Global deals create wealth to help Australia avert recession

Bipartisanship at home is the key to seizing opportunities abroad.

It’s 27 years since Paul Keating’s “recession we had to have”. Is the world conspiring to force another one on us?

Last month’s market correction might have rung a few alarm bells. But the hierarchy of issues that seem to concern voters the most — many of them little if at all related to the economy — seems to indicate that Australians, while keeping half an eye on their super stash, now presume on prosperity.

Voters seem to get wound up — as unionists did in Melbourne last week — chiefly to demand more wealth, rather than to discuss the ways in which we make it.

But businesspeople have rightly become increasingly rattled about the latter, whatever the current state of stocks. Especially because more than a fifth of our economy comes from trading goods and services.

For we are just at the start of what threatens to be a prolonged tussle between the world’s two most important powers over the terms in which they relate to each other. They want above all to Make America Great Again and to Make China Great Again.

Where does this leave us, with our own growth prospects riding chiefly on the opportunity to develop that internationally driven 20 per cent?

We are obviously more constrained in the ways we can make more money out of ourselves, in our comparatively modest domestic economy.

Earlier this year, businesspeople and others began to press Canberra to be nicer to Beijing — or else — as the rhetoric between the G2 rose, some even falling for the dangerous furphy that we need to decide between being friends with America or China.

Australia’s rhetoric concerning Xi Jinping’s ambitious promotion of the China template became tempered, and more ­respectful.

But the fears of our being “cast out” by Beijing are now fading because of two other developments.

First, the common cause being found among countries that are facing similar challenges, with Malaysia’s sprightly new prime minister Mahathir Mohamad leading the way in talking turkey to Beijing not to presume to push so hard, so fast.

Second, Beijing’s largely pragmatic response, for now, to the challenges coming from America — by a growing consensus of the decision-making elite, it would appear, and not solely by Donald Trump. The US is rejecting its former strategy of coaxing China along a seemingly predictable and compliant path to an “internationalist” form of development.

China’s response to this challenge includes restoring business-as-usual with Australia, with growing numbers of officials, entrepreneurs and others heading this way, looking to boost economic opportunities and also to shore up relations more generally.

Last week, I met a delegation of 26 people from the Development Research Centre of the State Council, visiting Australia to see what they might learn on a variety of fronts, and to talk about China’s challenges and opportunities. Right now, a similar-sized group of Australian businesspeople, led by Orica chairman Malcolm Broomhead, are visiting Beijing through the Australia-China Belt & Road Initiative, gaining access to influential counterparts.

But the reshaping of the global economy — with America demanding greater reciprocity everywhere, and China’s communist party sensing an existential challenge — is only just getting under way. Australia faces considerable dangers in this process.

The international economy’s rapidly growing enmeshment as countries focused on their competitive advantages and trusted that other products and services would continue to be made available by partner nations, became the cornerstone of success in the global battle against poverty.

A collapse of the trust required at every level for the continued health of this global system would be disastrous for all. And both the US and China have indicated they seek increasing self-containment.

They too will suffer if they pursue this path for long, but such giants can hold out for much longer than smaller nations — such as Australia, and even Japan.

The recent visit by Japan’s canny leader Shinzo Abe to Beijing was likely to involve important conversations about how the great Asian value chains — many of which end in assembly in China, with the resulting Made in China logo now a negative in American eyes — might be re-engineered.

Australia is a major player in these chains, chiefly through our resource sales, which are now expected to reach a record $252 billion this financial year, with metallurgical and thermal coal combined likely to pip iron ore to top the list — at $60bn each.

Abe’s conversation with Xi might have turned to the prospect of China girding its loins to qualify for membership of the Trans-­Pacific Partnership, now revived since Trump’s withdrawal. That seems a long shot — but would provide a shift almost as welcome as China’s accession to the World Trade Organisation in 2001, which drove domestic reforms.

For Australia, any such move that reflects our three key principles in such deals — transparency, reciprocity, and rule of law — should be welcomed. Fortunately, we have free trade agreements with both the US and China, and both are holding fast. Trump has not, it appears, turned his gaze on the horrors he sees enshrined in many other such deals — perhaps because the US enjoyed a $27bn surplus in trade of goods and services last year.

We need to keep supporting the extension and deepening of deals in which we participate, including the World Trade Organisation’s Trade in Services Agreement, so far only signed by 50 of the 164 members.

ITS Global principal Alan Oxley says that “international commitments on services trade remain limited, and progress on services trade reform has been slow. Trade barriers in the services sector are as high now as were barriers to goods trade 50 years ago.”

That also means, from the glass-half-full perspective, that there’s great scope for increased opportunities to export services. And that should be good for the Australian economy, which is now 70 per cent comprised of services.

Oxley also points out that Australia has just joined the WTO’s Government Procurement Agreement, becoming the 48th member. While adding about $100bn annual procurements of our own to the $1.7 trillion covered by the deal, this also extends to Australian firms the guarantee of access to bid fairly for procurements in Europe and in major US states not covered by that FTA.

So no, we’re not about to cop a recession in the short to medium term. But while improving our own domestic competitiveness is important, for instance by restraining energy prices and taxation, we also need to stay alert and seize opportunities. That requires retaining the bipartisanship that has seen us seal and retain such valuable wealth-creating international deals.