There is no doubt that the war Israel and the United States have launched against Iran will have global economic consequences. While it is difficult to know what those consequences will be, it is hard to see them as positive, and they could be very, very negative.

Already we have seen oil prices spike by 8 percent since last week, and by much more since January.

Oil prices reached above US$100 a barrel with Russia’s invasion of Ukraine in 2022, but then gradually started to fall, and by the start of the year had returned to their pre-2022 level of US$60.

Just before the weekend they had risen to US$70 and now they are almost at US$80. With the Strait of Hormuz effectively closed, they could rise much more.

That is on the price front. There could also, unlike in 2022, be problems on the quantity side.

If it continues to be difficult to ship oil out of the Middle East, then shortages of oil might start to emerge. The countries that will do best in such a situation are those with large stockpiles or plenty of bargaining power.

The Pacific Island countries have neither.

Reliant on 80% oil
The Pacific is also vulnerable because of its extreme reliance on oil. According to a 2022 UN report, the Pacific meets 80 percent of its energy requirements through oil.

Even in the electricity sector, renewable energy sources make only a limited contribution.

There has been some growth in renewable energy as an electricity source. According to analysis by Janendra Prasad at UNSW, the share of renewable energy in electricity production in the Pacific has increased from 17 percent in 2017 to 24 percent in 2023. That is still low, and nowhere near what Pacific governments are themselves targeting (in excess of 80 percent by 2030).

The Pacific is also vulnerable because of its lack of domestic oil production and very limited storage capacity. In fact, Tonga suffered fuel shortages last year due to problems with its fuel depot and a stranded fuel vessel.

With drivers now queuing in Australia and the UK to get their petrol before prices rise or petrol rationing begins, it wouldn’t be surprising to see queues develop across the Pacific.

Governments can tell people not to panic, but it may seem like a rational response given the risks of petrol price rises and rationing.

It is important to clarify that PNG is the “odd one out” in the Pacific. PNG will actually likely benefit from the crisis as it is a large exporter of LNG. The government’s tax and dividend take will increase as LNG prices rise.

PNG oil refinery
PNG also has an oil refinery. And this war will also help the prospects for PNG’s much-delayed and still-uncertain future LNG projects by increasing the value to Asia of sourcing its LNG nearer to home than the Middle East.

So far we have focused on petroleum. But there are also the wider ramifications of the war.

It may lead to an uptick in global inflation, and may even push the world towards or even into recession. An oil shock on its own is unlikely to be enough to lead to a recession, but an escalated, widespread Middle East conflict (or possibly a conflict that extends to Turkey and Europe) certainly could.

Again, PNG will benefit from a further increase in the gold price as investors lose faith in the US, and therefore in the US dollar.

But overall, what is bad for the world is bad for the Pacific. Remittances, tourism, fishing licence fees, aid and investment returns would all suffer in the event of a global recession.

There is a possible upside. If Iran capitulates and, with or without regime change, gives in to US demands, then, with sanctions removed, oil production might go up and oil prices down.

Right now, that doesn’t seem like a likely scenario.

Relevant positives
More relevant are the positives that could limit or to some extent offset the downside for the Pacific.

One is that it is still unclear how long this war will go on for. The shorter it is the less worrying the outcomes.

A second is the positive role Australia can play. Although there are questions about Australia’s own limited oil storage capacity, Australia will be under pressure to share whatever oil it is able to import with its Pacific family.

Third, and longer-term, this crisis, especially if it is long-lasting, might make the world more serious about the renewable transition, not so much to avoid dangerous climate change, but to shore up energy security.

Understandably, for the Pacific, which is highly vulnerable to climate change impacts and whose emissions are negligible at the global level, the focus to date has been on climate change adaptation rather than mitigation.

But the sort of crisis currently unfolding should give the Pacific countries and their funders a stronger incentive to close the growing gap between Pacific renewable energy targets and reality — not to reduce the risks of climate change, but rather to reduce Pacific vulnerability to an increasingly shock- and conflict-prone Middle East.

Stephen Howes is director of the Development Policy Centre and professor of economics at the Crawford School of Public Policy at The Australian National University. Rubayat Chowdhury is a macroeconomist with experience working on monetary policy, growth, and economic development in emerging market economies. He is a research officer at the Development Policy Centre. 

Stephen Howes was recently interviewed on this topic for the ABC’s Pacific Beat programme.

Article by AsiaPacificReport.nz

Papua New Guinea is under a close watch for money laundering, running a risk of being abandoned by global investors.

The Financial Action Task Force (FATF) has placed PNG on its “grey list” due to “strategic deficiencies” in government oversight.

The grey-list means that watchdog officials are monitoring closely, and that the government is time-bound to address their blind spots.

PNG is now one step away from the far more precarious “black list”, where other countries are compelled to stay away in order to protect the international financial system.

There are only three countries on the black list: North Korea, Iran, and Myanmar.

Prime Minister James Marape told local media outlet NBC that he accepted the conclusions of the FATF and welcomed their support.

“There is no point blaming the past. What has been identified, we will fix,” Marape said.

Need secure economy
“It is in our country’s interest to have a secure economy, not one with gaps that can be exploited.”

Marape said that investors could be assured the PNG government was doing all that is can ahead of elections in 2027.

“Our investors will not run away . . .  Papua New Guinea will work its way out of the grey-list and towards a trusted, credible financial standing,”

But as many as 30 banks have publicly ruled out the possibility of investing in Papua LNG, an Exxon-backed project in the Gulf of Papua, as reported by AAP.

The project owners, seeking to produce six million tonnes of LNG per annum for a predominantly Asian market, have yet to make a final decision on whether to move forward.

Far-reaching consequences
A note from the International Monetary Fund (IMF) in November 2025 called PNG “a fragile state” noting an “unstable social and political environment”.

It’s a judgment of PNG’s institutions, weakened by conflict and poor governance, thus creating ideal conditions for money laundering and corruption to thrive.

Michael Kabuni, an anti-money laundering researcher at Australian National University, told RNZ Pacific the grey-listing sends a signal to overseas banks and investors that business in PNG is rife with danger.

“We were saying all along that PNG was going to be added to the grey list. The evidence points to it.”

PNG’s greatest vulnerability is the exposure of each MP, bureaucrat and public servant to bribes and corruption, Kabuni said.

The more powerful an individual, the more likely they are to be targeted by criminals, and the greater those incentives to bend the rules would be.

“There was the anti-corruption body that was set up in 2014 called the task force suite,” he noted.

“It did an impressive job in confiscating proceeds of crime, arresting, prosecuting and jailing those involved. But eventually they went after the Prime Minister, and that task force was disbanded.”

Kabuni noted that MPs are given 10 million kina (NZ$3.9 million) each year in the course of their work, but rarely is it all accounted for.

He said it was also common for less money to be allocated to “integrity agencies”, such as watchdogs and enforcement bodies, than they are actually budgeted.

“It’s a combination of factors, from political interference, whether it’s appointments or interference into the investigations, to capacity and resources,” he said.

In the case of Papua LNG, Kabuni said he “would think” that the bank boycott was motivated in large part by the grey-listing.

“Investors use the mutual evaluation reports as a risk matrix to determine whether this country is safe.”

“It’s going to be difficult to draw investors finances . . .  we’ve never actually had an investor come in during the grey-list period.”

Risks for New Zealand
The Reserve Bank of New Zealand said banks were required to assess the associated risks with the countries that they dealt with.

“This may mean that transactions to or from Papua New Guinea may be subject to greater scrutiny,” it said.

Meanwhile, the Department of Internal Affairs said all customers from PNG are considered “high risk” under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009.

“This could be a PNG company operating in New Zealand or a non-resident individual (such as a person on a temporary work visa),” a spokesperson said.

“As a result, an enhanced level of customer due diligence must always be applied.”

Anti-money laundering expert Kerry Grass told RNZ Pacific that businesses dealings with PNG were inherently risky.

“Trade-based money laundering (trading value for value) is not captured as an activity under the AML/CFT Act for international reporting obligations of trade,” Grass said.

Escaping obligations
“Hence I can trade you a shipping container of car parts for 1kg of Cocaine hidden in a container of coconuts. That type of international trading is escaping obligations of reporting under the AML/CFT Act if no wire transfer is relied on.”

In an ideal world, Grass said, customs officials would be able to manage risk based on knowledge of the source, but this could be disguised.

Efforts to stop ill-gotten gains from PNG to NZ would depend on their ability to decipher this information.

“I don’t think New Zealand is actually operating at a jurisdiction level where these controls or knowledge are actually down to that level,” she said.

This article is republished under a community partnership agreement with RNZ.

Article by AsiaPacificReport.nz

COMMENTARY: By Eugene Doyle

Canadian Prime Minister Mark Carney gave a speech at Davos this week that signals there may still be a leader in the West worth following.

“Middle powers must act together because if we’re not at the table, we’re on the menu,” he warned.

The Canadian PM was brutally honest about Western conduct in the world but shone a bright light on a better path forward.

At a time when the US has pivoted to a smash-and-grab deployment of hard power that now extends to its closest allies, Carney stepped up.

The speech wasn’t a rhetorical tour de force; it was better than that: it was a declaration by the leader of a major, middle ranked Western power that the snivelling compliance, the fawning and the keep-your-head-down approach that has typified the collective West’s response to Trumpism is at a strategic dead end.

We are at a moment which Carney defines as “a rupture in the world order”.

Nostalgia is not a strategy
“We know the old order is not coming back. We shouldn’t mourn it. Nostalgia is not a strategy,” Carney said.

At a time when the US is led by a criminal toddler who can’t stop whining about not getting the Nobel Peace Prize even as he attacks country after country, it is refreshing to encounter a leader who thinks and speaks like a statesman of the first rank.

“We are in the midst of a rupture, not a transition. Over the past two decades, a series of crises in finance, health, energy and geopolitics have laid bare the risks of extreme global integration.

“But more recently, great powers have begun using economic integration as weapons, tariffs as leverage, financial infrastructure as coercion, supply chains as vulnerabilities to be exploited,” Carney said.

A modern non-aligned movement
Carney did not reference the Non-Aligned Movement formed at the Belgrade Conference in September 1961 but it leapt to my mind when I heard him say:

Article by AsiaPacificReport.nz

The most important measure of the favourability or otherwise of the international economic environment is called a country’s ‘Terms of Trade’. This label essentially means ‘barter price’, reflecting that international trade is essentially one country’s barter with the rest of the world.

(Digression. We note that such ‘barter’ is rarely the simultaneous barter with which we usually associate that word; whereby in a single mutual exchange, swaps of agreed equal value are made. So, for any given country in any given year, the barter is rarely a swap of equal value between domestic [our] and foreign [their] goods. If, in any given year, a country receives [by agreed value] more goods and services than it gives up – ie imports more than it exports – then that country is either incurring a debt to the rest of the world, or spending a credit. This process of incurring debts and spending credits – or, from the other side of the ledger, of incurring credits and settling debts – is known as ‘intertemporal trade’; ie as trade over time. Trade between one country and the rest of the world is expected to balance in the long run, at least in theory; however, see my International Trade over time: gifts with strings, Evening Report 8 May 2025, which shows that this long-run balancing often doesn’t happen in practice. We also note that Donald Trump’s project is to upset this coherent barter process by separately accounting for trade between his country and each other country; Trump wants, in each year and for each country, either a perfect barter, or for the other country to get [to import] more by agreed value than it exports. Thus Trump wants the United States to build up indefinite trade credits with each and every country; meaning that, eventually, he wants each country to have permanently unsettled debts with respect to the USA. That perpetual accumulation of credits is what President Trump calls “making money”. It’s what economists call mercantilism. Historically, Netherlands is the country most notorious for its mercantilist approach to international commerce.)

The ‘terms of trade’ does not measure the balance of trade. Rather, it is a measure of what a given amount of exports will buy. Thus, ‘favourable’ terms of trade are when $1,000,000 of exports will buy many imports. And adverse terms of trade are when $1,000,000 of exports will fund a relatively small quantity of imports.

The chart above shows that Aotearoa New Zealand is currently enjoying near-record favourable terms of trade. At least with respect to New Zealand’s economic position in the world, New Zealand is currently enjoying the best of times. (And Donald Trump’s shenanigans in the United States will barely put a dent in this serendipitous state of affairs for New Zealand.) Indeed, when the Terms of Trade data for the June quarter of 2025 is released next month, New Zealand may have achieved a record-high terms of trade; the present covid-induced record high (from 1957, the year the data from Statistics New Zealand commences) is late 2021.

This year, if a terms-of-trade measure of 1000 is seen as neutral, then we are at present fifty percent above neutral, meaning our exports will buy fifty percent more imports than they would have bought under neutral – eg 1990s’ – international conditions.

We may note that from a perspective of 1985, New Zealand was ‘suffering’ a long-term decline in its terms of trade, indicating a need for economic diversification. But over the last 40 years, the whole lives-to-date of most living New Zealanders today, New Zealand has enjoyed a secular (albeit fluctuating) rise in its terms of trade; a persistent rise of its average living standards. This is not because of diversification; it is indeed despite diversification, and because the diversification of New Zealand’s tradable economy since the 1980s has been somewhat limited.

We can look back over this chart, and observe the good times and the bad times; noting that these good times and bad times have reflected New Zealand’s position in the ‘stormy seas’ of international commerce.

The terms of trade are only minimally affected by the economic policies of the day. The main reason for the improvement of New Zealand’s terms of trade since 2000 would be the rising living standards of the growing middle classes of the developing world (ie of the ‘global south’).

The terms of trade have contributed to many of New Zealand’s election results. A declining ‘terms of trade’ during election year would increase the likelihood of a change of government in New Zealand.

I’ll just make three further comments about the history.

First, the drops in 1974 and 1979/80 reflect geopolitical crises in southwest Asia – the Arab-Israeli War of 1973, and the Iranian Revolution of 1979 – and their impacts on world oil prices. Conversely, the rebound from 1986 reflects the resolution of the economic consequences of those crises, with substantial real falls in the price of oil.

Second, in the 1960s, the timing of the terms of trade fluctuations tended to reflect the timing of British general elections (meaning the relatively generous fiscal policies of the British government in the lead up to those elections, leading to more British consumer spending): 1959, 1964, 1966, 1970. (We note that, in the absence of such policies in 1970, the British Labour Government lost an election it was expected to win. And the new Conservative Government pursued unusually generous fiscal policies soon after it came into being.) The United Kingdom joined the European Economic Community (now the European Union) in 1973. Before then, it was the British market that largely determined New Zealand’s terms of trade.

Third, New Zealand economists used to take a keen note of the terms of trade, as a key economic barometer. This century, the ‘terms of trade’ only rarely becomes a point of public discussion about ‘the economy’. This reflects an increased (and somewhat misplaced) academic emphasis on government policy as a determinant of New Zealand’s economic success or otherwise. And a reflection of the unwillingness of New Zealand’s progressive and conservative elites to facilitate a sharing of the gains arising from New Zealand’s favourable terms of trade.

______________

Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

Getty Images

When the Trump administration arbitrarily imposed 15% tariffs on New Zealand exports on August 1, up from a previously announced 10%, no one should have been surprised.

“Reciprocal” tariffs, based on the difference in value between what the United States imports from and exports to other countries, were signalled on April 2, Trump’s “Liberation Day”. New Zealand’s latest tariffs are higher than some, lower than many.

Many governments are now frenetically seeking deals before the tariffs take effect on August 7. New Zealand’s chief trade negotiator Vangelis Vitalis has been dispatched to Washington urgently to plead New Zealand’s case, with Trade Minister Todd McClay also on his way.

Labour’s trade spokesperson has declared the lack of a deal for lower tariffs – along similar lines to ones struck by the European Union and United Kingdom – a “major fail”.

But politicians should be careful what they wish for. Bigger countries have already caved in to Trump’s demands, signing vague deals at a high political and economic price with no real guarantees.

Trump’s economic rationale

Trump has a long expressed love for tariffs as leverage over countries that depend on US markets. Essentially, these are taxes the US charges on imported goods.

It’s not New Zealand exporters who “pay” these taxes, it is US importers, and likely their customers. Similarly, New Zealand exporters don’t “save” millions from tariff cuts.

Trump hopes making imports more expensive will spur domestic production, support local business and create jobs, and the trade imbalance with the US would decline. As a bonus, in June alone, tariffs earned the US$26 billion in revenue, partly compensating for massive tax cuts contained in Trump’s “One Big Beautiful Bill”.

By imposing tariffs unilaterally, Trump breaches the US tariff limits at the World Trade Organization (WTO) and its “most-favoured-nation” rule of treating all countries equally. But the US has already paralysed the WTO’s dispute system. US tariff limits and other trade rules in US free trade agreements are also being ignored.

Domestically, Trump has used the 1977 International Emergency Economic Powers Act to justify bypassing Congress to impose tariffs, on the basis that threats to the US economy constitute a “national emergency”.

This was ruled unlawful by the Court of International Trade and is currently under appeal at the Federal Circuit Court of Appeals. Meanwhile, the tariffs continue. The Trump-friendly Supreme Court would likely endorse them.

US economist Paul Krugman predicts this approach will not be rolled back by future administrations and will become “the new normal”.

Exaggerated claims, few guarantees

The various bilateral “deals” other countries have sought to mitigate Trump’s tariffs look vague and precarious.

The talks and the outcomes remain secret. The vaguely worded “frameworks” – not signed agreements – lack detail and allow Trump to make exaggerated claims at odds with the other country’s statements. Krugman describes these “understandings” as, for the most part, “vaporware”.

Take the European Union’s promise to buy goods worth US$250 billion a year for three years, mainly in fossil fuels such as liquefied natural gas. One commentator described this as as “delusional” and “totally unrealistic”, given EU imports of energy in 2024 were only worth about $65 billion.

The EU also admits it lacks the power to deliver on a promise to invest $600 billion in the US economy, because that would come entirely from private sector investment over which Brussels has no authority.

Nor is there any guarantee Trump will uphold his part of the deal or not demand more. The EU said its landmark regulations on Big Tech survived unscathed; Trump says they remain on the table as further “non-tariff barriers” – trade-speak for anti-business regulations.

To take another example, Japan has said its 15% tariff deal operates from August 1, while the US gives no start date.

The White House said “Japan will invest $550 billion directed by the United States to rebuild and expand core American industries” to be spent at “President Trump’s direction”. The investment will be in a list of industries, including energy, semiconductors, pharmaceuticals, critical minerals and shipbuilding, with the US retaining 90% of the profits.

Bloomberg reports Japan expects only 1–2% of that $550 billion to be actual investment, with the rest made up of loans, and makes no reference to Trump having control.

Trump’s political agenda

Trump’s demands are not just about trade. His strong-arm tactics – which Brazil, China and France have termed economic blackmail – aim to punish political foes and damage competing powers, notably China and Russia.

They are also a form of retaliation over other countries’ foreign policy decisions (such as Canada’s intention to recognise Palestinian statehood), a way to exploit foreign natural resources (such as Pakistan’s oil), and to remove obstacles to corporate donors (such as Canada’s digital services taxes).

What will Trump demand, and get, from New Zealand in these secret negotiations? Governments face high political costs as they navigate their own domestic processes to “secure” such deals.

At the very least, New Zealand’s negotiations need to be transparent and consulted on before commitments are made. More broadly, the country will need to rethink of its trade strategy in the light of the new international realities.

Jane Kelsey does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

– ref. NZ is looking for a deal over Trump’s new tariffs – that could come with a high political price – https://theconversation.com/nz-is-looking-for-a-deal-over-trumps-new-tariffs-that-could-come-with-a-high-political-price-262497

International trade expert Steven Okun has warned that the “era of uncertainty” in global trade set in motion by US President Donald Trump’s tariff policies is likely to be prolonged as there is no certainty now of a US return to pre-Trump trade policy era

He has advised small economies like Fiji and Pacific countries to band together and try to negotiate a collective trade agreement with the US.

“We’re in a transitional phase and this transitional phase is going to take years,” Okun said in an interview with The Fiji Times during his visit to Fiji earlier this month.

“This isn’t months, this is going to be years and after Donald Trump is no longer president, the question is going to be who replaces him. And we just have no idea.

“If the replacement for Donald Trump is a Democrat, is that Democrat going to be more like Joe Biden — work with partners and allies — or is he going to be more progressive like Bernie Sanders, and he or she is going to have a different approach to trade.

“We don’t know which way the Democrats are going to go.

“We don’t know which way the Republicans are going to go. Either the successor is going to be somebody more of a traditional Republican, somebody like the Governor of Georgia or the Governor of New Hampshire who are both more establishment-type Republicans, or is the next president going to be Donald Trump Jr or JD Vance.

‘Upended’ system
“If it’s going to be one of those two, it’s going to be very similar presumably to what we have right now, which means we’re not going to get certainty any time soon.”

Okun, founder and chief executive officer of Singapore-based business advisory firm APAC Advisors and a former Clinton Administration official, said the United States under President Trump had upended the global multilateral trading system that the world had been operating on for the last 80 years.

The shifting dynamics in response to that had seen countries gravitating towards regional trading blocs, something that Pacific countries, including Fiji, should seriously consider, he said.

“We see from the US perspective the desire to have bilateral trade and we see other countries creating plurilateral systems or regional trading blocs . . . ASEAN (Association of Southeast Asian Nations) would be one, CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) is such an agreement, RCEP (Regional Comprehensive Economic Partnership) is another plurilateral system.

“That’s something that I think a country like Fiji should be looking at, same as a country in Southeast Asia — are there blocs that we can be part of and can the Pacific nations come together and collectively get a better agreement with the United States?”

The Fiji Cabinet revealed last week that negotiations were ongoing with the US for a potential US-Fiji Agreement on Reciprocal Trade (ART).

Okun, who came to Fiji at the invitation of the Fiji-USA Business Council, was also sceptical about the August 1 deadline set by President Trump in April for the activation of reciprocal tariffs against about 90 countries, which would mean Fijian exporters of goods into the US would pay 32 percent duty at the border.

Republished from The Fiji Times with permission.

Article by AsiaPacificReport.nz

Donald Trump is a mercantilist, as noted in Trump’s tariffs: Short-term damage or long-term ruin? ‘The Bottom Line’, Al Jazeera, 11 April 2025 (or here on YouTube). But the United States, in today’s world, is not a mercantilist country. Or at least not a successful mercantilist country, though it is inhabited by many mercantilists.

In that television interview, Georgetown University professor of Public Policy, Michael Strain said: “I don’t think [Trump’s tariffs are] smart politics, but I think the president [thinks they are]. I think that President Trump is a true mercantilist. The president believes that if the United States are running a trade deficit that means we are losing economic value to the rest of the world.”

Mercantilism, in its most literal form, is the belief that international trade is ‘economic warfare’, and that winning is achieved by a country exporting more than it imports. Obviously, the total amount of exports in this world is exactly equal to the total amount of imports. Every internationally traded good is both an export and an import. So, mercantilism is a belief-system which sees the world in zero-sum terms, as winners and losers, as warfare by financial means.

My chart and article yesterday (International Trade over time: gifts with strings, Evening Report, 8 May 2025) shows the accumulated ‘excess benefits’ of unbalanced global trade over the last forty years. The countries on the top-left-side of the chart are deficit/debtor countries; and the countries on the bottom-right-side are surplus/creditor countries. (The countries are selected on the basis of available ‘current account’ data from the IMF’s World Economic Outlook Database, April 2025, and as representatives of deficit and surplus countries. China, if on the chart, would belong close to Malaysia. The chart is made from my own calculations to adjust for inflation.)

The chart necessarily – because deficits must be financed elsewhere by surpluses – has a seesaw shape. Some countries are up, some countries are down; and some countries occupy the central pivot, neither up nor down. So long as some countries have consumed substantial amounts of stuff (imports) which they have not yet paid for (the deficit countries), some other countries (the surplus countries) have supplied stuff (exports) that they have not yet accepted payment for (and are unlikely to accept payment for in the imaginable future). Imports are paid for by exports.

It’s not a true seesaw, which is typically either grounded or horizontally balanced. We may think of it as a seesaw pivoting above a chasm. What is true is that if the downside goes further down – that is, if the surplus countries’ accumulated surpluses get bigger – then the upside (accumulated deficits) must go further up. The seesaw is a ‘system’, and the only alternative to the seesaw shape is system collapse, analogous to the whole seesaw breaking off its pivot and falling into the chasm.

Imports are paid for by exports. But many contracted payments are deferred, indeed to the point where the payments will never actually take place. Instead of receiving payment in the form of imports, the mercantilist surplus countries have gleefully accepted ‘promises’; effectively ‘IOUs’ (‘I owe you’). (These ‘financial promises’ or ‘financial assets’ are essentially bonds [ie credit], or titles [ie equity]; promises themselves can be bought and sold, and can appreciate or depreciate in market trading [including depreciating to zero]. Promises typically earn, for their owners, additional promises in the form of interest and dividends. Interest and dividends may be realised – that is, spent – on imports, or may be ‘compounded’ – another word for ‘accumulated’ – hence the concept of compound interest.) Technically, inflation exists when the particular promise that we call money depreciates in market value.

In a mercantilist world, all countries want to occupy the low ‘ground’ (ie a point below the seesaw pivot); they want to import less than they export, and to accumulate promises. In a stable world economy, so long as some countries insist on occupying the low ground, then some others must occupy the high ground.

The most obvious deficit countries in the chart – countries with an accumulation of enjoyed (or invested in new structures) but unpaid-for imports – are the United States, Australia, Greece, the United Kingdom, and New Zealand. (Another important deficit country is Türkiye, for which the data is not good enough, but would almost certainly have an accumulated ‘current account’ deficit of over $US100,000 per Turkish person.) These are the world’s ‘spendthrifts’.

The most obvious surplus countries in the chart are Taiwan, Germany, Sweden, Denmark, and the Netherlands. Indeed, the European Union – more than anywhere else, including China – is a mercantilist enterprise. (Further, the European Union is starting to look quite shabby, especially the countries just mentioned.) This is what Donald Trump means by the European Union ‘screwing’ the United States. (Refer EU was born to ‘screw’ US, Trump says, France24, 26 Feb 2025.)

Surplus/creditor nations (like Germany) do not want to settle; they want to compound, they want deficit/debtor nations (like Aotearoa New Zealand) to extend their liabilities. The mercantilist countries are content – indeed, more than content – for other countries to enjoy the fruits of their labour and their capital.

Just as the deficit countries are the world’s ‘spendthrifts’, the surplus countries are the world’s ‘misers’. The global economy maintains a successful equilibrium so long as the willing spendthrifts balance out the insistent misers.

Donald Trump threatens to disturb that global equilibrium by saying – in effect – that he wants the United States to join the ‘miser club’; he says he wants his country to stop being screwed by the misers. The thing is, though, he probably doesn’t actually mean it. His natural proclivity is to spend, and to gamble. He’s a hedonist, not a puritan nor a thriftwad; his nature is neither parsimonious nor austere.

(I would rather Donald Trump than Friedrich Merz was United States’ president; and prefer the pragmatism of the United States and Australian Treasurers over the austere Nicola Willis or the United Kingdom’s brutally austere Rachel Reeves. In 2027, I am optimistic that, in office, NZ Labour’s Barbara Edmonds will be able to break away from the austere image of female Finance Ministers with whom we have become familiar – remember Ruthenasia; public austerity is an election-losing strategy, a generator of societal inequality and low morale.)

Nevertheless, Trump may be unintentionally breaking the world economy, on account of his – or his advisers’ (eg Peter Navarro) – weak understanding of it. If the surplus/creditor nations sought to spend their credits (except for spending in very small increments) they would: either bankrupt the debtor countries, creating systemic collapse; or, due to depreciating prices of assets being dumped onto financial markets, have to accept many fewer imports than they felt they were due. Financial promises work according to the use-it or lose-it rule.

The Great Depression

Parsimony, austerity, and mercantilism in the 1920s got us into the Great Depression of 1930 to 1934. (These were the core years of the Depression; the timing varies for different countries.) The Great Depression was a global event that occurred as a ‘race to the bottom’; almost all countries wanted to be below the pivot of the seesaw and none at the top. The United Kingdom – under Chancellor of the Exchequer, Winston Churchill – in particular was a deficit country that tried to push its side of the seesaw down through a process of internal devaluation (deflation) at a time when France, United States (under the curmudgeonly Coolidge), and Germany had anchored their side of the seesaw down. (At that time, Germany had been – thanks to post World War One reparations – forced onto the same downside of the seesaw. Churchill’s most specific action was the returning of the British pound to an unworkable restored Gold Standard at an overvalued exchange rate.)

(In the pre WW1 global environment, one of the most important balancing deficit/debtor countries was Russia. Russia seceded from the global capitalist system in 1917, largely as a result of the war. The loss of Russia’s pre-war presence – as a counterweight – was an aggravating factor in the Great Interwar Crisis.)

Deep Mercantilism

Donald Trump, while an overt mercantilist, is shallow in his convictions. He loves ‘money’, but he also loves what money can buy.

Deep mercantilists love money, and other financial assets (‘virtual gold’) including cryptocurrencies, in miserly ways; they believe in making money, not spending it. (Stereotypical new wave misers are young men, mining and trading in Bitcoin from bedrooms in the parents’ homes.) Through hoarding, they act to impede the global circulation of money, not to enable it.

Finance, as an academic discipline, is quintessentially mercantilist. It equates the accumulation and appreciation of financial assets – promises – with the creation of wealth; and that the wealthiest country in the world is the one with the fullest Treasury. And so many people – especially journalists – buy into that vision of wealth as a pile of treasure, as an accumulation of credits.

Modern mercantilists only regard mined gold as wealth, not gold still in the ground; and only promises that are tradeable, or at least potentially tradeable. Financial institutions regard your mortgage as their wealth; and they understand public debt to be private wealth; they buy and sell mortgages, along with other assets such as government debt.

And they believe in the magic of compound interest. They believe that unspent money – unsettled promises – grow exponentially and indefinitely. The seesaw chart, showing unpaid-for imports accumulated over 40 years, belies this. If the surplus nations all tried to spend their gold and their paper (and other virtual) riches – by becoming deficit countries, by shifting the seesaw into the alternate position – then they would find both that their ability to import from the present deficit/debtor countries would amount to less than the unpaid-for amounts shown in the chart – and they would find that many of their claims (ie promises) would be unrealisable.

As already noted, trade credits – promises – are accumulated on a ‘use-it or lose-it’ basis; this amounts to a negative form of compound interest. The surplus countries have not sufficiently used their credits; without realising it, their hoarded credits have already lost much of their initial purchasing capacity. While individual countries – especially small ones like Finland – may successfully shift from one side of the seesaw to the other, it is too late for the seesaw to swing without the surplus group of countries incurring heavy losses. The present deficit countries are simply not tooled up to produce masses of goods and services for export.

Private pension funds represent the epitome of deep mercantilism.

Deep mercantilism is not just about countries and international trade. A major feature of the next Great Depression will be the collapse of these funds, as far too many ‘first world’ people in their fifties and sixties seek to withdraw and spend their retirement savings. Thus, the next Great Depression will be one of stagflation – not 1930s’-style deflation – as there will be a rush of ‘Generation Jones’ people (born in the later 1950s and early 1960s) to spend their savings and finding that the global cupboard of goods and services is becoming bare.

Non-Mercantilism

Human wealth is actually the ‘factors of production’: people (simplistically construed as ‘labour’) and nature (simplistically construed as ‘land’) and structures [and inventories; and including intangible structures such as ‘knowledge’] (construed by economists true to their discipline as ‘capital’) and the enjoyable goods and services which flow to humans from these ‘factors’.

The next global Great Depression can be forestalled if the deficit countries (like United States and Aotearoa New Zealand) – the less-mercantilist countries, or at least the ‘unsuccessful’ would-be mercantilist countries – continue as net spenders, given that the substantial likelihood is that the prevalent mercantilist countries (like Germany and Sweden and Netherlands and China) are likely to at least try to persevere as accumulators of financial assets through the process of selling more goods than they buy.

Or the next Great Depression can be forestalled by most countries slowly moving, in concert, into a position of balance. Imagine each end of the seesaw neither up nor down, a horizontal seesaw on its pivot. Here countries like France, Italy, Indonesia and Philippines serve as examples.

Collapse and its prevention

Under prevailing mercantilist ideology, the best place for a country to be is on the downside of the seesaw. The biggest danger – the danger of system breakage – is that of the deficit countries trying to get their side of the seesaw down while the surplus countries are also trying to keep their side down. Any option of voluntary balance – of some countries trying to do what the majority are trying not to do – may forestall a global economic collapse; including a voluntary continuation of the present situation, with one group of countries happy to stay up while another group of countries want to stay down.

The irony is that the real winners are the alleged losers. For good reason, the seesaw chart shows these real-winner countries at the top rather than at the bottom. The real winners like to import, to enjoy their stuff; they do not pursue the mercantilist illusions of treasure hoards and compound interest.

Children understand that when one side of the seesaw is down, the other should be up. And that being up is fun. Will the adults learn what children already know?

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Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

The ‘see-saw’ chart above shows the accumulated ‘excess benefits’ that Aotearoa New Zealand, and a few other countries, have enjoyed from international trade over the last 40 years. These are benefits arising from ‘unbalanced trade’ which are in addition to the regular benefits – arising from efficient specialisation – of ‘balanced’ world trade. Real world trade is a mix of ‘balanced’ (paid for) and ‘unbalanced’ (on forever-credit).

The excess benefit data shown is an inflation-adjusted accumulation of the United States’ current account deficits. We remember that the benefits of trade are what (goods and services) you get, not what you give up.

We note here that the United States is a ‘winner’; not the loser which Donald Trump claims that it has been. The United States has enjoyed $70,000 worth of excess trade benefits over 40 years, per American. And it is projected to enjoy another $10,000 worth of excess trade benefits over the next seven years.

So, what is Donald Trump grumping about? Rhetorically, why does he aspire that ‘America’ should be like Germany?

The biggest losers, as shown here, are a group of northwest European countries, plus Taiwan. (For lack of a complete set of data from 1984, China is not shown here. But China would fit into the chart next to Malaysia. While China has significant accumulated trade surpluses, these are spread over a very large population.) The losers are the countries which have – in effect – ‘given’ away lots of stuff; exports for which they have not received anything in return and will probably never receive anything in return.

The 2030 projections show that these ‘surplus’ countries will continue to under-import; they are not projected to claim the imports that are rightfully theirs to enjoy. Rather, the deficit countries will most likely continue to enjoy these excess unpaid-for benefits.

(There are at least two other ‘surplus countries’ – countries like Germany and Sweden – which would be ‘off the chart’: Singapore and Norway. And one other deficit country: Türkiye.)

Discussion

With international trade in any given year, surplus countries ‘give’ goods and services to deficit countries. They give ‘with strings’. The most obvious form of ‘string’ is a return gift next year; a fully commercial kind of ‘string’ would be a return gift with interest.

For example, if Sweden exports US$1,100 million worth of stuff (ie goods and services) to New Zealand in 2025, and New Zealand exports $1,000 million worth of stuff to Sweden in 2025, then the 2025 gift is $100 million worth of stuff from Sweden to New Zealand. (In technical language, and from New Zealand’s viewpoint this gift from Sweden is called a bilateral trade deficit; from Sweden’s point of view, it’s a trade surplus.)

A return gift with 3% interest would be $103 million worth of stuff from New Zealand to Sweden. (This would be a New Zealand bilateral trade surplus – a deficit for Sweden – in 2026.) The bilateral – ie two-country – ledger would be settled. Effectively, in this example, Sweden lends $100 million of stuff to New Zealand in 2025, and New Zealand repays the loan, with interest, in 2026. Gifts ‘with strings’ are debts.

There are two potential problems. The first problem is that New Zealand may not be able to sufficiently increase, in one year, its exports to Sweden (eg from $1,000 million to $1,203 million, assuming unchanged imports from Sweden). One solution might be for New Zealand to increase its exports by that amount to other countries, and for other countries to export $203 million more to Sweden. But that increase in exports of $203 million might still be too difficult for New Zealand to accomplish in 2026, regardless of who the buyers are. New Zealand might need to borrow more in 2026, (or to import less,) or to repay its 2025 trade debits further into the future.

Indeed, New Zealand might prefer something like a 40-year mortgage. New Zealand could run trade surpluses re Sweden (ie Sweden running deficits) of about 4,358,000 each year for 40 years. In total, over the 40 years from 2026 to 2065, Sweden would receive stuff worth $174,323,300 as its ‘return gift’.

The second (much larger) ‘problem’ is that Sweden might not want to run a trade deficit at all; that is, Sweden might not want to be repaid (except, that is, in some imaginary never-never timeframe). Whether this qualifies as a problem depends on a person’s belief-system. If New Zealand is perfectly happy to receive – into the indefinite future – annual increments of unpaid-for goods and services, and Sweden prefers to keep supplying such stuff without material recompense in foreseeable time, then this sort of unbalanced trade can be categorised as a win-win outcome.

Sweden might not want New Zealand’s (or anybody else’s) debt to it to be repaid; in 2026, or ever. Sweden, happy to run a trade surplus in 2025, might actually prefer to keep making annual ‘gifts’ to New Zealand (and other countries). While each of these gifts would be technically an addition to New Zealand’s debt to Sweden, New Zealand would be able to – maybe, be obliged to – delay settlement of any of that debt (let alone all of it) indefinitely.

In this example, Sweden is a ‘mercantilist’ country; mercantilist means ‘merchant capitalist’, the social science analogue of alchemy. Indeed, Sweden actually is a mercantilist country. Its preference is to accumulate ‘promises’, whereas countries like the United States and New Zealand have been accumulating (and enjoying) imported goods and services.

Mercantilists of yore sought to accumulate ‘treasure’, especially gold. Indeed, in the quarter millennium from 1500 to 1750, economic policy and foreign policy – especially but not only in European power centres – was to become rich by accumulating treasure hoards.

Mercantilism never went away, despite having been debunked by Adam Smith and others around 250 years ago (The Wealth of Nations was published in 1776). In that golden age of mercantilism, the Dutch – the Netherlanders – succeeded par excellence. (Part of their success was in exporting military hardware and software – big guns, and big military knowhow – to all sides in the Thirty Years War of 1618 to 1648. Is that what the USA will end up mimicking?) As we can see from the chart, the Dutch still do incur some of the world’s biggest export surpluses. Instead of accumulating treasure as they did in the seventeenth century – as gold and silver bullion and specie – they now accumulate ‘virtual treasure’ or ‘virtual gold’. Virtual gold is the whole set of ‘promises’ and ‘titles’ – including money and real gold – that are formally known as ‘financial assets’.

New Zealand and America, and others, get the consumable loot. Sweden and Netherlands and Germany get the paperwork. Everyone should be happy.

The dark cloud on the horizon comes when the Americas and the Aotearoas of the world start wanting to be like Germany and Sweden. Then indeed our happyish world descends into a ‘race-to-the-bottom’. Not every country can sit with Germany and its neighbours at the bottom of the above chart. This can be thought of as a see-saw chart: someone has to be at the top; we cannot all be at the bottom.

If some countries have forever-surpluses, other countries must have forever-deficits. Getting to benefit from other countries’ largesse – as New Zealand and America do – may seem like a problem to some. But we should remember that the driving force of the capitalist market system is to want – indeed, to demand – consumable goods and services. Someone has to be able to benefit from all the hard work and sacrifice of others.

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Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

COMMENTARY: By Michelle Pini, managing editor of Independent Australia

With President Donald Trump now into his second week in the White House, horrific fires have continued to rage across Los Angeles and the details of Elon Musk’s allegedly dodgy Twitter takeover began to emerge, the world sits anxiously by.

The consequences of a second Trump term will reverberate globally, not only among Western nations. But given the deeply entrenched Americanisation of much of the Western world, this is about how it will navigate the after-shocks once the United States finally unravels — for unravel it surely will.

Leading with chaos
Now that the world’s biggest superpower and war machine has a deranged criminal at the helm — for a second time — none of us know the lengths to which Trump (and his puppet masters) will go as his fingers brush dangerously close to the nuclear codes. Will he be more emboldened?

The signs are certainly there.

So far, Trump — who had already led the insurrection of a democratically elected government — has threatened to exit the nuclear arms pact with Russia, talked up a trade war with China and declared “all hell will break out” in the Middle East if Hamas hadn’t returned the Israeli hostages.

Will his cruelty towards migrants and refugees escalate, matched only by his fuelling of racial division?

This, too, appears to be already happening.

Trump’s rants leading up to his inauguration last week had been a steady stream of crazed declarations, each one more unhinged than the last.

He wants to buy Greenland. He wishes to overturn birthright citizenship in order to deport even more migrant children, such as  “pet-eating Haitians” and “insane Hannibal Lecters” because America has been “invaded”.

It will be interesting to see whether his planned evictions of Mexicans will include the firefighters Mexico sent to Los Angeles’ aid.

At the same time, Trump wants to turn Canada into the 51st state, because, he said,

“It would make a great state. And the people of Canada like it.”

Will sexual predator Trump’s level of misogyny sink to even lower depths post Roe v Wade?

Probably.

Denial of catastrophic climate consequences
And will Trump be in even further denial over the catastrophic consequences of climate change than during his last term? Even as Los Angeles grapples with a still climbing death toll of 25 lives lost, 12,000 homes, businesses and other structures destroyed and 16,425 hectares (about the size of Washington DC) wiped out so far in the latest climactic disaster?

The fires are, of course, symptomatic of the many years of criminal negligence on global warming. But since Trump instead accused California officials of “prioritising environmental policies over public safety” while his buddy and head of government “efficiency”, Musk blamed black firefighters for the fires, it would appear so.

Will the madman, for surely he is one, also gift even greater protections to oligarchs like Musk?

Trump has already appointed billionaire buddies Musk and Vivek Ramaswamy to:

 “…pave the way for my Administration to dismantle government bureaucracy, slash excess regulations, cut wasteful expenditures and restructure Federal agencies”.

So, this too is already happening.

All of these actions will combine to create a scenario of destruction that will see the implosion of the US as we know it, though the details are yet to emerge.

What happens Down Under?
US allies — like Australia — have already been thoroughly indoctrinated by American pop culture in order to complement the many army bases they house and the defence agreements they have signed.

Though Trump hasn’t shown any interest in making it a 52nd state, Australia has been tucked up in bed with the United States since the Cold War. Our foreign policy has hinged on this alliance, which also significantly affects Australia’s trade and economy, not to mention our entire cultural identity, mired as it is in US-style fast food dependence and reality TV. Would you like Vegemite McShaker Fries with that?

So what will happen to Australia once the superpower we have followed into endless battles finally breaks down?

As Dr Martin Hirst wrote in November:

‘Trump has promised chaos and chaos is what he’ll deliver.’

His rise to power will embolden the rabid Far-Right in the US but will this be mirrored here? And will Australia follow the US example and this year elect our very own (admittedly scaled down) version of Trump, personified by none other than the Trump-loving Peter Dutton?

If any of his wild announcements are to be believed, between building walls and evicting even US nationals he doesn’t like, while simultaneously making Canadians US citizens, Trump will be extremely busy.

There will be little time even to consider Australia, let alone come to our rescue should we ever need the might of the US war machine — no matter whether it is an Albanese or sycophantic Dutton leadership.

It is a given, however, that we would be required to honour all defence agreements should our ally demand it.

It would be great if, as psychologists urge us to do when children act up, our leaders could simply ignore and refuse to engage with him, but it remains to be seen whether Australia will have the mettle to be bigger than Trump.

Republished from the Independent Australia with permission.

Article by AsiaPacificReport.nz

The signing of a “nickel pact” to salvage New Caledonia’s embattled industry has not been signed by the end of March, as initially announced by French Economy Minister Bruno Le Maire.

Le Maire had hinted at the date of March 25 last week, but New Caledonia’s territorial government President Louis Mapou wants to have his Congress endorse the pact before he signs anything.

The Congress is scheduled to put the French pact (worth hundreds of millions of euro) to the debate this Wednesday.

The pact is supposed to bail out New Caledonia’s nickel industry players from a grave crisis, caused by the current state of the world nickel prices and the market dominance of Indonesia which produces much cheaper nickel in large quantities.

The proposed aid agreement, however, has strings attached: in return, New Caledonia’s nickel industry must undertake a far-reaching reform plan to increase its attraction and decrease its production costs.

This article is republished under a community partnership agreement with RNZ.

Article by AsiaPacificReport.nz

The 13th Ministerial Conference (MC13) of members of the World Trade Organisation (WTO) is being held in Abu Dhabi in the United Arab Emirates.

Adam Wolfenden, who is there on behalf of Pacific Network on Globalisation (PANG), says the concerns of small Pacific nations centre on the subsidy provided by larger nations to fishing companies.

He said Fiji, in particular, was seeking a strong outcome on fisheries subsidies’ negotiations.

Wolfenden said the reason they were so concerned around fisheries subsidies was because of “the revenue and the importance of fisheries to the Pacific both at a governmental level, but also for the livelihoods of Pacific Islanders is enormous”.

He said this then raised concerns about how countries deal with overfishing and overcapacity, but did not prevent the small island nations from “developing their own domestic fleets to fish their resources and create a development pathway built on fisheries”.

Fiji’s Deputy Prime Minister and Trade Minister, Manoa Kamikamica, who is at the meeting, said: “Fiji will ask from its partners for stronger disciplines on subsidies contributing to overfishing and overcapacity in the negotiations that has caused the global depletion of fish stocks.”

“For us, this is more than a matter of national interest — it is a matter of national survival,” he said.

“Additionally, Fiji will highlight the importance of special and differential treatment for developing and least developed countries, including small island states, to ensure that trade policies take into account the specific challenges and vulnerabilities faced by these nations.”

Solomon Islands Foreign and Trade Minister, Jeremiah Manele, said the deliberations continued to undermine the responsible growth in his country’s fisheries sector “and further, the preservation of our fishing arrangements and differential licensing arrangements”.

“The current text maintains the status quo, leaning favourably towards the major subsidisers, with a mere focus on notifications and sustainability.”

MC13 is also focusing on reform of the WTO and Samoa’s Trade Negotiations Minister, Leota Laki Lamositele, said last year that “we reaffirmed that special and differential treatment for developing and Least Developed Country Members is an integral part of the WTO and its agreements”.

“As such, Samoa concurs with others in supporting the work of the WTO and that MC13 should ensure inclusive, transparent, and rules-based outcomes, to accommodate the diversity of WTO Membership in implementing current.”

‘A lot of uncertainty’
Civil society organisations have found themselves being shut out at this WTO meeting.

Wolfenden said there was a lot of concern about how non-government organisations were being treated in Abu Dhabi.

He said a lot of the activities that the groups would normally have been able to do — even just providing leaflets to journalists or directly engaging in advocacy — was being restricted.

“There’s a lot of uncertainty and a lack of clarity around what the security situation is with, you know, colleagues being detained for sending information to journalists for taking photos.

“We have sent a letter to the WTO director-general, I know this has been raised by a number of governments, including New Zealand, and the concerns around the way civil society is being treated.

“Yet there’s still no clarity and if anything, it feels like the way that we have been dealt with by local security is escalating.”

He added there was a lot of concern for participants and their safety within the conference venue.

This article is republished under a community partnership agreement with RNZ.

Article by AsiaPacificReport.nz

Last week the new government effectively cancelled the plans of Kiwi Rail – in the form of ‘The Interislander’ – derailing its intended Picton rail and road expansion. The plans were judged to be too costly; in particular, the rate of cost escalation was deemed unacceptable.

The bigger picture is the need to balance acquisition costs and benefits against subsequent operational costs and benefits. Spending more upfront can mean much lower costs in the long run.

We can look to the past for guidance. Before the 1960s, the principal shipping route between New Zealand’s North and South Islands was between Wellington and Christchurch; more specifically between Wellington and the port town of Lyttelton.

The development of the Wellington to Picton route for a rail ferry was made possible by the completion of the Christchurch to Picton rail line in 1945. That was a borderline rail decades-long project which might never have been completed at all. The second impetus towards the improvement of the Picton route was the diminishing state of the then-existing Union Steam Ship ferry service to Picton, and its inability to service the rapidly increasing demand for road vehicle carriage to Nelson, Marlborough, and Westland. Then, by the 1970s, people wanting quick access to Christchurch were flying, and renting cars. Further, with the loss of the Wahine in 1968, the convenience of the Lyttelton ferry service waned substantially. The Wahine’s replacement – the Rangatira – was a great ship but it had a backward-looking economic profile. And it was not owned by New Zealand Rail, as Kiwi Rail was then. New Zealand Rail in 1970 had too much sunk investment in Picton. It is now, in the 2020s, that that investment has substantially depreciated.

In November 2016 the Picton service was severely compromised by the Kaikoura Earthquake. Massive fixes were required to both the rail and road routes from Picton to Christchurch. 2017 was an obvious time to look at rekindling the Lyttelton ferry service, but for some inexplicable reason there was no discussion of that option. The Interisland rail service was curtailed, and the increased car and truck traffic had to take an alpine route, over Lewis Pass. Subsequently, in 2022, road access to Nelson – and to the Lewis Pass – was knocked out by severe flooding and road subsidence. ‘Fortunately’, the rebuilt coastal route to Christchurch had been opened in time. Despite this new emergency, the word ‘Lyttleton’ was still not mentioned.

New Zealand means New Sealand. Early in 2023 there was a brief swell of interest in coastal shipping, following the wave of floods most affecting the North Island’s Tairawhiti (‘Eastland’). But again, once the one precarious road was eventually fixed, that emergency shipping service between Gisborne and Napier was immediately discontinued. It was an election year, and the political class was too obsessed with exploring the main political parties’ alleged ‘fiscal holes’ to contemplate some forward-looking climate-savvy inter-regional transport infrastructure.

Yet, for the latest episode of New Sealand’s saga of threadbare-shipping, too much attention has gone onto the proposed new ships, which really are too big for the Picton ‘scenic route’, and too little attention to the main cost, the replacement of port infrastructure.

So, here’s what I think. Divert the proposed port infrastructure from touristic Picton to the commercial deepwater port of Lyttleton. Build the two modern rail-road ferries, as planned, in South Korea. Require KiwiSaver to switch its principal rail-ferry operations to Lyttleton; allowing Picton to be serviced by smaller roll-on roll-off ferries, with rail-free Nelson the main centre to be serviced through Picton. This is the perfect opportunity to revive the Wellington-Christchurch ferry service.

We particularly note that the 2020s is the critical decade to deal with the matter of climate change, in this century of COPs. (Actually, the 2010s was that critical decade; but it’s been and gone!) Although modern ships use a fossil fuel, oil, shipping remains the most resilient and sustainable form of long-distance freight transport; and especially when the alternative is road-rail transport along a rugged seismically active coast.

Other Shipping News

The COP28 narrative, this year, boiled down to whether there should be a ‘phase-down’ of (ie ‘transition away from’) fossil fuels (coal, oil, gas) or a ‘phase-out’ of such fuels. For the distinction to be meaningful, a phase-out means the eventual complete disuse of these fuels. Yet I heard nothing in the reporting of COP28 about what a complete disuse of fossil fuels would mean for the shipping industry. I found this rhetorical gap especially bemusing, in the light of the dependence of the small island nations on sea-freight; indeed these were some of the nation states most vociferous at COP28 in favour of ‘phase-out’.

Traditionally, sea travel – indeed oceanic sea travel – was sustainable, in the sense that it was driven by wind power. Some sailing ships, windjammers carrying freight, were still plying the Southern Ocean as recently as the mid-twentieth century. The Pamir’s final voyage on the great circle route, via Cape Horn, sailing under the New Zealand red ensign, was in 1949.

While it seems unlikely that wind-only shipping will again play a role in world shipping this century, I see no reason why hybrid shipping cannot be developed for certain routes, with the ‘great circle route’ via the Capes of Good Hope and Horn being an obvious such route. High-tech wind power can be allowed to make a contribution to a more sustainable goods’ carriage model. Yet, if such practical solutions are being discussed in COP circles, such chatter is not being picked up by the mainstream media.

What other alternatives fossil fuels can be used by ships? The only one that comes to my mind is nuclear power. In the absence of narratives around ships utilising wind power, a phasing out of fossil fuels in shipping can only mean a phasing in of nuclear power; a means of propulsion principally confined at present to military shipping. I am not convinced that Aotearoans would be partial to such a phase out of fossil fuels. (And we note that nuclear power can hardly be applicable to air transport, another industry for which a phase out of fossil fuels will be difficult.)

The Militarisation of the Indian Ocean

While militarised for some time now, the 2021 ‘Indo-Pacific’ ‘rules-based’ rhetoric of Biden and Blinken and Ardern, was a hint that the Indian Ocean was an escalating military region. AUKUS took this a step further in 2022. Now, in 2023, we see that there will be a large United States’ nuclear submarine base (ABC News, 18 Dec 2023) just south of Fremantle, in Western Australia.

And now, with actual conflict in the Red Sea, related to Israel’s present war, we are heading for an effective closure of the Suez Canal; previously closed between 1967 and 1975 due to the second and third wars between Israel and Egypt. (The first Israel-Egypt War in modern times was in 1956, when the first massacre of Khan Younis took place.) Neither military expansion nor the closure of major shipping routes are conducive to the reduction of the greenhouse gas emissions which are substantially causing climate change. Indeed ‘defence’ is probably both the least-green and least-productive sector of the global economy. Oil-powered oil-tankers are already having to get from the Persian Gulf to the North Atlantic Ocean via South Africa. (I wonder if we will ever see the ultimate shipping irony: nuclear-powered oil tankers!?)

Climate Change feedback ‘Arms Race’

It’s not only the Suez Canal which is compromised at present. The Panama rainforest is experiencing a drought, meaning that the undercapacity (at the best of times) Panama Canal is unable to access anything like the amounts of water that it needs to operate its locks. It means evermore traffic having to go around Cape Horn, at the tip of South America; though these canal troubles may help to precipitate energy saving on the wind-friendly great-circle route.

The woes of the Panama Canal are reflected more generally in that climate change is creating more demand for energy intensive climate control; air-conditioning for the heat and heating for the cold, climate extremes that are creating extra demands right now for coal to burn to generate electricity. This ‘arms race’ phenomenon is known as a positive feedback loop; the kind of positive feedback that is very adverse for the sustenance of Planet Earth in its present human-friendly. Indeed increased demand means the transition away from fossil fuels may end up being that fossil fuel use continues to stay much the same, despite increases in renewable and nuclear energisation.

Geoplanetary feedback loops can be quirky though. Just as the Panama Canal route faces contraction of service – as does the Picton route – two new opportunities are opening up as a result of global warming. The Northwest Passage, north of Canada, may soon be available to take the pressure off the Panama Canal (at least for a few months each year). And, especially for trade between China and Russia – an important factor in global emissions – the Arctic Northeast Passage may become similarly viable.

A nuclear Arctic, anyone? Maybe Canada or Russia will ban non-nuclear ships, for the sake of Planet E.

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Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

In the wake of New Zealand’s recent election, and subsequent coalition negotiations, Winston Peters has emerged as New Zealand’s Foreign Minister again.

I’ve never been able to adequately explain why a populist politician leading a party called New Zealand First would have an interest in a post that takes him overseas so often. But there you go.

Peters is foreign minister and, because New Zealand has no minister for development, he is the politician in charge of New Zealand’s aid programme.

Fortunately, for those who want to work out what Peters will mean for aid, he has a track record.

He was first elected in 1978. Although he’s been voted out numerous times since then, at some point in his political wanderings he clearly stumbled upon a pile of political athanasia pills.

He keeps coming back. As he’s done this, he’s managed to snaffle the role of foreign minister in coalition agreements with the centre-left Labour party twice, in 2005 and 2017.

In his first two stints as foreign minister he was responsible enough. He proved very capable at playing the role of statesman and diplomat overseas.

Dreary back-office work
He also did the dreary back-office work that ministers need to do efficiently. When it came to aid — although it Is almost impossible to know Peters’s real views on anything — he appeared to believe New Zealand had a genuine obligation to help the Pacific.

Beyond that, he was hands-off and happy to let the aid programme be run by NZAid (in his first term) and MFAT (in his second term). By the time of his second term as foreign minister this was suboptimal — as I pointed out in my assessment of Nanaia Mahuta’s tenure as minister, the aid programme has numerous problems and could do with a minister who pushed it to improve.

On the other hand, as former foreign minister Murray McCully demonstrated with such vigour, aid programmes can suffer worse fates than hands-off ministers. Much better a minister who doesn’t meddle than a hands-on minister who thinks they understand aid when they don’t.

Peters was also able to use his role as a lynchpin in coalition governments to get the New Zealand aid budget increased. I don’t know whether this reflected a sincere desire to do more good in the world or whether he simply wanted the prestige of being a minister presiding over a growing portfolio.

Either way, it was a useful achievement.

This time round matters will likely be different though. Peters will probably continue to be a hands-off minister. But the government he is part of is conservative, comprising Peters’s New Zealand First, the centre-right National Party (the largest member of the coalition and currently Morrison-esque in ideology), and ACT, a libertarian party.

New Zealand is currently running a deficit. And the government has promised tax cuts. It is unlikely there will be money for more aid.

Right-wing rhetoric to win votes
Peters himself uses right-wing rhetoric to win votes and — to the extent his actual views can be divined — is conservative in many aspects of his politics. (He only ended up in coalition governments with Labour because of bad blood between him and earlier National politicians.)

Peters, who is 78, doesn’t appear to care about climate change. He is also a strong supporter of New Zealand’s alliance with Australia and the United States.

His views in both of these areas are shared with National and ACT, which could be bad news for New Zealand’s recently improved climate finance efforts. It may well mean a stronger stance on China’s presence in the Pacific too, with the result that geostrategy casts an even larger shadow over the quality of New Zealand aid.

On the other hand, it is possible that even the current government will start to feel embarrassed turning up to COP meetings and having to admit it is doing less to mitigate its own emissions and less on climate finance too.

Similarly, New Zealand’s politically conservative farmers need China as an export market. Perhaps a mix of political economy and international political economy will moderate the government’s approach to the new cold war in the Pacific.

Winston Peters has a track record. But he has never been predictable, and now he is part of a very conservative government, in the midst of uncertain times.

“Predictions are difficult”, Yogi Berra is said to have quipped, “especially about the future”. It’s currently a very hard time to predict the future of New Zealand aid, even with a familiar face at the helm.

Article by AsiaPacificReport.nz

The IMO’s 80th Marine Environment Protection Committee (MEPC80) was under pressure to deliver an outcome to reduce the global maritime transportation industry’s carbon footprint and to steer the sector towards a viable climate path that is 1.5 degrees-aligned.

It was a political compromise after two weeks of intense politicking that got member states through to settle on the 2023 IMO Greenhouse Gas Strategy on Friday, just as hopes were fading of any meaningful outcome from the negotiations at the IMO’s climate talks in London.

The Pacific collective from the Marshall Islands, Fiji, Kiribati, Tuvalu, Tonga and Solomon Islands, who have been at the IMO since 2015 joined by Vanuatu, Nauru, Samoa and Nauru — referred to as the 6PAC Plus — overcame strong resistance to ensure international shipping continues to steam towards full decarbonisation by 2050.

Vanuatu’s Climate Change Minister Ralph Regevanu, who attended the IMO meeting for the first time, said: “This outcome is far from perfect, but countries across the world came together and got it done — and it gives us a shot at 1.5 degrees.”

Pacific nations were advocating for global shipping to reach zero emissions by 2050 consistent with the science-based targets.

They had proposed absolute emissions cuts from the sector of at least 37 percent by 2030 and 96 percent by 2040 for the industry, to ensure the IMO is not out of step on climate change.

Countries came up short
But countries came up short, instead agreeing that to “reach net-zero GHG emissions from international shipping” a reduction of at least 20 percent by 2030, striving for 30 percent, and at least 70 percent by 2040, striving for 80 percent compared to 2008, “by or around 2050”, was sufficient to set them on the right trajectory.

While there were concerns that targets were not ambitious, they were accepted as better than what nations had decided on in an earlier revised draft text on Thursday, when they agreed for only 20 percent by 2030, with the upper limit of 25 percent, and at least 70 percent by 2040, striving for 75.

“These higher targets are the result of relentless, unceasing lobbying by ambitious Pacific islands, against the odds,” Marshall Islands special presidential envoy for the decarbonisation of maritime shipping, Albon Ishoda said.

​​”If we are to have any hope of saving our beautiful Blue Planet, and building a truly ecological civilisation, the climate vulnerable needs our voices to be heard and we are confident that they have been heard today.”

Tuvalu’s Minister for Transport, Energy and Tourism, Nielu Mesake, said he was “very disappointed” to have “a strategy that falls short of what we need”.

“But we are also realistic and understand that to reach any chance of setting this critical sector in the right direction we needed to compromise,” Mesake said.

He said Tuvalu was confident in the shipping industry’s ability to change.

“We have seen it before. We are confident that our industry will now prioritise each effort and each capital into decarbonizing [and] see shipping stepping up to the plate and fulfil its responsibility to reduce emissions.”

Ishoda said the IMO’s focus now was to deliver on the targets.

“We look forward to swift agreement on a just and equitable economic measure to price shipping emissions and bend the emissions curve fast enough to keep 1.5 alive.”

More work ahead
IMO chief Kitck Lim said the adoption of the strategy was a “monumental development” but it was only “a starting point for the work that needs to intensify even more over the years and decades ahead of us.”

“However, with the Revised Strategy that you have now agreed on, we have a clear direction, a common vision, and ambitious targets to guide us to deliver what the world expects from us,” Lim said.

And Pacific nations are under no illusion of the task ahead for international shipping truly to truly meet the 1.5 degrees limit.

Fiji’s Minister for Transport Ro Filipe Tuisawau said: “We know that we have much more work to do now to adopt a universal GHG levy and global fuel standards urgently.

“These are tools which will actually reduce emissions. We also look forward to the utilisation of viable alternative fuels,” Tuisawau said.

Kiribati Minister for Information, Communication and Transport Tekeeua Tarati said the process of arriving at the final outcome “has been an extremely challenging and distressing negotiation for all parties involved.”

“We had hoped for a revised strategy that was completely aligned to 1.5 degrees, not a strategy that merely keeps it within reach,” Tarati said.

“We need to work on the measures that are essential to achieve the emissions reductions we so desperately need.”

Carbon levy on the table

The calls for a GHG levy for pollution from ships also made it through as an option under the basket of candidate mid-term GHG reduction measures, work on which will be ongoing in future IMO forums.

While the word “levy” is not mentioned, the strategy states an economic measure should be developed “on the basis of maritime GHG emissions pricing mechanism”.

“A GHG levy, starting at $100/tonne, is the only way to keep it there. Ultimately it’s not the targets but the incentives we put in place to meet them. So we in the Pacific are going to keep up a strong fight for a levy that gets us to zero emissions by 2050.”

Ishoda said a universal GHG levy “is the most effective, the most efficient, and the most equitable economic measure to accelerate the decarbonisation of international shipping.”

But he acknowledged more needed to be done.

“There is much work to do to ensure that 1.5 remains not just within reach, but it’s achieved in reality.”

‘Wish and prayer agreement’
But shipping and climate campaigners say the plan is not good enough.

According to the Clean Shipping Coalition, the target agreed to in the final strategy was weak and “is far short of what is needed to be sure of keeping global heating below 1.5 degrees.”

“There is no excuse for this wish and a prayer agreement,” the group’s president, John Maggs, said.

Maggs said the member states had known halving emissions by the end of the decade “was both possible and affordable”.

“The most vulnerable put up an admirable fight for high ambition and significantly improved the agreement but we are still a long way from the IMO treating the climate crisis with the urgency that it deserves and that the public demands.”

University College London’s shipping expert Dr Tristan Smith said outcome of IMO’s climate talks “owes so much to the leadership of a small number of climate vulnerable countries – to their determination and perseverance in convincing much larger economies to act more ambitiously”.

“That this still does not do enough to ensure the survival of the vulnerable countries, in spite of what they have given to help secure the sustainability of global trade, is why more is needed, and all the more reason to give them the credit for what they have done and to heed their calls for a GHG levy,” Dr Smith added.

Article by AsiaPacificReport.nz