New Zealand’s Free Trade, High dollar & Foreign Builders

15 September 2012

By Mark Farquharson

A number of countries have Free Trade policies, I do not know the effects these policies have had in all those countries. However I do know the result in New Zealand and the USA. In the USA the policies result in the shift of manufacturing from the USA to other countries where wages were cheaper. The same thing occurred in NZ, and no doubt a number of other countries. A number of NZ companies now manufacture most of their products overseas, mostly in Asia. I know of one company that has a manufacturing plant in Mexico as well as manufacturing in Asia. Some companies that have their products largely manufactured overseas still have some smaller manufacturing in NZ.

The present Prime Minister of New Zealand is currently pushing for a Free Trade deal with Russia. This will reportedly help the NZ dairy industry. The booming dairy industry has resulted in high prices for milk in NZ. The NZ cows produce the milk, but New Zealanders have to pay the international price. Hence the purchase of cheap soft drinks, instead of milk by some New Zealand families.

A number of countries at this time have unemployment problems, those in Europe, the USA and NZ. The situation in NZ has been off set by a number of New Zealanders going overseas, mostly to Australia. In Australia there has been what is called the mining boom. Asia, particular China, has been important a lot of the stuff that is mined out of the ground in Australia. There are reports that the boom is over, but I do not know if that is the case.

When the US dollar falls the NZ dollar goes up. Currently it is at a high, and with the US dollar set to fall even further, the NZ dollar will go even higher. Great if you want a cheaper important product, imported goods drop in price. However if you are a exporter this is not great, in fact it is really bad. As the exchange rate goes up the money the exporter gets goes down. Manufacturing your products overseas helps the company compete with lower wages, but it does not help against the dollar. For the money still has to be converted back, when you report your results. This has resulted in a number of New Zealand companies that export overseas, blaming the high dollar for their falling results.

A falling US dollar will harm the NZ export market even more. The result of QE3 will be that the US dollar falls even further, resulting in the NZ dollar going up even further. After the announcement of QE3 the NZ dollar surged to a six month high. For more on the collapsing US dollar read this recent Dr Jones weblog: The Dollar has been dethroned

On to housing, in the USA interest rates are low enough for people to by the houses. House prices have dropped. However people are not buying because they are unemployed, in fact a number of Americas have lost there jobs, and their houses. If you got no job, how do you pay the mortgage? The result millions of unsold houses.

In most of New Zealand house prices have dropped as well, and interest rates are also low. However house prices still remain relatively high compared to the income of New Zealanders.

However in Auckland, New Zealand’s biggest city, house prices are rising and are now above the highs of 2007. There has been a lot of migration to Auckland, much of it from the much earthquake hit city of Christchurch. There has been a whole series of quakes in Christchurch, since the 7.0 quake hit in September 2010.

In New Zealand the foreign workers are building the houses. It was covered on a TV news program that overseas workers come to NZ on a work visa, to build houses and at the end of the visa they go back to their own country, being replaced by the next load of overseas workers on visas. When they ask the people they stated that they do not use workers on permits/visas. All the workers shown building the houses were foreigners. The foreigner workers work from early morning until night, seven days a week. New Zealand builders are not going to work all those hours, seven days a week.

If your employed you are legally meant to get the minimum wage. If your on contract then there is no minimum price. Thus the price when worked out per hour can be below the minimum wage. The big NZ companies that build houses I would think pay their workers, contractors a fair wage, or contract price. They would not be expected to work seven days a week. However other builders can pay contractors a lot less.

An article in the NZ Herald covered two main booming industries, Universities, and retirement Villages. Of course with easy to get student loans, it is a good time to be a student. A number of students end up with high student loans when they finish their courses, and no job to show for it. Some students go overseas, they get out of paying their student loan back, as long as they stay overseas.

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