‘Diversify export markets away from China’: Obama’s ex-trade chief Michael Froman

Mastercard executive Michael Froman says Australia must work to diversify its export markets away from China.

Mastercard president of strategic growth Michael Froman in Canberra on Tuesday Picture: Sean Davey

Australia must work to diversify its export markets away from China in the wake of the coronavirus epidemic, which is tipped to accelerate the trend of global companies reducing their reliance on the Chinese economy, according to a Mastercard executive.

The card giant’s president of strategic growth, Michael Froman, a former US Trade Ambassador in the Obama administration, said a number of multinationals had moved to reduce their exposure to China before the outbreak of the coronavirus.

“For some time now, in part because of the trade tensions between the US and China, companies have begun to review their supply chain arrangements,” Mr From said.

“We saw incremental investments that would have gone to China directed towards other markets in the course of the last year. It is very possible coronavirus will further accelerate that trend.

“Companies need to assess their overall risk profile given the supply chains that support their manufacturing. They can’t afford to be overly dependent upon any one supplier.

“For Australia, China being its No 1 trading partner, Australia will need to sort through what it means for its export dependence on China and try to do what it can to mitigate that risk by diversifying the markets it focuses upon.”

The comments by Mr Froman, who served as the Trade Representative from 2013-17 and was an assistant to president Barack Obama, came after a key indicator for the health of the Australian manufacturing industry on Monday revealed four consecutive months of contraction.

The Australian Performance of Manufacturing Index revealed that all manufacturing sectors deteriorated in February, and all sectors except for food and beverages recorded a contraction.

The OECD this week noted that disruption to supply chains would contribute to downward revisions for G20 economies strongly interconnected to China, such as Japan, Korea and Australia.

Mr Froman told the annual conference of the Australian Institute of Company directors that the coronavirus outbreak was a “wake-up call” to complacent equity markets and a more challenging test for Australian businesses than the SARS outbreak.

He said moves by China away from being an “export-led manufacturing hub for the world” and to bolster its domestic consumption would be a positive for the global economy. “I think if it has other paths for growth that in fact may be healthier for world economic growth,’’ he said.

Mastercard itself last week said coronavirus was expected to cut 2 to 3 percentage points from its first-quarter revenue guidance because of the impact on “cross-border travel, and to a lesser extent cross-border e-commerce growth”.

Mr Froman, who took on his role with Mastercard in April 2018 and later became a director of the The Walt Disney Company, said there were no winners from last year’s trade war between the US and China.

He said the war regrettably opened the door to countries unilaterally imposing trade sanctions outside the jurisdiction and sanction of the World Trade Organisation. But he welcomed the phase one trade deal signed in January that will roll back some tariffs and boost Chinese purchases of US goods and services, defusing an 18-month conflict between the world's two largest economies.

The greatest challenge we face

“I am hopeful that the leverage that might have been created by the US leads to a more fundamental agreement which addresses the underlying structural issues (between China and the US),’’ he said.

He hoped it would lead to a “more fundamental approach to how we absorb, accommodate and integrate an economy as big and important as China into the rules based global trading system”.

“That to me is the greatest challenge we face,’’ he said.

In January MasterCard’s Centre for Inclusive Growth and the Rockefeller Foundation launched a new data science partnerships platform and a $10m challenge aimed at building the field of data science for social impact.

“There has been an interesting evolution of the conversation around the role of the corporation in society,’’ Mr Froman said, noting the recent declaration by Larry Fink, chairman and chief executive of BlackRock, that climate change was the top issue that clients around the world raised with the asset manager.

“That conversation is really coming to the fore. Now companies need to figure out how they turn those sentiments into reality,’’ Mr Froman said.