The Pentagon will unveil a new Indo-Pacific strategy at the Shangri-la Dialogue, scheduled for this weekend, 31 May-2 June in Singapore.
It’s a highly significant annual event, which will be attended by defence & security ministers & experts from something like 50 countries – including both the US & China.
And it’s significant for New Zealand because, increasingly this year through the Trump trade war, the battle for world superiority and unilateral US decisions affecting who can trade with whom, we are no longer an outpost that can be forgotten while bigger players up-globe argue.
The US wants freedom of navigation and has asserted its rights in the South China Sea, where China has declared a fiefdom without yet exerting no-go regulation.
President Donald Trump has shown how weaker parties’ intentions can be manipulated through his decisions banning Huawei & various other Chinese companies from using US products, purportedly based on national security.
Standing our ground not so easy now
New Zealand stood up to its ANZUS partner in banning nuclear-powered or nuclear-armed ships from coming here in 1984-85, but would you try jousting with the present US president over freedom to source materials from wherever?
We’re in the new 5 Eyes partnership with the US now, but we’ll be out of it without support if we argue the principle of making up our own mind.
China has turned outcrops in the South China Sea into islands with military bases on them, and is now turning its attention to supporting infrastructure throughout the South Pacific. That follows Chinese ventures into Africa & South America, where it’s also offering infrastructure funding & construction.
Mouthpiece points the bone
Chinese Government mouthpiece the Global Times ran a commentary in December pressing the case for attacking the US’s less powerful 5 Eyes allies, Australia, New Zealand & Canada, saying they were in step with the US example of damaging China’s interests: “At the same time, they are all outside the European continent, and there are subtle estrangements with most Western countries. Among them, Australia & New Zealand’s largest trading partners are China, Canada’s second largest trading partner is China, and we have enough means to deal with them.”
In another piece on the US approach last week, the Global Times said China “welcomes Iran’s active participation in the One Belt, One Road initiative and is willing to deepen mutually beneficial co-operation between the 2 countries”.
The US Assistant Defence Secretary for Indo-Pacific Security Affairs, Randall Schriver, told media in Kuala Lumpur at the end of April he expected Acting US Defence Secretary Patrick Shanahan to talk about the new strategy at the Shangri-la.
Mr Schriver said: “Our national defence strategy & national security strategy identify the Indo-Pacific as the priority theatre, and… over time you will see that show up in resources & presence…”
On the Tokyo-based (originally Sydney-based) The Diplomat website, which has a focus on Asia & Oceania, Dr Tao Peng, a senior columnist for World Journal in New York, wrote in January: “There’s a reason Beijing is pressuring Canada – not the US – over Meng Wanzhou’s arrest. Australia & New Zealand could be next.”
He counted 13 Canadians detained in China (but some released) since the arrest of Meng, daughter of Huawei founder Ren Zhengfei, in Vancouver in December on a US extradition warrant for alleged fraud relating to the US sanctions on Iran (which themselves were imposed in defiance of an international nuclear treaty with Iran).
Focus on allies
Dr Peng wrote: “Meng’s arrest has angered China, and Beijing is taking action to retaliate. However, China has adopted 2 different responses, approaching the issue gently with the US – which requested Meng’s arrest – while launching strict action against Canada. In doing so, Beijing hopes to deter Canada from following the US against China, in order to prevent Washington from forming a global & regional offensive against Beijing.
“In this way, China has started a battle to force US allies in the US-China conflict to choose to stand on the side of Beijing – or at least not to take Washington’s side.”
Australia’s Pacific vow
In a 2017 government white paper on foreign policy, the Australian government vowed to commit Australia to “a more ambitious & intensified engagement in the Pacific to support a more resilient region.
This was to include:
- stronger partnerships for economic growth
- stronger partnerships for security
- stronger relationships between our people.
At the Australian National University’s State of the Pacific conference in September 2018, Foreign Minister Marise Payne said: “Stepping up in the Pacific is not an option for Australian foreign policy — it is an imperative.”
Prime Minister Scott Morrison said this week he would discuss Pacific investment bank & infrastructure questions on a visit to the Solomon Islands, starting Sunday en route to Singapore & London, amid concerns over Chinese influence in the region.
This follows his announcement last November of an $A2 billion infrastructure financing facility, plus another $A1 billion for Australia’s export financing agency, the Export Finance & Insurance Corp (EFIC), all aimed at combatting the rising influence of China.
The Guardian noted that Australia also recently stepped in to fund a new underwater internet cable for the Solomon Islands, to lock Huawei out.
New Labor deputy pinpointed the problem a year ago
Australia’s shadow defence minister in the last parliamentary term, Richard Marles, likely to become Labor’s deputy leader in a week, put the Australian attitude to the Pacific succinctly in a speech to the Centre for Strategic & International Studies in Washington a year ago, pointing to the about-face now starting to happen: “Australia does not place the importance upon the Pacific that it deserves. Our lack of leadership in the Pacific is one of the biggest gaps in Australia’s national security policy. It is not about a lack of presence. We have the largest diplomatic footprint of any nation in the Pacific and we provide the largest amount of development assistance.
“Our biggest defence co-operation programmes are also in the Pacific. It is about a lack of intent, which comes from a failure to understand how the Pacific sits within Australia’s world view. For too long the foreign & strategic policy community in Australia have seen the Pacific simply in terms of the 10 million people who live there, the vast majority of whom are in Papua New Guinea.
“In that context, it has a kind of importance associated with an historic obligation to the region, but at the end of the day the Pacific is inevitably viewed as a niche area of policy interest. This understanding of the Pacific could not be more wrong. The Pacific is at the heart of our relationship to the world. Whether we understand it or not, the Pacific is Australia’s global calling card. For good or for ill, we are rightly judged on our actions in the Pacific and correspondingly the Pacific’s fortunes.”
- The US campaign against China will escalate on 4 fronts – technological trade, technology theft allegations, to reduce the overall US trade deficit by bullying & haranguing, but chiefly to impose hegemony
- The US will exert pressure on allied nations, including New Zealand, to support its campaign
- China will exert trade pressure on less powerful US supporters such as New Zealand, including areas such as education & time-affected seasonal produce
- China will continue its advance through the Pacific, including redirecting tourist traffic
- New Zealand won’t make a large trade gain from supporting the US – and could make a large trading loss – but will have at least a temporary security blanket.
Trump extends confrontation to Japan
The confrontations have extended to Japan, which Mr Trump visited briefly this week. In an Asia Times article, William Pesek summed up succinctly: “Even amidst the Abe lovefest, Trump complained that Japan has an ‘unbelievably large surplus’ with the US, about $US60 billion annually. That signalled he hadn’t heard a word that Abe said about Japan Inc’s massive US investments.”
US researchers find deficit basis wrong reason to criticise
One of the oddest things about Mr Trump’s global confrontation path is its base, the US trade deficit with various countries. While numerous people have said he doesn’t understand economics, research released in March by a Stanford University team headed by Professor Nicholas Bloom indicated his focus on trade deficits & their impact on US jobs was plain inaccurate.
In their abstract the researchers wrote:
“Using census micro-data, we find that the impact of Chinese import competition on US manufacturing had a striking regional variation. In high-human capital areas (for example, much of the West Coast or New England), most manufacturing job losses came from establishments industry switching to services. The establishment remained open but changed to research, design, management or wholesale.
“In the low human-capital areas (for example, much of the South & mid-West), manufacturing job losses came from plant closure, without much offsetting gain in service employment.
“Offshoring appears to drive these manufacturing job losses – the Chinese trade impact arose primarily in large importing firms that were simultaneously expanding service sector employment. Hence, our data suggest Chinese trade redistributed jobs from manufacturing in lower income areas to services in higher income areas. Finally, the impact of Chinese imports appears to have disappeared after 2007 – we find strong employment impacts from 2000 to 2007, but nothing since from 2008 to 2015.”
US corner, here we come
There are ways for New Zealand to affirm its position, as Prime Minister Jacinda Ardern has demonstrated on the rise of hate speech, but that is a momentary wrist-slap against the disaffected, who have a US president on their side.
On the bigger issues of what we can afford to buy and who will take our exports, we will be forced into the US corner. A neutral option won’t be available.
As Mr Trump has a strong chance of being re-elected as president, if only because the 2 dozen (as of last week) Democratic candidates lining up for the job are propounding policies into the air & concentrating more on each other (or on which lobby they can secure collateralised funding from) at the moment than on how to unseat the incumbent, he will have nearly 6 years to continue dismantling Deep State holds on many US public sector positions of influence & philosophical stances, and to wreak havoc where he sees an advantage.
That’s the background, where to from here?
That, then, is my backgrounder on where New Zealand stands internationally, and a lot of it doesn’t directly affect property positions. But assume New Zealand is forced to ally against China, the national income can be slashed overnight.
In property, we would have no Chinese buyers, while others would see discounted opportunities.
Increasing international mayhem might result in more immigration, except that immigrants would be confronted with job scarcity.
It’s easy to see a decline in house production in that scenario.
Can we avoid the damage?
A brave call would be to support our biggest trading partner, China, against US-led western alliance pressure. In doing that, New Zealand could take a supportive role as China invests in South Pacific infrastructure, and could grow its Asian relationships.
New Zealand could take an independent stance, distinguishing itself from Australia’s forever line of “All the way with LBJ”, which would likely affect trans-Tasman trade – and banking. Australia owns our banks.
New Zealanders aren’t that brave. Half the country votes for easy-goes policies, and the most vocal on the left are mostly not traders so will never unseat the easy-go majority.
And, when you peel back the “fair go” masks, the vast majority of us are Anglo – in speech, customs, heredity. Just as Maori didn’t invite European colonials to take control of their country, our majority now is not going to opt for China over the Anglo partnership.
Marching toward the brink
Most of the above assumes world leaders, especially Donald Trump, will continue marching toward the brink. Mr Trump does so as a tactic; others can be carried along.
There’s an assumption, when you stand back and watch world leaders, that most of them know roughly what they’re doing and that, when tempers do flare, sanity will prevail. You can no longer rest on that assumption, but that doesn’t mean we’re in for escalation into a global war. It does mean we’re in for increasing unpredictability.
I start out, when I look at a global landscape, wondering what influences might make their way south to affect our markets. Perhaps we’re sufficiently isolated that none of these big-power conflicts will affect us, that we have enough going on just to continue trying to catch up building more houses and reinventing businesses.
There are plenty of voices preaching calamity, but it might all be avoided. However, it seems we’re far more likely than at any time in the last 75 years to have our nation drawn directly into international conflict.
Above, you have a global picture. Next comes the local one, which I’ll start drawing after Queen’s Birthday.
Dzirhan Mahadzir, US Naval Institute News, 30 April 2019: US will unveil new Indo-Pacific strategy next month
NZ History, Nuclear-free NZ
Global Times, 26 December 2018: Social Assessment: Let the price of the country that is infringing on China’s interests pay the price
Global Times, 18 May 2019: US media: Suppressing China will only make US nose & face swollen
Global Times, 18 May 2019 (Xinhua, 17 May 2019): Wang Yi meets with Iranian foreign minister: Opposing US unilateral sanctions and “long arm jurisdiction”
Tao Peng, The Diplomat, 16 January 2019: China’s plan to break off US allies
US Department of Commerce, Bureau of Industry & Security, 15 May 2019: Department of Commerce announces the addition of Huawei Technologies Co Ltd to the Entity List
Australian Department of Foreign Affairs & Trade: Stepping-up Australia’s Pacific engagement
Australian Government, 23 November 2017, 2017 Foreign policy white paper
The Guardian Australia, 27 May 2019: Scott Morrison to sell Pacific ‘step up’ on Solomons visit as pressure builds over climate
The Guardian Australia, 13 June 2018: Australia supplants China to build undersea cable for Solomon Islands
The Guardian Australia, 7 November 2018: Scott Morrison to reveal $3A billion in Pacific funding to counter Chinese influence
Productivity Commission principal advisor Dave Heatley, 15 May 2019: Offshoring US manufacturing to China – it changed politics, but did it reduce jobs?
Professor Nicholas Bloom, Stanford University, keynote paper to US Society of Labour Economists, 3 May 2019: The impact of Chinese trade on US employment: The good, the bad & the apocryphal
19 March 2019: The impact of Chinese trade on US employment: The good, the bad, and the apocryphal
Richard Marles speech, 3 May 2018
MacroBusiness, 27 May 2019: LNP & ALP start well with China pushback
William Pesek, Asia Times, 27 May 2019: Shinzo counters Donald with ‘art of the delay’
Attribution: Links above.