Jacinda Ardern's sudden resignation raises the prospects for a change of the guard in New Zealand. But no matter who takes power, Wellington will likely continue its balanced approach to U.S.-China competition to secure its economic recovery and maintain its ''independent foreign policy,'' even as Wellington gently pushes back against Beijing's expanding military presence in the Pacific Islands. On Jan. 19, Ardern announced she would step down as New Zealand’s prime minister no later than Feb. 7 and would also resign as leader of the ruling Labour Party effective immediately, claiming she had ''no more in the tank'' after more than five years in office. On Jan. 22, the Labour Party selected Chris Hipkins — Ardern's minister in charge of education, the police, and public services — to replace Ardern as its leader and eventually serve as New Zealand's interim prime minister once Ardern officially resigns. Hipkins is viewed as a more centrist politician compared with Ardern, and has sought to help the Labour Party win back some of its wilting popular support. Hipkins will fill this role until the Oct. 14 general elections, when the Labour Party and Green Party coalition will face off against the coalition of the conservative National Party, libertarian ACT Party, and (potentially) the Maori Party over control of the parliament and the ability to select New Zealand's next prime minister.

• Popular support for Labour has dropped to 33%, its lowest level since the party won the September 2017 election that put Ardern in office. Support for Ardern as prime minister has also fallen to 29%, its lowest since August 2017.

As interim prime minister, Hipkins will seek to implement economic reforms ahead of the October general election, but New Zealand will remain vulnerable to global economic headwinds before and after the vote. While recent opinion polls suggest the opposition has a chance to take the lead in October, much will depend on how well Hipkins can rebrand Labour and the progressive coalition to recapture centrist votes during his interim leadership. In the intervening eight months, Hipkins and his Labour Party will attempt to ease up on government regulations, fight inflation, and ease New Zealand's labor shortage to support New Zealand's ailing economy, which is front of mind for voters. This could see Hipkins subsidize public sector wages or loosen immigration restrictions from the Pacific Islands. He may also hike taxes, which could influence his support base but would likely have little measurable impact (positive or negative) on the economy in the months ahead of the October ballot. When it comes to inflation, it's unclear how much more Hipkins can do, as the Reserve Bank of New Zealand's aggressive interest rate hikes have yet to have a great effect on rising consumer prices and risk pushing the country into a recession. The economy is also deeply reliant on China for trade and tourism. Now that Beijing has dropped its ''zero COVID'' policy, Chinese consumption (and demand for New Zealand exports) is expected to recover in 2023, as will the market of outbound Chinese tourists. But the global economic downturn, especially the dipping economies of the United States and Europe, is a moderate headwind for New Zealand. So while Hipkins may ease government regulations and implement policies facilitating labor flows, many of the main factors driving New Zealand's economic woes are either out of his administration's control or can't be fixed in its brief eight-month stint in office. The country's short-term economic performance could spur either unwarranted praise or criticism ahead of the election, swaying Labour support. Looking beyond October, New Zealand's relatively small economy will remain vulnerable to shocks in global demand for its agricultural products and tourism services. This means that whatever coalition takes power after the next election will also have to react deftly to global economic headwinds to maintain support.

• On Jan. 23, Hipkins expressed concern in an AM news interview that ''some New Zealanders perhaps aren't contributing their fair share'' to the tax system, adding that pushing for higher incomes in New Zealand was also important to household well-being.
• New Zealand's core price inflation hit 7.2% year-on-year in Q3, with ASB Bank predicting that full-year inflation for 2022 will hit 7.4% when data is released on Jan. 25. The Reserve Bank of New Zealand is also expected to raise interest rates by another 75 basis points in February, after benchmark rates rose from 0.25% in late 2021 to 4.25% in January 2023.
• In August, New Zealand finally began easing its COVID-related border restrictions, which had greatly limited the country's access to migrant labor, particularly from the Pacific Islands, over the past three years. But while foreign workers are now trickling back into the archipelagic nation (which has a population of only 5 million people), New Zealand's domestic labor market remains tight.
• China purchased more New Zealand exports (mostly agricultural products) in 2021 than the next four largest buyers — Australia, the United States, Japan and South Korea — combined. Besides Australia, China was the top source for tourists to New Zealand in 2019, and has consistently been so in the years preceding the COVID-19 pandemic.
• On Jan. 20, China announced that New Zealand was among 20 pilot destinations for which Beijing will again allow Chinese tourism companies to schedule large-group services. This follows Beijing's easing of its own COVID-related border restrictions on Jan. 8.
• A December poll by 1 News Kantar showed 33% support for Labour and 9% for the Green Party (for a combined 42% ruling party support). The same poll also showed 38% support for the National Party, 11% for ACT, and 2% for the Maori Party (a total of 51% for a potential conservative-Maori coalition).

Foreign policy will be the next largest challenge for both Hipkins and his successor, as Wellington tries to contain China's military encroachment in the Pacific Islands without jeopardizing its trade ties with Beijing — all while remaining largely neutral in the growing U.S.-China competition. No matter whether the progressives or conservatives come into power in October, New Zealand's geopolitical balancing act will likely persist. In the meantime, Hipkins — who has said little about foreign policy since being appointed interim prime minister on Jan. 22 — is unlikely to veer from this trend. New Zealand's relationship with China is simultaneously its most fruitful and most problematic foreign partnership. Ardern has heavily advocated for an ''independent foreign policy'' that sides with neither the United States nor China on all issues. Like her predecessors, she has sought to keep the Chinese relationship strong enough for trade to flourish. But she has also slowly deepened New Zealand's security ties with the West in response to the growing threat China poses to regional security, which has become increasingly hard to ignore amid China's expanding military presence in nearby Pacific Island nations and threats to invade Taiwan. This slow-walking policy has frustrated the United States, which wishes to use joint bodies with New Zealand like the Five Eyes intelligence sharing pact to advance U.S. efforts aimed at keeping China from becoming the Indo-Pacific's dominant military and technological power. In response to the Chinese security threat, New Zealand may engage in more military exercises with the United States and Australia. But Wellington is most likely to obliquely compete with Beijing through deepened military and economic cooperation with the Pacific Islands, particularly the Cook Islands, Fiji, Samoa, Tonga, Kiribati, and/or Niue, where much of New Zealand's Pacific aid financing goes. Wellington can construe this engagement as merely deepening existing partnerships while at the same time letting Beijing know that the battle for influence in this region is not without contenders. But New Zealand will still be unwilling to back U.S. military efforts to fully shut out China from the Pacific Islands (Ardern has said so much in speeches over the last year), and will continue to act as a thorn in Washington's side regarding broader U.S. plans for an ironclad Western coalition to combat China's influence in the region. The one exception to this will be human rights, in which New Zealand will continue to be moderately critical of Beijing, though punitive action from Wellington remains unlikely.

• Christopher Luxon is the former CEO of Air New Zealand and the leader of the conservative National Party, the favored party of Chinese business interests in New Zealand. Thus, Luxon sees the value, just as much as Ardern, in maintaining New Zealand's trade with China and independence amid geopolitical competition. The ACT Party, which would be the junior partner in a conservative coalition, has been slightly more critical, sponsoring a parliamentary bill in April 2021 to condemn China's labor abuses in Xinjiang.
• New Zealand will publish the first installation in its latest defense review in March. The document is expected to more overtly identify China as a military threat compared with previous editions. However, defense officials will still need to compete with Wellington, which wishes to keep good trade ties with China, to convert this message into changes in defense investment and missions in the Pacific.