• The President As Hero

    Donald Trump is, as we all know by now, a simple soul.  The real world may present him with all kinds of intractable problems, but there is always room in the Trumpian world for the President as hero, riding to the rescue and calling “Hi ho Silver!” or, in his case, “Increased tariffs on imports!”

    This is not to say that President Trump has not identified a real problem – it is the proposed solution that is a little less than convincing.  As the President looks at the American economy, he is right to ask why the United States, with all of its industrial power, is a less efficient producer of steel and aluminium than many other countries who can supply the America market at prices significantly lower than those charged by domestic producers.

    He is also right to recognise that this state of affairs is both a consequence and a cause of the de-industrialisation that has destroyed so many American jobs in what has now become known as the “rust belt” – a region that delivered so many votes to Trump in the 2016 election.

    But, instead of facing facts, and listening to expert opinion on what needs to be done by way of increased investment, better skill training and a macro-economic environment that is better able to encourage innovation and efficiency, President Trump has gone straight for the apparent and simplistic solution.  If foreign suppliers can undercut American producers, he reasons, it is nothing to do with American shortcomings but is attributable to unfair practices by dastardly foreigners, and the problem must be faced by raising the prices that they unfairly charge, whether they like it or not.

    The problem is that, not surprisingly, they do not like it, and they are all too likely to retaliate.  So, in addition to coming up with a “solution” that simply entrenches the real problem – the relative inefficiency and therefore uncompetitiveness of American industry and their propensity to charge more than the going rate – President Trump has launched a trade war that will hurt not only the American economy but the global economy as well.

    Protection for domestic industries is of course a remedy to which many economies have quite properly had recourse – particularly when, as in the case of post-war Japan, they are trying to build or re-build their industrial strength. (Not all countries are as naïve as New Zealand in ignoring economic realities and unilaterally throwing open its borders to all comers, without securing any corresponding benefits in return so that they have nothing left to offer when it comes to multilateral trade deals.)

    But it would be stretching credulity to a considerable degree to treat the US as a developing economy that needs protection if it is to survive as an industrial power.  Even the President’s own advisers and Republican political supporters are aghast at what he has now so proudly announced as an instance of putting “America first”.  They can see that his supposed solution is in reality no more than an admission of failure, and that it will in reality make matters worse, as America’s trading partners have recourse to retaliatory measures as an expression of their displeasure.

    President Trump, however, is so deluded and so persuaded by his comic-book version of how a “President as hero” should behave that he avers that “trade wars are good and are easily won.”  The reality is that, as even a cursory survey of history would reveal, trade wars are not only bitter and destructive but also, in the end, dangerous, and can be a precursor to wars of a rather more militaristic kind.

    At the very least, a trade war developing off the back of this Trumpian “solution” could be damagingly inimical to the interests of a small open economy such as New Zealand.  “Free trade” may not always be what it seems – particularly when it takes the form of a TPP – but we have more to lose than most if trade barriers are re-erected.  We should always be alert to the price we are asked to pay for apparently “free” access to overseas markets (like China), but we should be under no illusion that we could be badly hurt by this latest outburst of simple-mindedness from the White House.

    Let us hope that, for once, the Republican party will recognise its responsibilities and keep their wayward toddler under better control, and unable to throw his toys out of his playpen.

    Bryan Gould

    9 March 2018



  • New Zealand Must Grow Up In Trade Matters

    New Zealand’s involvement with the rest of the world, in trading and economic terms more generally, has always been atypical.  For the first century or more of European settlement, the country developed as an economic appendage of Britain.  Virtually all of our trade took place with Britain; they took almost all of our primary production, in return for which we offered preferential access for British manufactured goods.

    But that cosy pattern, which meant that we did not have to worry too much about trade agreements and markets, was disrupted dramatically by two major developments in the 1970s and 1980s.  First, Britain joined what was then the Common Market, and was accordingly obliged to play its part in reducing what was popularly called the “butter mountain” by buying expensive and otherwise unsaleable food in preference to our own more efficient production.  Secondly, and just as importantly (though with much less fanfare and public concern), Margaret Thatcher and Ronald Reagan agreed to remove exchange controls – a move which suddenly meant that the owners of capital could roam the world, looking for the best investment opportunities (which often meant the lowest labour costs or the most accommodating regimes concerning tax, labour laws, and health and safety requirements).

    New Zealand suddenly found itself not only bereft of markets for its main exports but also a target for multinational corporations looking for safe investments and easy profits.  Much of our recent history in, and attitudes towards, international trade and economics is attributable to these two shocks to our system.

    As luck would have it, these changes in the international context took place at the same time as a domestic economic revolution was under way.  “Rogernomics” not only swept away subsidies and elevated the unfettered market to an unchallengeable status at home; it took the same “free market” ideology into the international sphere.  The counterpart to the “free market” domestically was “free trade” internationally.

    So, we took with us, as we looked for markets to replace those we had lost, a commitment to aggressively dismantling tariffs – and, in order to show our ideological commitment to the principles of free trade and free markets, for which we were receiving plaudits from right-wing commentators around the world, we proceeded to remove unilaterally our own tariffs and protections for our own industries without bothering in many cases to get anything in return.  This naïvete – there is no other word for it – was to cost us dearly.

    It colours still our attitude to free trade.  In the absence of the managed trade we enjoyed as an economic colony of Britain, and unable to find a suitable replacement for that cosy arrangement, we became obsessed with the need to reach trade agreements with all and sundry.  The signing of each new deal was represented as a return to nirvana; the emphasis was always on the boost each new deal would supposedly mean to our exports and economic growth, with virtually no account taken of what free access to our market for powerful competitors would mean for domestic production.

    The excessive value we placed on new markets led us to count our chickens before they were hatched and to treat as achieved realities what might only be distant prospects.  “Free trade” agreements were sold to the general public by listing, long before they had materialised, the supposedly long lists of manifold benefits to our exporters that would be delivered. The recent TPP negotiations, for example, were constantly justified by the confident and repeated expectation that a TPP agreement would provide us with tariff-free access to the US market for dairy produce.

    Such a prize would certainly have been worth a good deal, but our naïve optimism on this score should surely never have survived the repeatedly stated determination of the American dairy industry to resist any such concession.  As it happens, that mirage has been swept away in case, at least for the time being, by Donal Trump’s decision to have nothing to do with a TPP.

    None of this means that we should turn our backs on free trade.  The case for free trade in principle is as strong as ever.  As Adam Smith and David Ricardo argued, it is free trade that allows each economy to concentrate on what it does best, that encourages weaker and smaller economies to trade successfully with stronger ones, that means that there is a constant stimulus to greater efficiency and innovation, and that develops economic bonds between countries which support the general comity of nations.

    But, as always, arguments in principle need to be tempered by what is known or foreseen as to practical realities and consequences.  Free trade between a stronger and a weaker economy can all too often mean that the stronger simply reinforces its advantage while the weaker slips further behind.  All depends on the stage of development of the economies concerned.

    Most of the world’s economies have at some stage in their development recognised that some protection for their own domestic industries is needed.  Japan is a case in point.  In the course of re-building Japanese industry following their disastrous defeat in the Second World War, Japan did not hesitate to use tariffs and other non-tariff protections (such as an under-valued yen) to give their industry the chance to build its strength.  It was only once they could be sure that Japanese industry was big and strong enough to be internationally competitive that they became enthusiasts for and practitioners of free trade.

    In New Zealand, however, we have blithely ignored such reasoning.  We have rejected any notion that we might not be a fully developed and internationally competitive economy and have wilfully saddled ourselves over long periods with an over-valued currency.  If we insist on committing to free trade for ideological reasons, we should at least have enough sense to give some weight to the foreseeable and adverse practical consequences.

    Our naïvete in these matters has become even more evident when we have attempted to negotiate trade agreements, and have discovered that our premature and unilateral disarmament in matters of protection has meant that we have literally nothing to offer in return for the improved access to other markets that we seek.  Trade partners that already have free access to our market see no need to offer us concessions in return for concessions we have already granted to them.

    Nor does it stop there.  With the development of the global economy – the direct consequence of the free movement of capital engineered by the Thatcher/Reagan ending of exchange controls – we have discovered that our economic relations with other economies are not limited simply to matters of trade.  In such a global economy, the price we are asked to pay for trade (and, more particularly, investment) can extend well into the domestic policies we wish to apply.

    A good illustration of this point was the demand made by Warner Bros that, if we wanted them to make films in New Zealand, we would have to change our labour laws, so that the people they employed were not to be regarded as employees with all the rights and protections provided under our law to employees, including the right to belong to a union, but should be treated instead as independent contractors, negotiating individually with the US film company.  To the great shame of our then government, the law was changed to suit Warner Bros.

    We can see the same demonstration of the imbalance of power between our government and foreign corporations displayed on a much wider canvas.  There was much celebration when a free trade agreement with China was signed, and there is no doubt that improved access to the Chinese market is of considerable benefit to our exporters.

    But we have been very slow – and reluctant – to recognise that our economic relationship with China looks somewhat different when seen from China rather than from New Zealand.  For the Chinese, quite self-consciously on the way to becoming a global super-power, merely being able to buy our production is not enough.  A true super-power, they feel, must be able to guarantee access to the products it needs.  It should not have to rely on doing trade deals, or bidding in auctions – what is needed is not the power to buy a product produced by someone else, but the power to own and control the means and process of production itself.

    So, the Chinese interest in us is not that they want to be able to line up and compete with other customers to negotiate purchase arrangements for our dairy products.  Rather, they want to acquire and control the production itself.  Hence, we see the Chinese interest in purchases of dairy farms, the construction or purchase of dairy factories and the marketing by Chinese agents of dairy products made in New Zealand directly into the Chinese market.  Their purpose is not to develop a trading partner, but, in effect, to incorporate the New Zealand economy (and particularly the dairy industry) into the Chinese economy.

    It is not just the Chinese government that has this goal in mind.  Chinese companies doing business abroad invariably act as arms or agents of the Chinese government.  Virtually all business deals with Chinese companies will be, in effect, made with the Chinese state.  None of this means that we should avoid doing business with China but it does mean that we should be aware of what really is at stake.

    A further example of how extensive are the obligations we undertake when we negotiate what may appear to be a simple trade deal is the Trans Pacific Partnership.  That Agreement has long masqueraded as a “free trade” deal but, under it, foreign companies can insist, to the point of forcing our government to change the law in New Zealand, that they should have a “level playing field”, by which is meant that we must ensure that their profitability and successful operation is not adversely affected by any legislation we pass.

    So, for example, an attempt to restrict the sale of cigarettes or to make the business less profitable could land our government in court, before a specially constituted tribunal.  The government would be similarly open to attack if it used its power to negotiate agreements with foreign suppliers that would reduce their profitability.  So, Pharmac’s ability to use its monopsonistic purchasing power to hold down the cost of imported pharmaceuticals could be litigated by foreign pharmaceutical companies before those same tribunals.

    The current government claims to have restricted the range of these provisions in the TPP so that they are not such a threat to our sovereignty and democracy, but only time and practical experience will tell us if that is so.  Even setting aside the specific provisions of a TPP, however, there is no doubt that – for a small economy – getting into bed with powerful foreign corporations is fraught with danger, and almost inevitably raises the possibility of a loss of our power to decide important matters for ourselves.  Those corporations almost invariably want more than the goods themselves; they want to guarantee that they have the rights and protections that are properly available only by decision of our government.

    Without selling ourselves unnecessarily short, it is surely prudent to recognise that – in making trade deals with larger entities – we are a minnow getting into a global tankful of sharks.  If we are to survive and prosper, we need to be much more hard-headed and understand exactly what we are up against.  We need a much tougher approach than we have seen so far if we are to avoid being bought and sold by those who see us as fair game.  If we are not careful, by the time we wake up, it will be too late, and – for the sake of “free trade”, we will have sold our unique productive capacity and assets to foreign owners and with them the power to ensure that the benefits they produce come to New Zealand, rather than to those foreign owners.

    Bryan Gould

    22 February 2018




  • Is the TPPA Now Fit for Purpose?

    The reaction in some quarters to the outcome of the TPPA negotiations reflects a failure to understand the import of the objections made to what was initially proposed.

    There will be few who will not welcome easier access to the Japanese market for New Zealand beef, even if the big prize that was dangled before us – free access to the US market for our dairy products – was taken off the agenda when Donald Trump withdrew from the talks.

    The benefits of free trade for our exporters were never contested by those who were concerned at signing up for the TPPA as it was originally drafted.  If the reports coming out of the negotiations are correct (and we look forward to that being established when our new government keeps its promise to release the amended text before we sign up to it), the problems many had with the TPPA will have been substantially resolved.

    Those problems revolved around the attempt to use the TPPA for purposes well beyond the normal concept of free trade.  The original draft attempted to provide a guarantee to multinational corporations that their freedom of action and their quest for profits in the countries covered by the TPPA would not be restricted by laws passed by the parliaments of the countries concerned.  Foreign corporations particularly had in their sights local laws designed to protect the environment, workers’ rights, and the health and safety of workers and citizens more generally – all of which they fear could inhibit their drive for higher profits.

    As a consequence, the original draft threatened to allow challenges to anything that might interfere with the “free market” – encouraging, in other words, a free-for-all for big companies to do what they liked without any need to take account of other interests.  Anything that departed from the normal pattern, such as marketing products through co-operatives like Fonterra and Zespri, or regulating the sale of certain products such as cigarettes, or buying pharmaceuticals through an agency such as Pharmac on behalf of the whole community, could have been challenged, in a way not available to our own businesses, as contrary to the operation of the “free market”.

    Any such challenge would have meant our government being taken to special international tribunals.  If those tribunals were to find in favour of the foreign corporations, they could order the government to change the law and the way we do things – even if that meant defying the will of our elected parliament and the government being forced to go back on promises made to the voters.

    Little wonder that Jacinda Ardern set herself the difficult task of removing, or at least reducing the impact of, these clauses.  We will be able to judge how successful she has been when we see the full amended text.

    But the early reports are that substantial progress was made on these points of difficulty, and if that is so, it is entirely because she dug in her heels.  If she was indeed able to get agreement to the necessary changes, she will have acquitted herself – at her first major international gathering – very well indeed.

    She will have been helped not only by the presence of an experienced international negotiator, in Winston Peters, but also by the fact that her Trade Minister, David Parker, is one of the ablest members of her Cabinet.

    But there can be little doubt that she herself made a favourable impression with her international colleagues.  Her straight talking and the energy she brings to everything she does will have helped to show that she is not just about stamping her foot, but that she is well able to build a consensus and to persuade others of her point of view.

    Her opponents at home may try to downplay what she has achieved, but if we now have a “free trade” arrangement that is fit for purpose and does what it says on the packet, we can all celebrate – and that includes especially our exporters who have a trade deal they would not have had if it had not been shorn of the obvious obstacles to acceptance.  In the future, we might even be able to get, off the back of an amended TPPA, an international agreement that details the responsibilities of, and not just the concessions claimed by, those who seek to come into our country to do business.

    Bryan Gould

    13 November 2017


  • The TPPA – Not Just A Free Trade Deal

    As our new Prime Minister heads for her first APEC meeting, the talk is all about the Trans Pacific Partnership Agreement (the TPPA) and whether or not it can be revived, even without the participation of the United States.

    Our new government seems to hope so, even though there seems little chance that Donald Trump will relent on his decision to have nothing to do with it, meaning that the main benefit we were promised – free access to the US market for our dairy products – is therefore off the agenda.

    Let us be clear about one thing.  Those who have hitherto opposed the TPPA have nothing against free trade as such.  While the benefits of free trade are often overstated, and many economies (including, for example, post-war Japan) have seen advantage in protecting, at least for a time, their developing industries against foreign competition, it cannot be disputed that free trade is in principle to be supported.

    New Zealand has at times been unduly naïve in opening up our markets to foreign competition, with the result that we have little left to offer or negotiate with when a TPPA comes along – but, as the world’s most efficient producers of dairy produce, we have much to gain if we can obtain free access to the world’s biggest markets.

    The trouble with the TPPA, though, is that it is not just a free-trade arrangement.  As Jacinda Ardern and her ministers have recognised, it is the extra baggage it carries that is the problem.

    The deal offered by the TPPA involves much more than removing tariffs and other barriers to trade.  It also requires the parties to provide within their domestic economies an unimpeded level playing-field for international corporations.

    This may sound innocent enough, but what it really means is that any interference with the “free market” by national governments is outlawed.  The result is that the TPPA is in reality a charter for multinationals, giving them carte blanche to do what they like and able to object to any measure that limits their operations or places them at a disadvantage.

    Our economy, it is clear, exhibits a number of common practices that could fall foul of these provisions.  Our use of cooperatives to market some products – dairy products or kiwifruit – could come under attack, as would our use of an agency like Pharmac to negotiate, on behalf of the whole community, prices of pharmaceuticals.  Regulating the sale of certain products, such as cigarettes, would be similarly vulnerable.

    The TPPA goes further.  Multinationals who believe that they have been disadvantaged by government action can take our government to special tribunals – and if they can show that their profits will suffer, they can force the government to change New Zealand law to suit them, even if that means that the government must go back on promises made to voters.  So much for democracy, self-government and sovereignty.

    This is the notorious Investor-State Dispute Settlement procedure (ISDS) that Jacinda Ardern has signalled she will try to change before she will agree to sign up to a TPPA – but she will not find it easy to secure the change and will come under great pressure to sign up even without it.

    There is of course no objection to seeking agreement on the rights and duties of foreign companies that wish to trade in our country – but that should not mean a one-way advantage for those corporations at our expense.  Rather than giving rights to foreign companies far in excess of those enjoyed by our own companies, such a treaty should focus on the obligation of foreign companies to comply with our laws, and to observe the rules laid down by our own sovereign government.

    If the TPPA drafters insist on the ISDS provisions, it is vital that our Prime Minister takes a stand, and refuses to sign.  In doing so, she could strike a vital blow, not just for New Zealand, but for everyone.  Others might then have the courage to follow suit, and that could mean the end of so-called trade deals, now and in the future, that violate the principles of democratic government by allowing multinational corporations to decide what is and is not the law of the land.

    Bryan Gould

    4 November 2017

  • Trump Versus the Establishment? Not Quite

    I am always surprised that, whenever I write a piece that is critical of Donald Trump, a number of people post comments that defend him, usually along the lines of what is now described, I understand, as “whataboutism”.

    Such responses make no attempt to dispute the charge sheet against Trump.  The defence they try to mount is to argue that any criticism of Trump has to be offset by the comparable crimes and offences of others – usually Hillary Clinton, or Trump’s predecessors  in the Oval Office.

    How, they imply, can it be fair to criticise Trump when others who can be similarly criticised go unchallenged?  I’m afraid that I have difficulty in understanding the logic of this position.

    Even if it were the case that Trump’s manifest failings could be equated with those of others, why should that invalidate in any way the criticisms that can legitimately made about Trump?  He is, after all, currently in a position (whereas others are not) where his shortcomings can matter very greatly, to both Americans and to the rest of the world.

    I suspect that the “whataboutists” share a particular personality trait – that they imagine themselves to be the intellectual superiors of the general run of people, and that they are therefore able, as others are not, to swim against the tide that carries others along, and enjoy being able to demonstrate that they can do so.  They alone, it seems, are able to see through the generally accepted attitudes and to make their own dispassionate assessment of the true position.

    They are joined, no doubt, by those who see Trump’s defiance of the usual norms of responsible and civilised behaviour as welcome evidence that he is prepared to “take on” the establishment and to “drain the swamp”.  The more extreme and outrageous his words and actions, it seems, the better the job he is doing in standing up for the ordinary American – and the criticism he attracts is merely further confirmation of this analysis.

    So, let us test this out.  Let us cast to one side his boorishness, his evident racism, his brutish treatment of and attitudes towards women, his willingness to bend the truth, his ignorance of the rules of the US constitution, his self-obsession, his inability to build loyalty from his own staff and colleagues, his furious intolerance of criticism – the list is a long one and could be much longer.

    Let us say that each of these failings is merely evidence of his willingness to break the rules, and to defy worthless conventions designed to rein him in, all in the interests of keeping faith with his “base”, who voted him into office.

    We are invited, it seems, to disregard the charges usually brought against him, and allow him to get on with what is really important.  So, after we have dismissed from our minds the evidence of our own eyes and ears as to the kind of person he is, what is it that wants to “get on with” that is so important?

    The evidence here is incontrovertible.  His central mission is beyond doubt to bring about huge tax cuts for the very richest Americans – principally the top 1%.  Such tax cuts, worth billions and billions of dollars, are to be funded by denying to millions of families access to affordable health care that would allow them to escape from the destructive vicious circle of poverty and ill-health, and ill-health and poverty.

    Don’t take my word for it that this is the focal point of the Trump presidency.  He repeatedly declares that those who stand in his way are frustrating his determination to cut taxes in this way – and the prospect of such cuts is the only reason his Republican colleagues in Congress maintain, in an unholy alliance, their wavering support for him.

    Here, then, is not the great champion of the rights of ordinary people or the courageous opponent of the establishment and the privileged.  His supporters may be prepared to forgive – even celebrate – his personal ability to pollute all he touches.  But are they prepared to stand shoulder to shoulder with him as he fractures – along religious, racial, and above all economic lines – the society he was elected to serve?

    Bryan Gould

    2 November 2017