TL;DR: US sanctions against China could force New Zealand to choose trade partners carefully, impacting relationships with major markets. New Zealand’s strategic moves with the US and AUKUS might leverage benefits but also risk backlash, particularly with China, influencing future economic and trade dynamics.
US Sanctions and New Zealand’s Trade Dilemma
The potential of US financial sanctions against China poses a significant challenge for New Zealand, forcing a choice between the two global superpowers for future business engagements. Michael Every from Rabobank, two years ago, highlighted the risk of sanctions if China supported Russia’s military actions in Ukraine.
Escalation of Tensions
The US’s frustration with China’s stance on the Ukraine invasion has escalated to threats of financial sanctions, especially if China intensifies its support for Russia. President Joe Biden recently empowered the US Treasury to exclude any bank, regardless of nationality, linked to the Russian war effort from the US financial system.
Targeting Chinese Banks
Returning from Beijing, US Treasury Secretary Janet Yellen specifically mentioned Chinese banks, stating the US’s readiness to impose sanctions against any entity aiding the Russian military. New Zealand exporters are familiar with the impact such sanctions can have, reflecting on their experiences from 2018 when attempts to trade with Iran were hindered by US financial sanctions.
The Australian Banks’ Dilemma
Australian banks operating in New Zealand showed reluctance to handle trade funds with Iran due to fear of US penalties. These banks, dependent on New York’s money markets, avoided transactions with entities linked to sanctioned individuals or entities, severely affecting New Zealand’s meat trade with Iran.
Fonterra’s Precautionary Measures
Legal experts believe that Fonterra’s decision to cease business with Russian clients post-Ukraine invasion was influenced more by the potential impact of Western sanctions rather than purely moral considerations.
China: A Major Trade Partner
Unlike Iran and Russia, where trade volumes were minimal, China stands as New Zealand’s largest export market. This raises concerns about the consequences if Chinese intermediaries were blacklisted by the US, posing serious challenges for repatriating export earnings through these channels.
The Economic Implications
The real challenge lies in identifying Chinese banks that are free from sanctions and determining the viability of continuing trade under these new conditions, potentially at higher costs.
Global Reactions to US Sanctions
The Economist notes that enforcing sanctions on Russia could compel countries to move away from the US-led financial system, as many continue trading with Russia despite US warnings. This shift could significantly alter global trade dynamics.
Changing Trade Alliances
The World Trade Organization has observed that nations with aligned political views have increased trade among themselves post-Ukraine invasion, hinting at a polarisation in global trade relations.
New Zealand’s Strategic Moves
With New Zealand enhancing ties with the US through defence pacts like AUKUS, there is a concern about potential repercussions from China. However, recent improvements in Australia-China relations suggest potential benefits, as seen with the lifting of tariffs on Australian barley and wine.
Potential Opportunities
New Zealand might leverage its position to gain favourable trade terms from China, particularly to support its inclusion in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Similarly, closer ties with the US could bolster New Zealand’s case for a much-desired free trade agreement with Washington.
As global trade tenses, New Zealand finds itself at a crossroads, needing to navigate carefully between maintaining its established trade relationships and adapting to the evolving geopolitical landscape.
