US-China feud must end for world economic growth: John Key

Sir John Key believes the US and China must stop feuding and trading barbs, to ensure the world economy can bounce back from COVID-19 turmoil.

Former New Zealand Prime Minister Sir John Key: ‘If I was Scott Morrison, I would loudly make the case that China actually matters and is important.’ Picture: Liam Kidston

Former New Zealand Prime Minister Sir John Key believes the US and China must stop feuding to ensure the world economy can emerge from the COVID-19 turmoil in good shape.

Sir John said he was worried about a “breakdown” in relations between the US and China and the implications for the global economy’s ability to bounce back from the pandemic. He also expressed concerns about the fallout for smaller markets including NZ and Australia.

“There is a growing anti-Chinese sentiment in the world. It’s not just the United States,” he told a Hamilton Wealth online client event this week.

“Taken to the extreme it could force … countries like Australia and New Zealand to choose.

“That is a very real possibility and I think that would be a pretty negative thing.”

Sir John is adamant a better solution is improved diplomatic relations between the US and China, setting aside some differences and the risk of retaliation over political decisions.

“We certainly want both sides to try and de-escalate things,” he said.

“COVID-19 is going to weigh pretty heavy on the global economy and for it to operate and function, for the world to come out of this thing as economically as strong as it can, it needs the United States and China to be strong, growing economies.”

The pandemic has hit economies around the world hard, as lockdowns have curbed spending and travel restrictions have dented international tourism.

Official data this week showed Australia plunging into recession for the first time since 1991. The domestic economy contracted by 7 per cent in the June quarter, the second successive three-month drop in output and the largest on record.

The economies of India, Spain, and Britain went backwards by more than 20 per cent in the June quarter, while the US and Canadian economies contracted 9.1 per cent and 13 per cent, respectively.

Sir John cited the forced divestment of TikTok in the US as one example of rising tensions between the US and China that was likely to spur retaliation.

Australia is also caught up in a political spat with China, which has hit the barley, beef and wine industries.

Sir John said the NZ and Australian economies both relied heavily on China trade. Ongoing tension, while often politically popular, would not serve either well, he said.

“If I was Scott Morrison, I would loudly make the case that China actually matters and is important. It doesn’t mean that you can’t articulate strongly your concerns about issues like the South China Seas or human rights,” he added.

Sir John — who is also an ANZ board member and former director of Air New Zealand — highlighted that COVID-19 would spur a wave of corporate casualties and higher unemployment. Governments had to look at further stimulus for business as well as boosting infrastructure projects to buoy growth, he said.

“If you really want to get the country going, you’ve got to give businesses the confidence that they cannot just start a business but grow a business and succeed, and you’ve got to strip away that bureaucracy.”

Despite the tough period ahead in NZ, including an October election, Sir John said he was “very bullish” on the country’s long-term economic prospects.

He also thinks a second US presidential term for Donald Trump is not out of the question.

“It’s easy to write Donald Trump off, but I would just sort of caution against doing that at the moment. He’s much closer today than he certainly was when he was up against Hillary Clinton.”  He believed the debates between the presidential candidates would be important given the COVID-19 restrictions in this year’s campaign.

On the issue of international travel, Sir John said he disagreed with predictions by some pundits that it wouldn’t open up until 2023.

As potential treatment or test for COVID-19 “dramatically improves”, industries and policymakers would figure out ways to facilitate more travel.

“We are going to be able to travel and travel more freely, and I think that is some time next year,” he said.

When asked about former Australian PM Tony Abbott’s criticism of Victoria’s latest lockdown and his labelling of the state a “health dictatorship”, Sir John said shutdowns were necessary to protect intensive care units from being overwhelmed.

“The inevitable reality is that one of the major expectations that the community has is that you’ll keep them safe,” he added.

Sir John said that once COVID-19 subsided, regulators on both sides of the Tasman should work more closely but he stopped short of advocating a single currency.

“Harmonised regulation across the Tasman would have more benefits than negative outcomes,” he said.