I’ve used here before the snippet from older books that in the decades before the Second World War it was generally accepted that New Zealand had the highest value of foreign trade per capita of any country. Estimates of historical GDP per capita suggest we also had among the very highest levels of real GDP per capita.
That was then. Yesterday I noticed this tweet from a Herald journalist. I presume the chart was taken from The Treasury’s Briefing to the Incoming Minister.
2021 wasn’t a great year for comparisons, since our border had been largely closed, directly affecting exports and imports of tourism services, but perhaps it was the most recent complete data Treasury had back in October.
This is the New Zealand story in isolation, for as far back as the quarterly national accounts data go.
You might discount the peak in 2000 (coincided with a shortlived trough in the exchange rate), but however you look at the chart, external trade as a share of GDP hasn’t been growing for 30 years. In the last decade it has been shrinking. Ministers and trade lobbyists, touting their preferential trade agreements, would prefer you didn’t notice these actual outcomes.
How does New Zealand’s experience compare to that of the other OECD countries (large and small)? The OECD database is complete from 1995, so here is the change in the average share of exports and imports from then to 2022.
Most OECD countries have seen quite a big increase in foreign trade shares over that period. Some of that will have been a rise in trade in intermediates. One could look at the OECD data on trade in value-added, but there is a multi-year lag in the availability of that data..
Can you spot New Zealand? That’s us over on the very far right of the chart, one of just a handful of countries to have had no growth in foreign trade as a share of GDP over those decades (as it happens - and I’m not here arguing causation – each of that handful of countries have been long-term OECD productivity underperformers).
What about the level of trade as a share of GDP (which is what that Treasury chart is showing). Here is the 2022 data for all the OECD countries (in case you are worried that pandemic effects are still distorting the picture the 2019 chart is very little different).
There are two regularities when looking at the extent of cross-country trade, neither very surprising:
- all else equal, big populous countries tend to do less foreign trade (share of GDP) than smaller ones, and
- all else equal, remote countries tend to do less foreign trade (share of GDP) than ones close to lots of other (advanced) countries.
Most OECD countries aren’t large (22 of 38 have populations of 12 million or less) and most of them are close to other centres of advanced economic activity.
What of New Zealand? We have the 5th lowest foreign trade share of any OECD countries. Of the four lower than us, three are large countries and the fourth (Australia) has a population five times our size. Every single other small country has trade shares higher than New Zealand’s. In all but Israel’s case, materially higher, and Israel is another example of a country fairly geographically remote (surrounded by plenty of other countries but not wealthy advanced economies, and wealthy advanced economies tend to trade a lot with other countries like them).
And if you inclined to read this and note it as just one of those things, here is how New Zealand stood in 1995.
Not great…..and still smaller than all the small OECD countries other than Greece…..but a substantially different picture than the 2022 one, and one that does not flatter New Zealand.
(And yes, for many purposes it does make sense to discount the numbers for Ireland and Luxembourg, but doing so won’t really change the underwhelming picture of New Zealand’s place among OECD countries.)
croaking cassandra 
Thank you for this and for all your other posts. Very much appreciated, and enlightening.
Best regards Chris Milne +64 274 422 708 (WhatsApp [preferred] & mobile)
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[…] Once were a trading nation […]
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Export led recovery has been a political catch phrase for many years .
Mr Reddell post demonstrates only too well that this is a fallacy .
Political focus on trade has largely been a myth as domestically ,high interest/exchange rates, huge regulatory growth.(RMA industry )etc choked and crowded out productivity in NZ.
NZ ,once a great food and fibre exporter now relies on tourism and other socially based income sources.
It is hard to see any way NZ can avoid a further fall in GDP per person.
The golden goose has been plucked ready for basting!
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A lot of EU countries on there. You might expect them to have increasing cross border trade given the EU. The picture is quite different excluding the EU. Still not flattering to NZ, but quite different.
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Certainly are a lot of EU countries, but I’m not sure it is important except in highlighting just how physically remote and isolated NZ is, which makes it v difficult from profitable international trading opportunities to develop from here (whether in final goods/services or intermediates). Last bus stop before Antarctica has a few advantages, but not economic ones.
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Yes distance. But also they have a massive trade agreement that harmonises all sorts of things. Those frictions are also important, not just raw distance.
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Sure, but physical closeness, cultural familiarity etc supported the trade agreements among a bunch of already rich countries, and lack of distance helps maximise use of the opportunities created. NZ has nothing similar ( comes close with CER but then Aus itself suffers the same problems).
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Yes, that’s true. I guess the question is whether we’re saying that NZ’s relative underperformance may have something that we’re uniquely doing wrong, or whether we’re happy to just explain it by “not being Europe”. I think if we exclude Europe from that list (who do clearly have some unique advantages purely from their geography), we may find that there are also other things we’re doing compared to countries not in Europe.
I.e. our geography may explain some of it, but possibly our policies explain a slice of it too.
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Oh, on that we are at one. I argue that our current economic underperformance results primarily for a failure to respect and respond to the implications of distance (incl pumping lots more people into such difficult location).
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True enough. I guess
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Thank you for posting this.
What things do you think have contributed to the relative decline of New Zealand exporting? When I was young in the eighties and nineties it was common to blame New Zealand’s historically closed economy, as well as our distance from markets and the British entry into the EEC.
It’s hard to accept those explanations, now.
New Zealand is now relatively open, if not entirely open. Furthermore New Zealand’s economy has been open for thirty, or more, years. That presumably cannot be the explanation for the continuing decline.
We are still relatively distant from other counties, but the expansion of global trade and continuing reduction of international transport costs must have reduced the impact of distance. I guess there are still cultural consequences of distance, beyond the simple transport cost impact. However, I struggle to see those as a serious explanation.
Beyond that, the British entry to EEC and subsequent reduction of New Zealand’s access to the British market happened fifty years ago. We’ve had decades to compensate for that. That surely cannot be the explanation, now.
So what, exactly, is the explanation?
For me, I think inflation in New Zealand is generally too high. It isn’t significantly too high, but it is relatively higher than many of the countries we trade with. So exporting costs in New Zealand have been continually increasing at a greater level than other countries. Hence, our exporters decline, relatively.
Beyond that, transport costs in New Zealand are comparatively high, from road user charges and excise tax. I feel the government uses road taxes as a kind of slush fund for a lot of poor quality uses. So exporting costs to other countries are, again, relatively high.
Similarly, port costs in New Zealand are comparatively high, because of the lack of consolidation of New Zealand ports. We still have a surprisingly large number of ports, when we really should have only a few. So port transport costs are, again, relatively high.
Obviously some taxes, such as the company tax, are relatively high.
Beyond that, the transport costs from New Zealand via shipping are also relatively high. Since we are a relatively distant and small economy there is relatively little shipping, with the cost of the limited shipping being relatively high.
The other big potentially explanation is our independent currency and the subsequently relatively inflated value of our currency,
Despite that, I struggle to see those as a complete explanation for the relative decline. Unless it is the combination of all the small individual causes?
Have there been any useful Productivity Commission reports, or otherwise, in recent years?
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The Productivity Commission never (to my knowledge) looked directly at this issue. My own story takes most of your individual points (eg ports costs, company taxes etc) but adds to the picture the combination of distance (there is little sign technology has really made a big difference) and a persistently overvalued real exchange rate, all exacerbated by the choice of successive govts over 30 years to try to drive up the population with large-scale non-citizen immigration policies (into one of the least propitious places on the planet, and from which natives have been leaving in fairly large numbers for decades).
I wrote a book chapter telling the story a few years ago. A slightly amplified version of that chapter is here
Click to access an-underperforming-economy-the-insufficiently-recognised-implications-of-distance-longer-version-of-book-chapter.pdf
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Thank you.
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Yeah, we’re not really an open economy though, are we?
If you try to import something worth over a grand, our import taxes are phenomenal. That has to be reciprocated.
Additionally, personal experience of owning an exporting company tells me that exporting goods is a nightmare of bureaucracy on the receiving end, making it infeasible in many cases (though it can be done if you know the various tricks for each country). Not “open” at all.
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Well how could anyone be surprised, we have retool a not insignificant part of our economy to build houses, a notoriously difficult activity to mechanize / automate efficiently (both domestically and globally) while ensuring our immigration rates are sufficiently excessive to ensure to prevent a price correction and discourage other businesses from automation as buying houses offer a better capital return and the cheap labour is endless. All of which makes one rather uncompetitive when one wants to export.
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What difference does the States failures in trade and business(MBIE) make when all benefits of ” GDP ” doesn’t ever reach the people of NZ.
Many NZ export companies are foreign owned and more 50% of the NZSX profit goes to the big 3 Australian banks( banksters).
“It is well enough that the people of the nation do not understand our monetary system , for if they did, I believe there would be a revolution before tomorrow morning”
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