Prime Minister John Key has told a US business meeting that the economic futures of New Zealand and the US are based on exporting to the rising middle classes of Asia, as he pushes for US participation in the Trans Pacific Partnership (TPP) free trade deal.
In a speech to the US Chamber of Commerce on a week-long trip to America, Key also took a stab at "restrictive and controlled" exchange rate mechanisms used by Asian countries, and acknowledged that some of these nations had "less predictable and transparent" business environments - challenges that should not be reasons for not moving forward in terms of a deal.
Key told the Chamber the health of the US economy was not only vital for the American people, but also for the rest of the world.
"As you may know, I spent much of my career working for US financial institutions. Throughout that time, and in the years since, I’ve been continually impressed by the US economy," Key said.
"I’ve been impressed by its ability to rebound, its ability to innovate, its ability to improve productivity, and its ability to create new wealth. These are the characteristics that will get the US through what by any definition has been challenging times in the past few years. Like all countries, the US faces both opportunities and challenges," he said.
'Embrace the rise of China'
As Prime Minister of New Zealand, Key said he had witnessed incredible growth coming from the Asia-Pacific region, particularly China, which had important implications for the economies of the US, New Zealand, and the whole Asia Pacific region.
"We live in a time where China has an increasing presence, and we have to make the most of the enormous trading opportunities it poses," Key said.
New Zealand's Free Trade Agreement with China in 2008 was China’s first FTA with a developed nation, and it had seen a huge increase in trade between the two countries.
"In fact, China has now become our second largest trading partner, recently eclipsing the US," Keys said.
"This boost in trade helped us mitigate some of the impact of the global recession, and China’s growing middle-class will continue to provide great opportunities for our exporters," he said.
"We are also looking to India. Two weeks ago I visited India, and being on the ground made me confident that we’re making good progress towards signing a Free Trade Agreement early next year. New Zealand is determined to maximise the opportunities provided by the whole Asia-Pacific region, so that we can speed up economic growth."
Exchange rate challenges
The rapid emergence of this new middle class in China and India, and indeed all of the Asian region, was a unique opportunity for both New Zealand and the US.
"It continues to present challenges and frustrations particularly when we reflect on the more restrictive and controlled exchange rate mechanism prevalent in Asia as opposed to the developed world," Key said.
"Equally many of our companies have had to contend with a less predictable and transparent business environment," he said.
"But what is clear is despite all this the Asia-Pacific region will be where the growth action will dominate in the next decade or two, and for the US this has to present a very exciting prospect."
It was against this backdrop that TPP should be viewed.
"TPP is a gateway for increased US participation in Asia, and a stepping stone to wider and more far-reaching trade agreements in Asia," Key said.
"Both the US and NZ are democratic, so inevitably there will be aspects of potential FTAs that are not met with universal agreement. But that cannot be a reason to not move forward. The TPP promises too much to miss on this great opportunity," he said.
5 Comments
As if the largest offender of exchange rate controls isn't the US by way of printing it's way to infamy? Key needs to wake up to the fact that there's been an end to the great dream of neo-liberal orthodoxy. We appear to have been first cab on and now we're the last cab off.
Truly embarrassing that successive governments in NZ over the years never managed to convince the rest-of-the-world to play by our utopian ideal of free market, non-protectionist rules.
A message for JK: it's time to defend New Zealand, not the orthodoxy.
And how does implementing protectionist measures that benefit a few wealthy, well-connected people at the expense of everyone else "defend New Zealand"? Tariffs make New Zealanders poorer overall, regardless of whether other countries get rid of theirs. Henry Hazlitt's Economics in one lesson is a good start for understanding this.
Not defend NZ by way of the reintroduction of tariffs (that was yesterday's way of playing the global game by the rest of the world, aside from NZ, that is) - rather he needs to wake up to defending NZ by way of currency intervention - be it a peg to a basket or a FTT or some other form of capital control.
In other words, the States are deliberately debasing their currency and the few ideological floaters out there, like us, are bearing the brunt of their domestic printing program - QE is but a form of protectionist action by the US.
But by debasing their currency the Americans are impoverishing themselves, just like China impoverishes its citizens by keeping its currency artificially low. The US is effectively subsidising New Zealanders' consumption.
The problem with your proposal is that while market actions are guided by price signals, political actions are inherently arbitrary. How do the politicians work out what exchange rate is optimal? They might as well pull a number out of the hat.
I'm not denying the US funny money will cause problems for some. My point is that whenever politicians "do something" it invariably makes things worse.
Well you're right there but I don't think the US ptb care one itota for the impoverishment of their own citizens.
If litle 'ol NZ acts only by waving a red card from the neoliberal sideline in our remote corner of the Pacific Ocean, it isn't going to do anything to address problems with the NZD as created by inept politicians over there.
The free market is broke - in more ways than one!
:-)
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