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Tripling trade with Thailand less ambitious than it sounds

Prime Ministers Christopher Luxon and Srettha Thavisin have agreed to target tripling two way trade between New Zealand and Thailand over the next two decades. 

This was described as an “ambitious” goal in a joint statement released by the two leaders after their bilateral meeting on Thursday, but would only be a repeat of the past.

Trade between the two countries has already tripled in the 20 years that have passed since a free trade agreement was signed in 2005. That required an annual growth rate of 5.7%. 

By contrast, the National Party campaigned in last year’s election on doubling New Zealand’s exports over the next 10 years, which would require an annual growth rate of 7.2%.

Total bilateral trade was $4.5 billion in 2023, so Luxon and Thavisin would be aiming for $13.5 billion in 2045. Inflation at 2% would bring trade value to $7 billion, without any growth at all.

So, the target boils down to something like a $6.4 billion boost in trade over the next two decades, which could be achieved with actual volume growth of less than 3% each year.

John Ballingall, a trade expert at Sense Partners, said tripling trade was a nice diplomatic sound bite but was “largely meaningless economically”.

“More importantly, who’s going to be around politically in 20 years to check,” he said. 

Thai economist Watcharas Leelawath told a panel that trade between New Zealand and Thailand only made up a tiny fraction of the latter country’s total trade. 

“If you look on the bright side, there is lots of room to grow,” he said, to some laughter. 

Prime Ministers Srettha Thavisin and Christopher Luxon speak while inspecting the Thai King’s Guard at Government House

Meet the middle class

NZ’s export growth into China has been driven by a fast growing middle-class hungry for high-end products, such NZ milk and infant formula. 

Making goods and services in New Zealand is expensive, due to our high wages and standards of living, and so higher-income markets are more likely to buy our products.

The rise of the middle class which propelled China trade has begun to spill over into other parts of South East Asia and could be a boon for Kiwi exporters.

This prosperity is partly due to friendshoring, a buzzword for big companies shifting some of their production capacity outside of China to reduce exposure to geopolitical risk.

Advice given by the Ministry of Foreign Affairs and Trade to the new Government said many multinationals were pursuing a “China plus one” strategy, and boosting growth in the process. 

“The region’s rapidly growing middle class is generating an impressive growth in demand for consumer items like food and beverage, tourism, and education services,” it said.

New Zealand already has good access to these markets but they haven’t been a focus over the past decade or longer. The last Prime Ministerial visit to Thailand was in 2013, for example. 

As the saying goes: you can pretend to care but you can’t pretend to show up. 

While the joint statements that emerge from these bilateral meetings can be rather thin, MFAT’s advice is that having the head of government in the country builds trust and trade. 

“Showing up in capitals matters if we are to preserve and grow our influence as others crowd into the region,” it said, as doing so demonstrates an investment in the relationship.

Ballingall said he was happy to see Luxon out and about, engaging in photo opportunities.

“If NZ is serious about engaging more deeply with the global economy and exploring alternative markets for our exporters, our politicians need to be out there constantly”. 

Prime Ministers Christopher Luxon and Srettha Thavisin annouce plans to grow two way trade, April 2024

Lead a horse to water 

A trade expert traveling with the Prime Minister said there was no shortage of market access for exporters and the bigger struggle was getting business to take up the opportunities.

Free trade simply means there will be fewer formal barriers at the border. Kiwi businesses still have to navigate language and cultural barriers, while competing with more informed rivals. 

One benefit of these high profile visits is the business delegation traveling with the Prime Minister can leverage his star power to make connections within export markets. 

Early in the trip, Luxon told the delegates that “selfies matter” and that—in addition to his formal duties—he could act as a “salesman-in-chief”.

The National Party leader’s business-person persona can be a liability at home but has been valuable when helping others make connections during his trip through Asia.

His offer to shake hands and pose for selfies with potential customers and partners has been taken up enthusiastically. 

Whether it will be enough to double or triple our export volumes remains to be seen.

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