Kevin Rudd has given Australia a phrase that should sting on this side of the Tasman too. Speaking at the National Press Club in Canberra, the former prime minister warned that the alternative to a radical change in national psychology is “to slide into becoming a second-rate country. Because that requires no effort at all.”
As Newsroom pointed out, Rudd was talking to Australians, but New Zealand faces the same challenges with less diplomatic and economic weight. For trade-exposed businesses, the point is not abstract. Quietly hedging between a security partner in Washington and an economic partner in Beijing worked while the two blocs were porous. They are hardening, and drift is now a decision with a price.
Australia’s hedge is full of contradictions
Emma Shortis, director of the International and Security Affairs Program at the Australia Institute, describes Canberra as trying to walk a “path between giants”, with the US as its major security partner and China as its major economic partner. She credits the Albanese government for staying fairly quiet about the China relationship in recent months.
But she also identifies the problem. Australia signed climate, trade and security deals with the EU and Canada during Mark Carney’s middle-power tour, while its deputy prime minister flew to Washington to talk to Pete Hegseth about accelerating the US military presence. “Those two things are inherently contradictory, even if we don’t want them to be,” Shortis says.
New Zealand runs its own version. Christopher Luxon talks about partners being able to remake the international order and describes China as “assertively expanding its influence across the Indo-Pacific and beyond“, while our export economy remains heavily tied to that same market. Thai security expert Professor Thitinan Pongsudhirak was blunter in May: “New Zealand’s in big trouble. You have to get back on your feet and find a new way.”
The cost is already on the balance sheet
The dependence is long-standing. Treasury’s 2024 analysis of 2022 data showed China took 29.3% of New Zealand’s exports, worth US$13.3 billion, against 12.5% for Australia and 11.3% for the United States. That is a lot of eggs in a basket now sitting in the middle of a superpower contest.
The latest trade data shows a world getting more expensive to trade in. Two-way trade reached $64.9 billion in the June 2026 quarter, up from about $56 billion a year earlier. The headline looks healthy. Underneath, merchandise terms of trade fell 9.0% in a single quarter, as export prices rose just 3.5% while import prices jumped 14%. That followed a 2.0% decline in the March quarter.
Not all of that is geopolitics. But it is what a fragmenting trading system feels like for a small, distant economy: volumes up, margins squeezed, and pricing power sitting with somebody else. An Oxford global economy expert told RNZ this month that major powers are “weaponising interdependence” through tariffs, subsidised credit and investment controls. Free trade purists, and New Zealand is one, are playing by rules the big players have stopped observing.
Addition, not subtraction
None of this argues for walking away from China. NZIER principal economist Chris Nixon makes the pragmatic case: “Diversification should mean addition, not subtraction. The objective should not be to make China smaller in our trade figures, but to make other markets bigger.”
He is also clear that the boom years will not repeat on their own. China’s economy is maturing and growing more slowly, and the next wave of growth “will probably be built market by market, barrier by barrier and opportunity by opportunity.” That is a job for exporters as much as for MFAT.
The binary choice is a false one. In 2025, then-NZ China Council chair John McKinnon called any suggestion that New Zealand must choose “anathema, and unrealistic to boot“. Analysis published in The Conversation in January 2026 argued New Zealand could excel in a multiplex world given its record with both powers. The catch is the word “could”. Managing two relationships well is a strategy. Hoping neither notices is not.
Waiting for Wellington is also a choice
New Zealand is, as The Detail put it in August, isolated but not insulated. Distance does not protect a dairy exporter from a tariff war or an importer from a sanctions regime.
For boards, the practical questions are immediate. How much revenue depends on one market, and what happens if it closes for six months? Which inputs come through a single supply chain that could be caught in export controls? Is there a serious plan for India and Southeast Asia, or just a slide in the strategy deck?
Government should give business a clearer line on where New Zealand stands and fight harder for market access beyond the big two. But firms that wait for that clarity before acting are making Rudd’s mistake on a smaller scale. Standing still requires no effort, and the bill arrives later.
Sources
- Newsroom: Trans-Tasman complacency in US-China rivalry risks second-rate future (2026-10-09)
- RNZ: Balancing a path between giants in a changing world order (2026-10-10)
- RNZ: New Zealand in ‘big trouble’ amid growing global uncertainty, US-China relations, expert says (2026-05-15)
- RNZ: New Zealand’s place in the New World Order (2026-10-03)
- Treasury Analytical Note 24/04: How vulnerable is New Zealand to economic shocks in its major trading partners? (2024-04)
- Stats NZ: International trade: June 2026 quarter (2026-09-03)
- Stats NZ: International trade: March 2026 quarter (2026-06-03)
- NZIER Insight 130: China trade relationship enters a new phase (2026-09-23)
- NZ China Council: Finding our place between America and China, NZCC Chair op ed (2025-07-15)
- The Conversation: How NZ can survive, and even thrive, in Trump’s new world of great-power rivalry (2026-01-20)
- Rova.nz / The Detail: In China-US rivalry, NZ remains isolated but not insulated (2026-08-07)
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