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Recent key developments in MAKE│NZ
Invitations will be sent out soon for our upcoming Fireside Chat on the 24th. We’ll be hearing from one of our newest board members, Charlie North from Dawn Aerospace, and then we’ll have Dr Onur Koska from the University of Canterbury speaking on “The economics of trade sanctions – (when) do they make sense”. If you’ve been looking at any kind of news or even if you’re avoiding the news (other than the Tuesday Top-Up, of course), you’ll undoubtedly have heard the words “trade sanctions”, “tariffs”, and more being repeatedly quite a lot as of late. If you’d like to hear them more from an economist in international trade who can share his knowledge, then this is a fireside you’ll need to attend!
If you’re unsure if you’re on the mailing list make sure to double check your membership or get in touch with the MAKE│NZ team.
Speaking of membership- did you know if you’re a member of the MAKE│NZ community you get 15% off your tickets to attend our manufacturing conference at SouthMACH? Even better, “Tuning your production engine” is targeted at operational leaders where we’ll have workshops and encourage sharing and peer-to-peer learning, which means we’re offering further discounts when over four of your team are planning to attend- the more the merrier!
Make sure to get your tickets and if you have any questions we’d be more than happy to help.
And finally- a plea from our MAKE│NZ Digital Engagement Specialist (me, Sabine). Our LinkedIn is currently sat at 419 followers. If we can get it to 500 then Dieter will be forced to buy me a coffee (he will be finding this out at the same time as you all, this is a surprise addition to the newsletter after he’s poured his efforts into writing it). Like many of you I’m sure, caffeine is the WD-40 to my rusty work-brain. Please help the community (and me) by spreading the word and encouraging others to check out our LinkedIn.
Recent key developments in New Zealand
• A reminder: New Zealand is a country where a lack of government funding is holding the public sector back from delivering the services expected by the public in key areas like health, education, housing, etc. It is also a country with persistent and substantial trade deficits. For such a country, increasing the value of its exports is a must-do. The current government – like its recent predecessors – has realised that and set a target of doubling the value exports over the next decade. But how? (Hopefully) the government is aware that a goal is not a strategy. Here are its plans, as far as they go:
In a joint release on June 13, 2024, the Minister for Agriculture, the Hon Todd McLay, and the Minister for Ocean and Fisheries, the Hon. Shane Jones, stated that “The Coalition Government has set the aspirational goal of becoming an exporting powerhouse by doubling the value of our exports in 10 years. Our food and fibre sector will be pivotal to achieving this goal.”
In a speech in Auckland on Nov. 21, 2024, the Minister of Trade, the Hon. Todd McLay, announced that “To achieve double export value, we are:
– Securing new, diversified, and high-quality trade agreements,
– upgrading and enhancing the implementation of those agreements we already have, and
– targeting Non Tariff Barriers (NTBs) and Technical Barriers to Trade (TBTs)”
And, as reported earlier, the new Minister for Economic Growth, the Hon. Nicola Willis, added tourism to that in January. So, in a nutshell: A lot more (doubling exports) from more of the same – food & fibre exports with more trade deals, and tourism.
For a different perspective, the Boston Consulting Group [BCG] last week published a study called What will New Zealand be known for in 2050? On 16 pages, the study makes the argument that ‘more of the same’ can’t be the recipe for making our country wealthier: “ …economic growth will need to come from new industries. The local dairy industry says that New Zealand has reached peak milk production, film and television production is limited to serving the outsourcing needs of US-based studios, and travellers are choosing more affordable and lower-carbon holiday options.”
Interestingly enough, and if we stick with the notion about the suggestive power of images, the photos interspersed in the report would suggest that the answer still lies in selling our primary products, and our beauty (images are listed clockwise as they appear in the study).
In the text, however, BCG have “identified 5 potential ecosystems” as a starting point for investigation and listed the reasons for why these were chosen:
The “NZ Right to Win” label is awarded based either on capability, or strength of industry in a number of categories for each ‘ecosystem’. In order to be relevant, these would have to be based on international comparison, and in order to win, NZ would have to be able to outcompete – or at least keep up with – leading global players. We’ve examined the argument in two examples ‘Additive Manufacturing’ (capability) and ‘Satellites’ (industry strength). In both cases the assessment was “NZ punches above its weight”, especially when it comes to innovation, but lacking in depth, with a lack investment the main reason.
A story we’ve heard before …
And the thing is: punching above your weight if you are a flyweight champion won’t help you much when you’re in the ring with a heavyweight boxer …There are a number of other claims and arguments supporting the “NZ Right to Win” labels awarded that are worth a fact-checking exercise, but BCG should be congratulated on putting in a lot more effort to sketch a plan for New Zealand’s economic development than what our government has released to date.
Recent key developments in the World
• To call the internal trade landscape ‘dynamic’ might well be seen as an understatement, even if, as we observing in some cases right now, the announcement of tariffs is only used as a bargaining chip to achieve outcomes in other areas.
One area where punitive trade measures appear to be for real is shipping – the moving of sea freight into and from the US. In a detailed report that has been in the making for many months and was published on Jan. 16, 2025, the Office of the US Trade Representative [USTR] made several findings regarding the role of China in the sectors of maritime, logistics global shipbuilding globally, and its impact on the US economy in those sectors. The report’s key findings are:
And
A link to the report can be found here.
There is a certain irony here in that after World War II, the US was the dominant force in international shipping but has been watching that role going to a sequence of other countries since then without responding, and in some instances even supporting those developments initially.
Now, however, President Trump seems to be determined to respond. There was a proposal last month from the USTR to levy fees of up to $1.5 million per visit on Chinese-built vessels entering U.S. ports, which would, of course, be a gross violation of WTO Rules. WTO who?
The direct impact of such a measure, were it to be imposed, would be pretty obvious in the case of the US. MSC CEO Soren Toft, for example, said earlier last week the world’s largest container carrier could visit fewer U.S. ports to limit its exposure to the new fees. Beyond that, and regarding potential impacts on shipping to and from New Zealand, we’d have to wait and see. But given that the network of international shipping is a fairly complicated system, local collateral damage can’t be ruled out.
Picking up from where we’ve left off last week, the Europeans, having managed to convince themselves that they are vulnerable to an attack from Russia at some stage unless they massively build up their military, and no longer sure the US would come to their aid if that were the case, have decided to invest – big time:
In Germany alone, the new government announced a €400bn loan to boost military spending – on top of the €100bn extra-ordinary loan for military expenditure taken up in 2023. That announcement has since been amend to “Whatever it takes …”
EU defence spending on all military equipment (‘investment’) has risen sharply over the past decade:
Overall, the EU defence industry generated sales of €158.8 billion in 2023 with about 40% exported to non-EU countries, and directly employing 581,000 people. Companies in the UK, France, and Italy are the main actors. To put this in perspective, defence industry employment makes up 0.3% of total employment in the EU in the 20-64 years age group.
What will the dramatic shift in demand – if it were to eventuate – do to Europe’s manufacturing industries, and international supply chains? The examples of re-allocating manufacturing operations to arms production in the UK and the US during WW II are well-known. In more recent wars involving Western nations, the impact on manufacturing were far less dramatic. The Gulf War (1990-91) did not require full industrial mobilization due to pre-existing stockpiles of weapons and equipment built up during the 1980s.
Technically, the EU is not at war with Russia in the Ukraine, but that war still had and has a significant impact on levels of key military equipment in the EU (and the US) available for their own delpoyment. The new demand for (a lot) more military equipment won’t be satisfied at all from existing stockpiles. Also, for political reasons and based on the most recent developments, EU leaders are adamant that key weapon systems have to be sourced from within Europe. That is going to pose an interesting challenge in its own right. According to the latest SIPRI report, published yesterday, the share of EU arms imports from the US rose steeply to 64% over the past four years, and the EU is now the biggest market for US military exports at 35%.
So, how well will the EU do when it comes to realising its ambitious plans, given that money alone won’t make the industry grow. You also have to meet the need for additional inputs, including the workforce and some critical raw materials. The standard response for years has been a standardisation of weapon systems across Europe to increase production runs and lower unit costs. That alone may well not be enough. We are now seeing suggestions reminiscent of the almost complete conversion of the British car industry to making vehicles and other products for the military in WW II. The German car industry, and its network of part suppliers, many of whom are seriously struggling, will be quite open to improve their prospects by getting defence contracts. What that means to their suppliers is another question.
Not to mention, of course, what the massive increase in debt levels in the EU will do to key economic and financial factors like interest rates and levels of inflation. Europe is far away, but it may still be a good idea to check your seatbelts …
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