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New Zealand as a Mediator in the Australian-China Trade War

New Zealand or “New Xi-Land”? That is the question raised by Australia’s Daily Telegraph newspaper in response to New Zealand’s ambiguous foreign policy with China. Choosing to act independently from the Five Eyes intelligence alliance when addressing the superpower’s actions in Hong Kong and Xinjiang, New Zealand is attempting to fulfill its obligations as an advocate for international human rights but also avoid offending its largest trading partner. While this balancing act is difficult, it is essential that New Zealand remain impartial so that it can mediate conflicts, such as that between Australia and China, and continue to promote international cooperation. 

The potential repercussions of criticizing China is better understood in light of New Zealand’s reliance on trade. Due to its small population and geography, trade liberalization is necessary to provide local consumers with a wider variety of cheaper and higher-quality goods. Additionally, access to larger overseas markets is vital to the growth and sustainability of New Zealand’s export sectors. According to the Ministry of Foreign Affairs and Trade, 70 to 95 percent of New Zealand’s industries in major sectors such as meat, dairy or wine would not exist without trade. Hence, free trade agreements (FTAs) are especially important to ensuring New Zealand’s economic prosperity.

Due to its relatively close proximity to New Zealand (compared to other wealthy nations), its vast population, and growing middle class, China is an attractive trading partner to New Zealand. The New Zealand-China Free Trade Agreement signed in April 2008 represents a significant step in the history of both countries. On top of being the first FTA between China and a developed country, it is also New Zealand’s largest trade deal with any country since 1983. Since then, two-way trade has quadrupled from $8 billion to over $32 billion. 

In January 2021, the two countries signed a deal to upgrade the FTA to reflect modern trade practices and stimulate economic activity hindered by the COVID-19 pandemic. Notable improvements, according to law firm Chapman Tripp, include eliminating tariffs on all New Zealand dairy exports to China by 2024, as well as the establishment of a Environment and Trade Chapter “to ensure that trade and environment policies are mutually supportive, environmental measures are not weakened to promote trade and investment, and that environmental standards are not used for trade protectionist purposes.” As these upgrades further deepen the relationship between New Zealand and China, it leads us to today’s question: is New Zealand too reliant on China?

The current Australia-China trade war aptly demonstrates the tensions between geopolitics and economics. An Australian-led push for an international inquiry into the origins of COVID-19 in April 2020, with implications of casting some blame on China, as well as a Chinese official’s tweet of a falsified image of an Australia soldier threatening an Afghan child has caused their relationship to sour. While both countries have imposed numerous trade tariffs on each other, it is Australia that is hurting the most. Capital Economics estimates that economic growth in Australia may “never return” to levels experienced prior to the pandemic.

China’s treatment of Australia suggests that countries like New Zealand cannot afford to offend Beijing. However, this does not mean that New Zealand can stay silent and ignore China’s breaching of international human rights. The New Zealand government’s desire to maintain its relationship with China has caused New Zealand to compromise its partnerships with other Western countries. For example, New Zealand is characterised as the “soft underbelly” of the Five Eyes intelligence alliance because of its ambiguous foreign policy and unwillingness to support the other countries’ criticisms about China.

With growing pressure from both factions to take a side, New Zealand is left to decide what to prioritise: self interest and economic well being, or supporting international law and its “only formal defence ally”. As people residing in democratic nations the answer seems obvious. It is important to note, however, that “without strong alliances, the moral high ground can be a lonely and dangerous place”. New Zealand cannot alienate itself from any of its current partners as it does not have the same capacity to provide for its citizens as the United States can without open trade.

New Zealand’s best course of action isn’t to choose a side, but rather to act as an intermediary. As a trusted neutral party, New Zealand could bring Australia and China back on the same page. By providing a space to air out their grievances, New Zealand can help negotiate terms of concession to restore a working relationship between the two countries. Having this middleman to rebuild bridges is especially important in the post-pandemic world in order to curb the temptation to embrace protectionism and nationalism.

Additionally, it allows New Zealand to continue its favoured practice of “strategic ambiguity” when it comes to foreign policy. Remaining nonpartisan may leave New Zealand insecure about its position with others, but it allows the country to both maintain its relationships with China and to provide for its citizens. Rather than jumping on the bandwagon of megaphone diplomacy, New Zealand is best suited to remain as a wallflower: observant but always listening and here to resolve and “broker peace”. After all, New Zealand’s style of diplomacy is to “jump into troubled waters without making a splash,” as stated by former Foreign Minister Winston Peters

While trade is the root of the problem, it is also the solution. The annual Asia-Pacific Economic Cooperation (APEC) conference is being hosted by New Zealand virtually in November. As chair of the 2021 APEC, New Zealand’s goals are to spearhead digital diplomacy and lead an Asian-Pacific response to economic recovery from COVID-19. By focusing on economic cooperation, New Zealand can hopefully use its position to “steer conversations between hostile parties onto common ground” and facilitate the repairing of relationships. This conversation has already started with the proposal of making COVID-19 essentials, such as surgical equipment or hygiene products, tariff-free between the 21 APEC members by May. Globalization is the way forward, which is why such discussions are vital to ensure the world continues on that path and can continue to trade. 

Graphic: Amy Lim

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