Australia may be facing significant trade challenges, but it’s not all bad, guests at an Ai Group webinar, International trade in an era of global upheaval, heard last week.
While Covid-19 and global geopolitical tensions have highlighted the vulnerability of our trade links to the world, there are glimmers of hope, said panelist Prudence Gordon, Executive Director, Australian Centre for International Trade and Investment (ACITI).
“When you look at how Australia has responded to these headwinds, you can find real examples of where we have coped quite well,” Ms Gordon said.
Three global trade crises are occurring at once:
The US launched a trade war against China under President Trump which has already cost nearly half a trillion dollars of global trade.
China has used trade bans on countries that disagree with it, most recently in its campaign of economic coercion against Australia. Meanwhile, Western sanctions against Russia for its invasion of Ukraine have caused chaos in energy, agriculture and industrial good markets.
Over the past decade, governments around the world have enacted nearly 29,000 policies that restrict trade. This is progressively destroying the open trade system.
Growing dissonance has led the World Trade Organisation (WTO) into crisis. It has not completed a comprehensive agreement since 1994, and most of its smaller sectoral deals have floundered, too. It means there is no longer a reliable umpire to enforce global trade rules.
“Trade is interesting again, for all the wrong reasons,” Dr Wilson said.
“Emerging crises in the global trade system are a significant, if underappreciated, challenge for Australia.”
It is a challenge being met with resilience.
“These are real issues facing Australia and impacting the global economy, but it's not all bad,” Ms Gordon said.
“When you look at the commodities impacted by those trade barriers, there is a mixed picture as to how those industries have responded.
“For example, our coal exports to China have dried up, but that set up our exports to the rest of the world. Over the past 12 months, coal exports have absolutely skyrocketed, principally in response to what's happening in Ukraine and the impact of the war in Ukraine on energy prices and energy availability.
“Barley is another example of where a commodity has done incredibly well, following China imposing these quite devastating trade bans.”
Beef, also impacted by Chinese trade barriers, is starting to recover in terms of its trade with China, as well as the rest of the world.
However, commodities such as wine and lobster continue to struggle.
“So, when you look at specific commodities and how Australian industry is responding to trade wars, and particularly China's trade barriers directed at us, it's a mixed picture, but there are some real examples of great successes,” Ms Gordon said.
There is also optimism on the free trade front.
“With regard to new protectionist trade policies introduced in response to both the weaponisation of trade as well as the Covid pandemic, Australia and most other countries, except possibly China, continue to support and promote open trade policies,” Ms Gordon said.
“Then we have our international institutions facing extremely challenging times — the WTO, in particular.
“But there are these glimmers of hope that reinforce and reflect the view that these are incredibly important institutions and that we really need to work to maintain them and to strengthen them.
“Yes, we're in very challenging times. But it is not all bad, and there are glimmers of hope.”
Rather than ask what Australia can do in the face of these crises, the question should be: ‘How can we adapt to an era of politicised trade, without sacrificing the openness on which Australia’s wealth is based?’
“A new ‘trusted trade’ concept has been offered as a solution,” Dr Wilson said.
“It proposes that we should deliberately cultivate trade with reliable partners, even where these may differ from those we would choose following a purely commercial logic.”
In the context of global supply chains, trusted trade manifests in the practice of “friend-shoring” – seeking imports from more reliable (or friendly) countries.
It encourages diversification.
“Australian business has recent experience of this, following China’s campaign of trade sanctions in 2020,” Dr Wilson said.
“Our affected businesses scrambled to place their product in new markets: coal went to India, barley to Saudi Arabia and Southeast Asia, copper to Europe and Japan and cotton to Bangladesh and Vietnam. Australia now has a far more diverse – and shock resilience – export profile than before.
“While it’s too soon to know what the answers are, we know these questions around trusted trade will be the defining issues for our future. Now is the time that Australia’s trade community starts debating these questions together.”
Australia relies heavily on exports, particularly those in mineral and energy, but imports remain a lifeline.
“We are a very open economy, and we rely on the international economy supplying us with the goods and services that we need,” said fellow panelist Geraldine Doogue, who presents ABC Radio National’s Saturday Extra program.
“Because of this, the whole concept of being able to lock ourselves away — which is a theme in the deglobalisation agenda — is not realistic or desirable.
“Going by the number of Australians who love to travel, we are people who want to see what the rest of the world is doing and want to engage with the rest of the world.
“So, it's not that we just can’t afford to shut ourselves off, there isn’t a desire. We are an amazingly multicultural society, so we want to be part of the world.”
Dr Wilson agrees.
“If we throw up the drawbridge and say: ‘OK, we're going to do everything here’, we'll be greatly impoverished by that,” he said.
“This is where the friendshoring idea has come into the mix. It’s a kind of halfway house — neither throwing open the doors nor bringing up the drawbridge.”
There are also positive signs regarding freight pricing and service.
“There has been a significant investment in shipbuilding and ships,” webinar host and Ai Group's Head of Industry Development and Policy Louise McGrath said.
“More ships are coming online and pricing is starting to stabilise, but it probably won't get as cheap as it was pre-Covid, simply because that was too cheap and many shipping lines are at risk of bankruptcy.
“So, it won’t ever be like those heady days, but hopefully our port processes will improve. The Government is looking at that.”
The webinar was presented in partnership with Schwartz Media, publisher of Australian Foreign Affairs magazine. Its latest edition, The Return of the West: Australia and the Changing World Order, features articles by both Jeffrey Wilson and Geraldine Doogue. Webinar guests will receive a discount on this edition.
Wendy Larter is Communications Manager at the Australian Industry Group. She has more than 20 years’ experience as a reporter, features writer, contributor and sub-editor for newspapers and magazines including The Courier-Mail in Brisbane and Metro, the News of the World, The Times and Elle in the UK.
