The shift from services to goods in NZ international trade

I wrote the other day about the woeful underperformance of our tradables sector, suggesting that it was past time for the Minister of Finance and the Secretary to the Treasury to actually engage with, and respond to, the underperformance.

Instead, this morning I stumbled on a speech given the other day by the Secretary to the Treasury that, in this regard, is not much better than just making stuff up.   The address was to an outfit called the New Zealand India Trade Alliance.   I’m sure there is lots of worthy detailed stuff in it, but my eye fell on this line

New Zealand is taking a more productive and effective path. We recognise the importance of continuing to focus on building a resilient workforce with flexible skills, and that we should expect and enable the economy to adapt to change as it happens.

One of the most positive changes for New Zealand has been digitalisation. It has thrown open opportunities to sell services and deliver them to other countries in a fraction of a second, in addition to selling goods delivered in days or weeks.

This shift in trade from physical goods to services is very evident in the trade between New Zealand and India.

It wasn’t a speech I’d normally have read, but this line –  the “shift in trade from physical goods to services” –  had been highlighted in a tweet retweeted by the (able and respected) MFAT Deputy Secretary responsible for trade negotiations etc.

It appears to be true in respect of the (fairly small) trade between India and New Zealand (Makhlouf quotes some numbers).  But it just isn’t happening for the New Zealand economy as a whole.  In this chart, I’ve shown two lines: for the whole country, exports of services as a share of total exports and exports of services as a share of GDP.

services X mar 19

Services exports now (from New Zealand) are about the same share of total exports as they were 20 years ago.  And, consistent with the fact that total exports as a share of GDP has shrunk over that time, so has total services exports as a share of GDP.

And, as I noted in the post the other day, this is although we are heavily subsidising some parts of services exports –  the film industry notably, but also the export education sector (by bundling work rights, residence points etc together with the sale of education services, an issue that may have been of some salience for services exports to India).

How can we hope to see half-decent analysis and policy advice from the government’s (self-described) lead economic adviser, when the Secretary to the Treasury won’t even face basic facts?  There is nothing intrinsically wrong with goods exports –  in a successful economy we’d probably have more exports (and imports) of both goods and services – but there simply is no aggregate New Zealand shift from good exports to services occurring.

I’m not a mercantilist, and it is important to look at the imports side as well.  Perhaps the Secretary really had in mind imports of services?  But that doesn’t help either.

services M 2

Almost 42 years, and no shift from physical imports to services imports at all.

 

7 thoughts on “The shift from services to goods in NZ international trade

    • Thanks. And I’d expect that a similar chart for productivity would look worse – since we’ve had pretty fast population growth between 2000 and 2023 which (all else equal) holds up our total GDP share.

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  1. Not sure why you keep showing Services export against Total GDP statistics. It is just nonsense statistics.

    Services export numbers generated by Tourist and International student spending is actual foreign cash that is spent and injected directly into the local domestic economy. That cash once it enters the local economy gets sloshed around in the domestic economy many many times which means the more tourists and international students spendup, the multiplier effect to the domestic GDP increases by several multiples. It is therefore mathematically impossible to have Services Export increase as a percentage of total GDP.

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    • I guess we can agree to disagree but if a foreigner puts a dollar in my pocket I go spend it in the local pub. The local pub owner then goes spend it on more liquor at his local liquor warehouse.

      $1 export service = $1 at the pub +$1 at the liquor warehouse = $2 Domestic GDP

      Therefore simple mathematics, a tourist export dollar cannot mathematically increase as a percentage of total GDP if that $1 keeps sloshing around the local economy.

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  2. What do you think of this Michael?
    https://www.radionz.co.nz/national/programmes/eyewitness/audio/2018688111/eyewitness-the-wool-shock-of-1966

    it seems to normalise our immigration policy which was
    1. “part of a much larger agenda for change in New Zealand (Bedford 1996)” “It was a deliberate strategy, based on a premise that the “infusion of new elements to New Zealand life has been of immense value to the development of this country to date and will, as a result of this Government’s review of immigration policy, become even more important in the future” (Burke 1986:330).” Social engineering – the Universal nation.

    and 2. was Think Big?

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    • I think it has more to do with FTAs with our closest foreign neighbours after the UK joined the EU and tossed us out of our captive market. You can’t expect to sign a FTA with a country like say China or Korea or Japan and tell them we want access to your people to buy our products but we don’t want your people as migrants.

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