Title: War Economy

Author: Baker, J. V. T.

Publication details: Historical Publications Branch, 1965, Wellington

Part of: The Official History of New Zealand in the Second World War 1939–1945

This text is the subject of: ‘Something of Them Is Here Recorded’: Official History in New Zealand

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page 106

Terms of Trade

In a country so dependent as New Zealand on imported goods, considerable importance attaches to the purchasing power of exports. Changes in the quantity of imports purchased by a given quantity of exports are measured by the terms of trade index.

After 1937 the terms of trade turned against New Zealand. The purchasing power of exports started to decline. Importing in that year had been high. In the following year, with lower prices for exports and a continuing high level of importing, overseas reserves were run down, and it became necessary to resort to import and exchange controls. To protect New Zealand's overseas solvency these controls had to be severe. In 1939 they held the volume of imports to 11 per cent below what it had been in 1937. It is small wonder that there were now difficulties in building up supplies of essential materials and equipment; difficulties which were aggravated by the fact that strategic goods were not always freely available overseas at this late hour.

Chart 20 shows changes in the volume of imports.

page 107

In 1940 the volume of imports again fell drastically, to be 25 per cent below its 1937 level, and in 1941 it was only two-thirds of 1937. In a country where imports usually made up some 40 per cent of all goods becoming available for use, these were the really difficult supply years. In 1942 there was a small but useful improvement, and in the following year, aided by substantial imports of Lend-Lease goods, the position improved so much that 1943 importing was, in volume, 21 per cent above its 1937 level.

The terms of trade for New Zealand deteriorated in every year from 1937 up till 1943. By that year the position had worsened so much that a given quantity of exports would purchase less than three-quarters of the imports it had purchased in 1937. After 1944 there was, for some years, a rather halting reversal of this worsening trend but with no marked improvement until after 1947. Not until 1950 would the purchasing power of a given quantity of imports return to its 1937 level.

Chart 21 shows changes in terms of trade.

page 108

Thus, the immediate pre-war period saw a decline in terms of trade, and, for the whole of the war, terms of trade were to New Zealand's disadvantage, compared with those existing before the war. In the early war years, when traditional suppliers were finding it a burden to fill New Zealand orders, this reduction in purchasing power on overseas markets restricted the already difficult search for new suppliers.