IMHO: The post-war consensus has gone

OPINION: It was Lenin who said of history that: “There are decades when nothing happens and there are weeks where decades happen.” 

The old charlatan has been proved right recently.

I have just spent the past few weeks visiting the Organisation of Economic Co-operation and Development (OECD), the International Labour Organisation (ILO), the World Trade Organisation (WTO) and a number of business organisations from the US, Europe and Asia.

Treat this as a report from the front line.

The post-war consensus we all grew up with has now gone.

Most of the UN will survive, as will the Bretton Woods Institutions (the WTO probably included) and the OECD. It’s just that big-power politics is now central.

One of the most critical points I can make is that this is a continuation of what was already going on. Trump has challenged a system that was already struggling.

There are a number of issues that have been driving change in the global commons for a while now, and not just in the US.

But in talking to people over the past few weeks there is a feeling that the changes in the US have been driven by things that many of us will find familiar. Concerns around migration. De-industrialisation. Perceptions of jobs being stolen by China. The idea that the rules-based system is being abused by some countries – China especially, but also the EU – to the detriment of the United States.

Added to this, political elites seem unable to understand these concerns, to explain the reality and to take brave action. Look at the collapse in trust in political institutions and the media and the pathetic productivity growth of many Western democracies.

Once again, none of this is new.

This plays out particularly in trade. Plenty of countries were being protectionist before Trump came along, but he has changed things – sometimes radically. We have seen the taking on of allies, the use of tariffs as a coercive tool in areas that have nothing to do with trade and retaliation to a wide range of perceived or real trade barriers that others have in place. There is a “ready, fire, aim” aspect to much of what is going on.

Business reaction has been clear. Business hates uncertainty and business leaders know that what is going on will lead to lower growth and higher inflation.

Business has always supported the WTO system. I note the business reaction to the Trump tariffs against Mexico and Canada. All the major US business organisations opposed them. In a very measured way.

Trump’s actions may moderate over time for a variety of reasons including interventions by the courts, reactions of other countries and the performance of the markets. But that may be a while coming.  

One of things that I have been talking about to counterparts is how we still have so much in common. Countering illicit trade and improving supply chain resilience, for example.

Those conversations are difficult to have right now. But in time there will be an opportunity to start talking again.

We need to talk about non-tariff barriers. This is a particular feature of EU trade policy and is often more painful to businesses than a tariff.

The future holds some deeply worrying possibilities but also potential silver linings.

We could get trade wars. Small countries like New Zealand may be forced to make more choices about who we are prepared to side with and for what reason.

We could see the emergence of trading blocs and more autarky. None of that is good for us.

On a more positive note, though, it might mean that the EU finally gets on with reforming itself. The European business community has welcomed the European Commission’s newfound support for a competitiveness agenda. But so far that change in policy is just words.  

The EU needs to move fast on regulatory coherence and the distorting impacts of non-tariff measures and industrial policy.

That is becoming more of a possibility in the last few weeks as it becomes clear to EU member states that they need to radically increase defence spending. That will require money and a new industrial and technological base. That can only be achieved through a focus on growth.

New Zealand has many strengths in entering this new world order. We have a great network of free trade agreements. We have friendships everywhere. We have real competitive strength in some of our core industries. 

We have vulnerabilities as well. An underperforming economy and historical underspending on defence are just two obvious issues.

The mantra for a long time has been the need for New Zealand exporters to diversify. That just got very real. 

It has been particularly heartening over the last few weeks to see that we continue to have good friends in many places. People who, like us, are looking at events and how they might react. These include the rapidly growing markets in Southeast Asia, as well as the EU, the UK and even Latin America. The US business community remain firm friends. The world is still full of trading opportunities. 

It will be important during this period that we work much more closely with government. We need to make sure that we all have our ears wide open.

That will be the best way to make sure that we prosper as the new world architecture emerges.

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Phil O’Reilly ONZM is the Managing Director of Iron Duke Partners. Find out more here.