iPhones to iPolitics

iPhones to iPolitics
For immediate publication

1 February 2017

iPhones to iPolitics

Conor English

Steve Jobs first launched the iPhone on 29 June 2007. Since then it’s been seen a “disruptive” technology. It looked at things differently. It wasn’t just a one-dimensional voice communications device. Its inventors saw it as a multi-functional tool for users, unlike Kodak, who didn’t realise to survive they needed to enable people to talk to each other through their cameras.
Steve Jobs looked at the world differently. And through his iPhone he disrupted it.

On November 8 Donald Trump was elected to President of the United States. Like Steve Jobs, he has looked at the political world differently. Has Mr Trump just invented “iPolitics”?

His supporters voted for some disruption to the status quo. What shape and form this will take, and its impact, is yet to be determined. But if it’s as disruptive as the iPhone, things will be different. And like the iPhone, this may be both positive and negative.

This will matter to New Zealand. As a trading nation, what other countries do matters, whether it’s the USA, Russia, Australia, China or whomever. What they do can make life harder or easier, cheaper or more expensive for us here in New Zealand. Their actions can provide jobs or lose jobs. Because the planet is so interconnected, the impact can be transmitted directly and with speed.

Our oil price has been impacted for decades by geopolitical decisions of foreign governments. Access to markets and the return we can extract from them are affected by tariffs, quotas and other policies. Britain’s entry into the European Union in the mid 1970s had a significant impact, as will its exit. Our free trade agreement with China has had a significant positive impact, as do the other agreements that our government negotiates to enable trade and investment to be facilitated easier.

Right now, as an exporter based in Wellington, there is certainly no shortage of geo-political risks that could impact directly on the business in a very real way. This could mean hiring or reducing staff.

Jobs matter. It’s important not to forget history. The new President is suggesting significantly higher tariffs to protect domestic jobs. This isn’t a new idea, but it can be very disruptive. In 1929 the Smoot Hawley Tariff act was passed as a political solution to perceptions around imported goods. Make it easier to “buy local”, and make imported products more expensive and less competitive by putting on tariffs, was the theory.

However other countries that America traded with responded. They didn’t do nothing, they reacted. The outcome ended up being an own goal. Yes U.S. imports decreased 66% from $4.4 billion (1929) to $1.5 billion (1933), so that must be good for jobs? Well no, because exports also decreased 61% from $5.4 billion to $2.1 billion. GNP fell from $103.1 billion in 1929 to $75.8 billion in 1931 and bottomed out at $55.6 billion in 1933.

Wikipedia tells us that yes, imports from Europe did decrease from a 1929 high of $1.3 billion to just $390 million during 1932, so the theory must be working? But alas U.S. exports to Europe decreased from $2.3 billion in 1929 to $784 million in 1932.

So rather than create jobs, jobs were lost, and plenty of them. Unemployment was at 8% in 1930 when the Smoot–Hawley tariff was passed, but the new law failed to lower it. The rate jumped to 16% in 1931, and 25% in 1932–33. It was not until World War 2, during which the American economy expanded at an unprecedented rate, that unemployment fell below 1930s levels.

When people talk about The Great Depression, they often mention the share market crash. However they usually forget to talk about the Smoot Hawley Tariff Act, which is unfortunate.

As with the Smoot Hawley Act unexpected things will happen, and there will be unexpected impacts on New Zealand in 2017. The first way we are often directly affected by what other countries do is through foreign exchange and interest rates movements. Our prices may become less or more competitive. Then our exports may be impacted by changing trade or domestic policies of other countries. Border controls may become slower, transaction costs higher. Access may be denied to markets, or shipping lanes may become more difficult.

Recent significant reductions in international dairy prices, which took billions of dollars off New Zealand’s dairy export receipts were driven by the removal of milk quota limits in Europe, international sanctions against Russia following some activity on Russia’s western border, and the Federal Reserve’s and other central banks’ monetary policy settings, amongst other things. Messy domestic politics in South America can mean our sheep and beef farmers receive less for their meat.

As an exporter, geo political risk is a very real reality. I know we live in a very competitive fast changing world. We need to think every day about how we manage our very real geopolitical risks, focussing on those things we can control.

A few years ago, The Hurricanes rugby team used to have a by-line, “expect the unexpected” which became so apt they dropped it! In 2017 that should be the by-line for global geopolitics. The challenge for exporters in New Zealand is how we adapt and adjust to the very real challenges this increasingly unexpected geo- political disruption will present us.

Just as Steve Jobs invented the” iPhone”, perhaps now Donald Trump is ushering in a new political disruption - “iPolitics”. The jury is out on what impact, both negative and positive, this may have on New Zealand, but we will need to be fleet of foot and be very open to looking at things differently.

Conor English is former CEO of Federated Farmers, Director of Silvereye Communications, and Chairman of Agribusiness New Zealand.

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