Tried and true policy prescriptions best for managing the China challenge

 Senator Don Farrell’s presentation to the National Press Club on 1 June highlighted the thin appreciation of our fourth estate to the magnitude of the shift in global trade and investment markets.

 Here was an opportunity to ask questions about the weaponisation of international trade and foreign investment policy. To inquire about the radical shift from open markets to industrial policy dominating the clean energy, digital and other sectors. To seek the good Minister’s views on the breakdown of global trade rules and dispute settlement processes. And to probe how Australia would navigate the unprecedented circumstances in which we find ourselves.

 Instead, questions to Minister Farrell included distribution of the GST, likely voting patterns on the Voice, and Chinese Government sponsorship of the Socceroos.

 In 1947, fifty countries came together to create an institution to join the World Bank and International Monetary Fund. This ended up being the General Agreement on Tariffs and Trade – today the World Trade Organisation. The GATT’s purpose was to ensure the tit-for-tat trade barriers imposed for national security reasons – barriers that contributed to the outbreak of war - did not again mar international relationships and the wealth-generating opportunities inherent in global trade. World wars are invaluable sources of life lessons that we forget at our peril.

 The GATT/WTO rules, and the international trade made possible by them, have generated unprecedented prosperity and helped to lift 1 billion people out of poverty. Australia has benefitted from these rules, as has China and the United States. Since 1990, trade has increased incomes by 40 percent globally and by 50 per cent in the poorest 40 percent of the population. Trade is linked to higher female participation, higher paying jobs, increased innovation, and economic opportunity. But this is trade 101.

 Despite the overwhelming benefits, governments are increasingly turning their backs on open markets and trade liberalisation in response to China’s rise and increased assertiveness. While China’s historic economic growth derived from its adoption of market mechanisms and opening to the world, that trend is being reversed under President Xi.

Coupled with increased Chinese economic and military aggression, a cross section of countries have sought to guard against and counter further Chinese aggression.

 The tools used by the United States, the European Union and, on a much smaller scale, Australia and others are similar to those employed by the Chinese Government to control their economy – formal and informal trade and investment barriers and industrial policy in strategic sectors.

 The US CHIPS and Science Act and Inflation Reduction Act, the EU Green Deal, tightened foreign investment screening. In Australia, the critical minerals strategy, the National Reconstruction Fund and before it the Modern Manufacturing Strategy, and government support for trade diversification.

 Australia largely abandoned industrial policy under Hawke and Keating. At its core, industrial policy is bureaucrats deciding which sectors and which companies will be the beneficiaries of government largess. While the importance of public servants in defending Australian democratic institutions cannot be overstated – they too often do not, and really cannot, appreciate the technology, market dynamics, or critical competitive strengths needed to know a good investment from a white elephant.

 There is a clear need to increase international competition in strategic sectors.  Why industrial policy should prove any more successful at creating that sustained competition today than it did in the past is unclear.

 At the same time government intervention in markets is on the rise, the trade rules supporting open markets – rules that have served us so well - are regularly abused.

 China’s boycott of Australian wine, barley, timber, coal, and lobster are examples. The use of 'essential security’ as a blanket justification for measures that are inconsistent with the rules, and emissions reduction measures aimed as much at securing national security and domestic industrial growth objectives as tackling climate change, are others. Rubbing salt in the wound, the WTO dispute settlement system, the most effective forum for resolving international disputes ever, is only partially functioning with no hope of restoration in the foreseeable future.

 GATT/WTO trade rules were created precisely for the current circumstances in which we find ourselves. We’ve learnt through terrible experience what spiraling trade barriers lead to. We put those lessons to good use and crafted solutions. The really hard part now is figuring out how to get through to the powers that be that it’s in the very best interest of their countries and their citizens to reengage on the rules.

 Australia is a bit player in the geostrategic machinations impacting global markets. The extent to which we inevitably will be buffeted by the flipping of global markets will depend on our understanding and preparedness. To that end, the fourth estate needs to sharpen its game.

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