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Does the US-China Trade Dispute Undermine Open Trade?

22 May 2019
By Alan Oxley
US-China trade relations have paused as resolving tensions continues to be stalled. Source: Pxhere

US-China trade relations have stalled over the last four months, which the Australian Political Military community understand as marking the end of open trade globally. They could do better.

The hiatus in resolving tension in US-China trade relations over the past four months appears stalled. On the eve of what the US expected to be an amicable resolution which would allow trade to be adjusted and continue, Beijing stalled the process.

The US expectation that China would alter its trading patterns — principally to meet the US call to reduce the Chinese surplus in trade with the US — has been dashed. It considers Beijing swerved away at the last moment. But there had been rumours Chinese exporters were pointing up to Beijing loss of competitiveness in the US import markets.

In his usual manner President Trump immediately announced increased levies on Chinese imports. It may be some time before the provisionally agreed upon approaches and strategies are resurrected. Negotiators on both sides appear to have related professionally. President Trump continues to treat President Xi in a most amiable manner – Trump is sparing in treating others in that manner.

Share markets immediately fell, of course. What everybody wants to know is what will happen.

An all out trade war is unlikely. It would cost China more than the US. US negotiators contend that China stepped back at the last minute from agreeing to curb exports to the US: which the US claims are under-priced. Chinese officials were more opaque. Neither has said the process is irrevocably stalled.

There has also been renewed loose talk among Australian institutions that these conflicts herald the decline of the global open market trading system established after World War Two. A mantra to that effect has been growing recently in part of the Australian Pol-Mil — Political Military — community and amongst commonly-minded officials in the Departments of Defence, Prime Minister and Cabinet as well as Intelligence agencies and the Pol-Mil wing of DFAT.

The concerns stem from the expansion of China’s military presence in the South China Sea and its intention to extend its global reach, such as through promoting its Belt and Road Initiative. Washington DC’s Pol-Mil community and now Canberra’ strategic policy community see an “Indo Pacific” counter to the Chinese strategic wave. This enclave would include the US, Australia, India and Japan.

Is there now strategic myopia in Canberra? India appears happy to build relations with China, rather than antagonize. Is it just Australia’s ignorance about how the rest of the world functions today?

There has been a common theme in the Hawke, Howard and Gillard Governments: liberalize the Australian economy and build out an Asian Pacific economic community. Three specific drivers were used. First, the liberalizing principles of the General Agreement on Tariffs and Trade (GATT) were built into its expanded form as the World Trade Organization, particularly by encouraging Asian Pacific economies to set specific growth targets. Second, establishing APEC to foster liberalization among all key economies in the Asia Pacific region. Third, foster an Asian Pacific free trade agreement as promoted by Barack Obama and Julia Gillard.

Donald Trump formally sidelined Obama’s Trans-Pacific Partnership and set about his own strategy. Grand pronouncements at the outset ballyhooed WTO principles and rules and called for protection of US producers and free trade agreements which delivered surplus for the US. But as time passed, Trump has not sought to pull the WTO apart: if anything, he is pushing for overdue reform.

Trump today is not the same Trump that was elected in 2016. He initially dismissed and debunked established trade policies and processes. But now more than halfway through his first term he supports improvements in the US-Canada-Mexico free trade agreement — though these have not yet been approved by Congress — and supported changes to the Korean and Japanese free trade agreements with the US.

Australia has not been adversely affected by Trump policies. Gains may be on offer. If or when there is accord between Washington DC and Beijing over trade, it is likely Beijing will try to reduce its dependence on US imports. Demand for agricultural products grows in China as does rising demand for higher quality food and agricultural products. Australia is already a rapidly growing supplier of food and agricultural products to China.

The Australia China Free Trade Agreement set out some initial markers for expansion of other traded areas such as services. Opportunities for medical, education and some financial services areas are set out in the FTA. Some of these increased trade and investment opportunities must be considered as real options as China seeks to demonstrate broadened interest in trade in services.

However, if Australia is to be serious about such opportunities, which the last three prime ministers have promoted, it needs to put into context how Pol-Mil issues are handled. On this score the relevant agencies are moving the wrong way.

Australia’s security and intelligence community only sees friction. Yet this is not the first time foreign security interests have operated in Australia. Russia did and probably retains significant intelligence activity in Australia. So does China, and probably at a greater level: it has more interest in Australia.

Every alert government monitors intelligence activity and takes appropriate action as required. It does not have to be made public: it is common strategy. The Australian Government is wholly capable of managing intelligence challenges while advancing the national interest.

Alan Oxley is the Principal of ITS Global and a former Ambassador to and Chair of the GATT, predecessor to the WTO.

This article is published under a Creative Commons Licence and may be republished with attribution.