight.
Boing boing - But economists see GDP falling 6-7% in the September quarter, before a 9-10% rebound in the current December quarter, assuming Auckland’s lockdown ends soon. Bank economists see two 25 bps hikes this year, with at least a couple more early next year. Most see the OCR peaking around 1.5-2.0% by 2023.
‘We’ve got this’ - Finance Minister Grant Robertson announced yesterday after the GDP figures the Government had put an extra $7b into its Covid Recovery fund and also had $3b spare already in the fund. He repeated the Government didn’t need to increase its borrowing plans because of the stronger-than-expected economic growth. GDP is now 4.3% above its pre-Covid high, which is driving strong tax revenues.
Breaking overnight in the global political economy
Tapering worries - US retail sales in August rose 0.7% from July, which was much stronger than the 0.8% fall that economists had expected. US stocks and bond prices fell after the news, which again raised questions about whether the world’s largest economy is running too hot and may need interest rate hikes and a tapering of money printing sooner than expected. (Reuters)
This is a worry - China’s new Delta outbreak is widening in Fujian province, putting over 50 children in hospital. (SCMP)
Questions of the day
When will the Government help businesses mandate vaccinations, and also mandate vaccinations for public sector workers such as healthcare workers and teachers?
Will New Zealand agree to let China negotiate to join the CPTPP?
Will the rest of NZ go down to level 1 next Tuesday when Auckland is expected to be dropped down to level 3? Apparently not, given the PM said yesterday she wanted the rest of NZ to stay at the current level 2 (but with 100 allowed inside rather than 50) while Auckland is a level or two higher. But will there be other level 2 concessions?
Will the Reserve Bank really hike by 25 bps on October 6, as economists believe? Auckland will still be in bolstered level 2 lockdown at that stage, given the current timetable and a best-case scenario for new cases. The earliest it could get to level 1 is October 20. I think the RBNZ will hike, but shouldn’t. It should use DTIs sooner to slow the housing market, which has accelerated since April.
I welcome your questions in the comments below.
Chart of the day
ANZ Economist Miles Workman cited internal ANZ card spending figures to show this year’s hard lockdown was not doing quite as much damage to hospitality spending as last year.
“Looking forward, we know renewed lockdown measures are going to drive a material contraction in Q3 GDP. We’ve pencilled in a 6% q/q fall, but with Auckland’s Alert Level 4 status lingering there are downside risks to that. That said, many businesses are now better prepared to work from home (chiefly those in services industries) and that’s expected to limit the impacts of lockdown on aggregate economic activity to some extent. So for a similar duration, we’d expect the current lockdown to have a smaller GDP impact than the 10% decline recorded in Q2 2020. Our internal card spending data certainly suggests a little more is happening through this lockdown, but there will be some inflation in here too.” ANZ’s Miles Workman in this ANZ note
Signs o’ the times news
Comment of the day from The Kākā’s subscribers
“The Don Brash invented inflation targeting should be seriously reviewed as it appears to be very outdated in world with significant disintermediation (Online Stores), Globalisation (Cheap offshore manufacturing) the Gig economy (cheap Labour) etc. To run most major global economies with the key objective to keep CPI in 0-2% or 1-3% band is insane. Why not accept that there is not inflation and allow small amounts of deflation, this should not cause debt defaults.
House prices are essentially a Bond as they have become an investment asset class rather than a home to live in. The key issue is that we don't have recessions any more, if there looks like one then we just follow what Greenspan did and print money or lower cash rates. The average 40 year old has not seen a true recession, so we all just keep leveraging.” Arthur in Wednesday’s Dawn Chorus article on 31.1% house price inflation.
Longer reads for the weekend
Some fun things
Ka kite ano
Bernard
I remember the Trans Pacific Partnership as being terrible for our sovereignty and intellectual property rights with special private courts being the mechanism used to settle disputes. USA does not share our concerns around GMO products - the same concerns that Europe shares also leading to the failure of the TTIP deal over there. Free trade is not a panacea for economic growth and success,or has the potential to empower large global companies and undermine local producers.
NZ doesn't have permanent friends or permanent enemies, it only has permanent interests. Bernard's solution is the best - we should invite China, the USA & the UK to apply for membership. If that gives us a back door FTA with the USA & the UK then it's a win:win.
I think AUKUS is a dumb idea. If the USA diverted the $T's it wastes on defence spending into a no strings aid programme for those countries it wishes to get onside, this would be a far better way of promoting world peace. The USA did this post WW2 with its Marshall Plan grants which rebuilt war devastated western Europes & kept that part of the world friends with the USA.
I agree with this. I do believe we should espouse to be something like Switzerland (knowing full well that Switzerland occupies a unique geographical position smack in the middle of one of the wealthiest regions in the world, while we are to the corner, but nonetheless...). It's a delicate act (we're also small, after all) but I think with some pragmatism we can manage.
Switzerland is able to be neutral because it invests in its defence. It has less than twice our population but has almost 10x our military personnel. It has compulsory military service. It is constantly training to repel an invasion - it has ammo dumps, bunkers, even exploding bridges. With NZ's geographical advantages we could make ourselves very difficult to invade and thus neutral, but instead we choose our military to act as a token part of other more powerful countries, but then pretend like we are not dependent on them. Thus we are essentially defenceless. We are more like a recalcitrant state of Australia which is itself a client state of the US. The idea we have an "independent foreign policy" is a fantasy that will fold as soon as any pressure is applied. If Australia requires its nuclear powered subs to dock in NZ waters then they will dock in NZ waters, nuclear-free laws be damned. We literally have no way to prevent it, especially when faced with the reality that otherwise, it will be Chinese nuclear submarines.
Why? Why would any of this come to pass? Why would China "invade" us? What, they have nothing better to do? Switzerland is wealthy and thus can spend more. We can't. And why would we want to? Now, a compulsory military service is not a bad idea, I grant you, I think there are a lot of other good things that could come from it, and it's a cheap way to get some semblance of a defence. Look, I sort of agree about the state of our military, I just don't draw the same conclusions. We cannot afford a strong enough military, anyway, even if beef up the spend. If China wants to attack us (again, I don't think they would) would 10x spend help? I don't think so. And we don't have 10x, anyway, but even with 5x (to keep the proportions correct with SUI). So, we need a different strategy. And look, as I acknowledged above, there are some things that just are different for Switzerland, so there are limits to that comparison in practice—though I still think that *some* goals can be the same, just achieved differently.
Why would China invade Taiwan? Why would America try to stop them? Why would Australia (our sole offical ally) and the UK join with America? I don't know, but China has a president for life who has banned Winnie the Poo because it hurts his feelings. America just barely got rid of a sub-moronic proto-fascist who wanted to buy Greenland. The UK just brought back yards, pounds and inches because the metric system is too French. And Australia just increased the murder rate in NZ by exporting gang members here. I don't think it's a good idea to base NZ's defence on other countries behaving sensibly and everything working out for the best. More broadly NZ's problem is that because we are small and far away we delude ourselves that bad things won't happen to us, and are constantly surprised and dismayed when they inevitably do: terrorism, extreme inequality, gun crime, organised crime, pollution, failing infrastructure are all features of NZ life that would seem unrecognisable to people only a generation or so ago. Covid is just the latest example of this. Due to our remoteness the NZ public as sold on a fantasy that NZ could be Covid free, which allowed the Govt to avoid preparing other defences such as increasing ICU capacity. We don't even learn from our mistakes. In the 1970s we suffered an oil shock, carless days and inflation which almost bankrupted the country. Just this year we are blithely shutting down the last refinery in the country, making us 100% reliant on international shipping lines to run our transport system, and therefore economy. New Zealand's geography means we can easily afford to defend ourselves, or at least make an attack so costly that it would deter an adversary. Our defence is currently based around "best case scenario" thinking; that we won't be attacked (or even intimidated), that if we are, our "friends" will come to our aid, that when they come to our aid they will prevail. I personally think that the country would be a lot safer, wealthier and better off if we started thinking about, and preparing for, worst case scenarios.
I agree with almost all your points. Except for China invading us: the difference Taiwan is that they consider Taiwan to be a part of their country, in the same way they don't consider NZ, or Zimbabwe, or Bavaria for that matter. Besides, it's much more impactful for China to buy / invest in other countries, thus using the economic muscle. Anyway, that's neither here nor there. We agree on the fundamental problems, and we even agree on most of the solutions. Make military service compulsory? Agree: it's both cost-effective and sensible. ICU capacity situation is indefensible, to be borderline criminal. I don't think our elimination strategy was a mistake—I'd do it all over again (and I live in Auckland so am in lockdown; would extend). The only thing is that it bought us crucial time to do stuff. What did we do? Invest in ICU capacity and frontline worker numbers and protocols? Nope. We shat this time through. Why? I do not know, but it was boneheaded even as we were living through it, let alone in retrospect. It almost seems like we needed a portfolio of approaches to make things work, but we had this one "silver bullet" and once it delivered results (which it did, really good ones, too) we just relaxed and "went to normal" (as if it exists!) Why is it difficult to understand that solving complex problems requires a patchwork of solutions—we seem to have decided, we'll do just this 1 thing and she'll be right! It's not unlike the Auckland Harbour Bridge: we pinched pennies when it was originally built (who'd need more than 4 lanes, anyway!) then paid double for clipping extra lanes onto it within the first (what was it?) decade?—and then suffering traffic jams ever since. Which brings me to the only point I think I disagree with: even if we did increase investment into the traditional defence capacity, we'd probably try to do it with the #8 wite and on the cheap, without much foresight, so what would be the point? Would it actually deter anyone? And at the time when modern warfare is fought with foreign investments, trade agreements, cyber/data and privacy? That's my only disagreement with you. I couldn't agree more with the other points you're making, including (worst-case) scenario planning, "terrorism, extreme inequality, gun crime, organised crime, pollution, failing infrastructure" and all. Fuck! We could've done stuff around 1990 about our emissions—we just kept going in the wrong direction for 30 years, and still caving in to the powerful lobby groups. Anyway… really frustrating. P.S. I'm actually starting an educational podcast which will touch on scenario planning, if you're interested, I can let you know when I go to market in the next few weeks.
Government will never mandate vaccinations because it is against fundamental human rights. Please stop ignoring this - if this is sacrificed to protect the health of society, there is nothing worthwhile in society worth protecting anymore as fundamental human rights haven't been respected.
Totally support this. Individual's rights cannot be the pinnacle UNLESS they are balanced by individual's responsibilities. Uncle Ben got this ;-) With great power and all... Vaccination (and your point about housing as well) is that responsibility. Non-vaccination puts the societal wellbeing at risk. Delta Variant is a prime example of individualistic attitudes harming society. Want to live in a society? Great! Abide by its rules. Don't want to abide by the rules? Awesome, go isolate from the societal participation. One cannot have its cake and eat it, too—while wanting it both ways seems to be the desire of those who espouse individual rights above all else.
Slightly disingenuous comparisons: 1 - children are the least vulnerable age group regarding Covid. Vaccinated teachers aren't protecting anyone except maybe themselves. 2 - East-Asians were never mandated to wear masks pre-covid, this is an altruistic (not as seldom as one is led to believe) act of the individual to protect the group. This is most often someone with cold symptoms, healthy people wearing masks has never been normalised. I appreciate social and collective philosophy but you are both confused. The state brutalising individuals (mandates are a form of brutalisation) is not collectivism, it is a precursor to tyranny.
What a wonderfully empty statement with an ad hominem attack. Confused? Hm... Well, then, we're already living under tyranny, for we have laws. Driving within a legal limit? Brutalising individual freedom to drive faster. Not waving semi-automatic weapons in public? Brutalising individual freedom to wave a weapon. Literally any (ANY) law is so using your logic—yet we do have these laws, don't we? Or, would you abolish any mandates altogether? Where's the line? Oh, and by the way... NOT wearing masks and vaccinating puts others in danger—so why is it OK for you to take away others' individual freedoms to be safe? Like it or not, the world is much more shades of grey, and using false dichotomies (freedom/tyranny is a false dichotomy) is not going to get you far. But go ahead, believe that it is we who are confused.
More disingenuous comparisons - there are big correlations shown over long periods of time higher road speeds leading to more road deaths. The evidence that mask wearing, contact tracing among asymptomatic people reduces the spread of Covid is negligible. Doing it for symptomatic individuals does produce a tangible benefit. Look at the situation in Israel regarding vaccination rates and the explosion in Covid cases. The correlations you take for granted, shouldn't be. I'm simply saying we should be having much more in depth, fact (not fear) based dialogue as a society before we start normalising things our children might regret.
"Disingenuous"? OK, I'm going to ignore this for now, and attempt to have one last go at having a sensible discussion, though I fear it's pointless. I'll use your own argument: this is an emergent situation that has no precedent, though there are parallels in history. So, the correlations that I take for granted? I don't. I'm just fully aware that there are complex situations where waiting for all the data might lead to missing the critical time to act. Sometimes waiting for all the evidence is counter-productive. Am I taking these things lightly? No. It's simply that the flip side is just as true: you cannot prove to me that *not* doing this also won't be a decision that our children might regret. "Why did you have to wait so long and miss the boat?" they could say facing our grave. "Because we were waiting for all the data to come in," would be the reply? Anyway, either this worked, or it didn't, in giving you something to think about. If it hadn't, I won't be engaging anymore in this pointless conversation—because it's a conversation of "hunches" and "beliefs", and while I accept that your belief could be true it's just that I'd rather err on the side of my belief (as I know I considered all the sides and believe the cost is less), you seem to be *confident* that yours is the only right one and claim that my comparisons are "disingenuous". And BTW, no metaphor is 100% correct, because we're trying to compare things to other things. But that's a different point. Goodbye and take care! I hope you become slightly less black-&-white and self-righteous in your individualism belief.
None of this speaks to the level of reform required to achieve de growth to the extent we are now obliged to aim for in the climate crisis. Blithely rushing off a cliff and lead by leaders concerned more about geopolitical interests than the change in systems required in the interests of their people but sticking to failed idealogies and power plays. One can only hope it’s just posturing and major reform can come about in Glasgow. What are the chances?
They do, for the most part, appear to be attention seeking half wits.
Currently hopes for significant action via Glasgow are low…
This meat in the political sandwich business is likely to be serious ongoing problem, as China flexes it’s economic (as well as its supply and logistics control) might. To be fair it was neoliberalism and globalism which originated from the west, that has fuelled China’s rise in power - and its hegemonic demands.
The more power China gets, the more it will likely squeeze. Giving into discrete or overt bullying guarantees it will continue. It would be surprising if Australia agreed. We are seen as a weak link in the chain. I agree tactfulness is required.
We should never have gotten in the situation whereby most of our economic/supply chain eggs were put in a few baskets totally controlled by other countries or multinationals. We should be seeking multiple additional alternative supply chain partners.
These “free” trade pacts are primarily a “free” passport for multinational corporations to raid the resources of countries and avoid regulation. The general public bears the cost of this mammoth give-away.
We should have fair trade pacts negotiated one on one with various countries worldwide - with reasonable give and take, which recognises the need for individual countries to protect certain industries (hence jobs), and to regulate against unscrupulous activity by multinationals. The objective of forcing mass multilateral agreements is to create pressure that benefits the profit of multinationals, (to the disadvantage of sovereign nations and their citizens.)
The US has occupying forces in multiple countries. It would be interesting to track China’s control of resources and logistics, especially in Africa and Oceania - where unrepayable debt may be called upon - creating quite a threat if there is a set-to between China and the US.
When initially looking into the beginnings of Covid - I discovered a lot of the big fashion designers in Italy, reportedly hire Chinese workers to keep costs down. You might find it interesting to look into.
Slavery isn’t dead. It just comes in a greater variety of ethnic sources of slave-like labour - geared to keep operating costs down - to maximize profits of multinationals.