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New Zealand Businesses Must Adapt to a Fragmented Post-Pandemic Economy

April 4, 2021 by Sanya Dot

As recovery from the COVID-19 pandemic continues, there are strong grounds for believing the rejuvenated global post-pandemic economy will be completely unlike what went before.

The liberal economic order that enabled the rapid growth of trade, investment, technologies, and incomes until the Global Financial Crisis (GFC) of 2008 shows signs of breakdown.

Many developed economies are now experiencing the rise of populist political movements. There is a growing disregard for the rule of law and an undermining of key global institutions, including the World Trade Organization.

The rule of rulers is challenging the level playing field of a rules-based system. The challenge for businesses in New Zealand is how best to adapt to this new global economy.

The Changing Face of Globalization

Emerging economies are reshaping globalization. For example, China and Russia are pursuing forms of state capitalism characterized by close government-business relations. By providing subsidized finance or a dominant domestic market share, they distort competitive advantage in world markets.

The broader context for these developments is China’s challenge to the long-held global economic leadership of the United States.

The result is widening global chasms between liberalism and statist, democracy and authoritarianism, and rules-based versus unregulated governance.

Challenge for Business

These developments mean a more challenging operating environment for business, one that is more complex, uncertain, and ambiguous.

Growing fragmentation will certainly add to the costs of cross-border business. Also with arbitrary costs, regulations, and distortions affecting resource movements.

More specifically, businesses will need to rethink some fundamental tenets.

Greater geopolitical awareness will be needed. Trade, investment, and technology management decisions will have to give greater weight to political and regulatory considerations.

Commitment to one side of a technological, ideological, or regulatory division might mean exclusion or marginalization from the other.

The strategic focus of a business will evolve from cost or profit to evolutionary fitness. Businesses will need to adapt to different constraints on the movement and protection of personnel, technology, and knowledge.

Governments will need to rethink the scale and forms of support they offer their local businesses. Subsidies, protection, competition policy, and industrial policy will all require review in the face of state capitalism.

Risk of Trade Wars

There are early signs close to the home of what this new environment might look like.

When Australia called for an inquiry into China’s handling of the pandemic, it faced tariffs on wine and barley. It has also faced restrictions on coal export, lobsters, timber, red meat, and cotton to China.

Australia criticized China’s emerging “wolf warrior” diplomacy and surprised Chinese authorities by rejecting a proposed takeover of Australia’s Lion Dairy by China’s Mengniu Dairy.

In the same way, New Zealand was rebuked by China for supporting Taiwan’s re-admission to the World Health Organization’s annual global health assembly.

These experiences highlight the growing interdependency of economic and political goals and the increased uncertainty businesses will face.

Future Plan for Business

These challenges will be particularly vexatious for New Zealand’s economy. It is heavily dependent on trade and tourism and has increasingly embraced the Asian regional economy since the 1970s.

New Zealand has globally diverse commitments and historical obligations. These include defense with the United States, intelligence with the Five Eyes alliance, migration with the Pacific and Europe, and economic prosperity, increasingly with Asia.

Filed Under: Economy

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