Kōrero: International economic relations

Whārangi 7. Japan and New Zealand

Ngā whakaahua

New Zealand’s economic relationship with Japan loomed large between the 1960s and 1990s. As the first substantial economic relationship with a non-Anglo-Saxon country, in which the other country had weight and influence, the relationship was a reminder to New Zealand of its lack of power in the global political economy.

A modest commercial exchange obtained between the two nations before the Second World War, principally on account of Japanese wool buying, but did not survive the war.

Japan signed a trade treaty with New Zealand in 1958, part of the process by which it resumed normal trading relations worldwide. In 1959 there was a 25% increase in Japanese exports to New Zealand, mostly of machinery. By 1970, Japan supplied about 10% of New Zealand’s imports, and took nearly the same percentage of its exports; it was a particularly significant market for mutton and timber.

Trade in the 1970s

A Japanese company invested in an aluminium smelter, which began production in Southland in 1971. Japanese car companies – Toyota, Honda, Mazda, Mitsubishi and Nissan – set up plants to assemble cars in New Zealand, which survived until import tariffs ended in 1998.

What’s the beef?

After New Zealand introduced a 200-mile exclusive economic zone around its coast in 1978, it was thought that fishing rights might provide leverage to negotiate improved access for New Zealand exports to Japan, especially beef. But Japan didn’t ‘bite’, and New Zealand gave way. Japan secured fishing access, though New Zealand had received no assurances of increased exports.

In the 1970s Japan became the world’s second-largest economy, but it supported rather than challenged the US-led world economic order – it too was a capitalist democracy, and the US was its most important trading partner. Japan’s rise was not destabilising, though it did produce some anxiety.

Japanese trade from the mid-1980s

Japan agreed in the mid-1980s, after pressure from the US especially, to let its currency rise in value and to liberalise access to its market. The currency rise did not prevent Japan becoming the source of nearly one-fifth of New Zealand’s imports by 1990.

Japanese tourist numbers to New Zealand increased rapidly with the advent of direct flights between Japan and New Zealand in 1980. Japan became the second-largest source of international tourists (around 150,000) after Australia by 1995, and Japanese bought real estate, including golf courses.

New Zealand’s reputation in Japan was severely damaged in 1989 when the Development Finance Corporation collapsed – its biggest creditors were Japanese, who were not impressed at government unwillingness to accept responsibility for the actions of a state-owned enterprise. At one point Japanese banks blocked a proposed New Zealand government bond issue. A debt restructuring scheme was agreed to after protracted negotiations.

A yen for the Kiwi

The globalised character of world money markets was evidenced by one aspect of Japanese dealings with New Zealand – the ‘carry trade’ conducted by Japanese in the New Zealand dollar. Japanese invested in the Kiwi dollar to benefit from its significant interest-rate premium, higher than the yen. This had the effect of maintaining a higher exchange rate for the kiwi than would otherwise have been the case.

APEC

The establishment of the Asia–Pacific Economic Co-operation organisation (APEC) in 1989 brought together economies on either side of the Pacific, mostly because the US and Japan sought a forum to guide the region’s rapid transformation. For most of the countries of the Association of Southeast Asian Nations (ASEAN) the US was their major market and Japan their second most important. Australia and New Zealand, which both traded extensively on both sides of the Pacific Ocean, were members from the start.

Japan and New Zealand, 1990s and 2000s

Japan’s economy grew much more slowly after 1990, though it remained the world’s second-largest economy and a power in the global political economy. Japan’s relationship with New Zealand changed little, though its relative significance in New Zealand’s trade declined. In the early 2000s it accounted for 10% or less of both merchandise exports and imports.

Japan bought aluminium, timber, dairy products, fish and produce from New Zealand, and sold machinery and motor vehicles. Cars and car parts accounted for over half of Japan’s exports to New Zealand in 2007. Around three-quarters of the cars on New Zealand roads were Japanese-made. Compared with Australian and US relationships with New Zealand, the trade in services was undeveloped. Japan accounted for only about 2% of foreign direct investment in New Zealand in 2009.

Me pēnei te tohu i te whārangi:

Malcolm McKinnon, 'International economic relations - Japan and New Zealand', Te Ara - the Encyclopedia of New Zealand, http://www.TeAra.govt.nz/mi/international-economic-relations/page-7 (accessed 18 July 2019)

Story by Malcolm McKinnon, published 11 Mar 2010