Former Trade Minister warns of global trade future

By Shannon Jenkins

Thursday July 4, 2019

Source: Getty Images

Former Australian Minister for Trade Craig Emerson has warned of a “dangerous” future perpetuated by US and Chinese decisions to ignore international trade rules.

“I think we are witnessing history in the making here,” Emerson told the Melbourne Economic Forum on Wednesday.

“What we’re seeing here is the US flouting the global trade rules. Meanwhile, China is flouting the global geostrategic rules by just claiming large bits of territory as its own.”

The forum unpacked various sources of international political pressure, including US-China relations, a declining support for open multilateral trade, and their global implications.

Joining Emerson were speakers Dr Jiao Wang from the Melbourne Institute of Applied Economic and Social Research; Professor of Chinese Studies, Christine Wong; Professor and Director of Centre of Policy Studies at Victoria University, James Giesecke; and Ross Garnaut, Professorial Research Fellow in Economics at The University of Melbourne.

The forum was moderated by Abigail Payne, Director of the Melbourne Institute of Applied Economic and Social Research, University of Melbourne.

Emerson explained the wider implications of Trump’s rejection of rules-based global trading systems. 

“I’m speaking to you today at least in part as a former Australian Trade Minister who’s seen life on the inside and how people behave. But the way countries are behaving now is almost without precedent since the Second World War and the establishment of the General Agreement on Tariffs and Trade — the GATT”, he said.

The GATT was created after World War II to economically integrate countries so that there was less incentive to invade and more incentive to trade. Emerson argues that Trump’s refusal to appoint new members to the World Trade Organisation’s dispute-settling body effectively dismantles the GATT.

“If you’re looking for the Democrats to have a different view, don’t hold your breath,” he said.

“I think we’re going to be in a world — and I hope I’m wrong, I really hope I’m wrong — where both the Democrats and the Republicans say ‘we want nothing to do with a global rules-based trading system’ and that would usher in a very, very uncertain and potentially very dangerous time.”

However, some believe that the WTO was in trouble long before Trump, including the head of the Department of Foreign Affairs and Trade, Frances Adamson.

“It’s been struggling for a very long time to produce the sort of gains from multilateral trade rounds that we experienced decades ago,” she said at a Trans-Tasman Business Circle luncheon last year.

“So yes, there are problems, but it is not without hope and the way to do it is for countries like Australia [to work within the multilateral system] — and the EU is taking a lead, and Canada is taking a lead; we’re working with both of them.”

On the global impact

“The world trade is losing growth momentum,” according to Wang.

“The economic policy uncertainty indicator, which measures the policy-related economic uncertainty, has been rising considerably since 2017 and peaked in December 2018, which coincides with the US government shutdown and the US trade negotiations with China. 

“This could have significant negative impact on future trade activities and economic growth.”

Wang said the ongoing trade disputes could have positive and negative outcomes for Australia. While Australia could benefit from being an alternative country for trade, the “rising uncertainty and the hostile trade environment” could drag down its export and economic growth.

“So it appears that in this current world of rising trade conflicts and increased economic uncertainty, Australia is often caught between how to deal with its US-Australia relations versus China-Australia relations,” she said.

“There’s only downside in this story for Australia,” Giesecke said.

Ross Garnaut presented the mechanisms which will damage Australia’s economy.

Globally, there will be:

  • Less growth, reducing our trade gains.
  • Remaining growth will be less internationally-oriented, as international markets for supplies and sales will be seen as unreliable to decision-makers.
  • Australia’s shares of each market will be smaller, as power replaces competitiveness in determining import shares, with agriculture particularly vulnerable.

Domestically, there will be:

  • Reduced access to most competitive capital, capital goods and technology, which is particularly damaging to energy-intensive heavy industry.
  • Less competitive market exchange and increasing oligopoly power.
  • Strengthening political economy of the rent-seeking society. 

Wang highlighted the need for Australia to consider its strategic interests versus its economic interests.

“So one of the key questions to answer today for Australia to ensure continuing prosperity going forward is: Can Australia find a common ground to cultivate both interests?”

There was resounding agreement from the forum that the future does not look positive.

However, there is a way to overcome the challenges and an opportunity for Australia to initiate positive influence, according to Garnaut.

“I think first of all, as Australians we have to recognise this as a really serious problem, and that requires analysis of complicated things. I’m not sure that the public discussion or the overall research that’s going on around it is quite acknowledging either the seriousness of the problem or the complexity of it,” he said.

“Once we’re more clear about the issues than we are at the moment, then we can play a role in internationalising understanding of those issues.

“We are not without influence once we have a very clear view of where we want to go and when we can point out that some things that are in our interests are also in the interest of other countries.”

Garnaut said Australia must explain our shared interests to the US in restricting political overreaction while recognising that there are valid issues.

“It begins with knowledge and then extends into diplomacy,” he said.

READ MORE: Frances Adamson on Australia’s plan to ride out Donald Trump’s trade war with China

On the changing nature of US-China conflict

Giesecke argued that both the US and China are exacerbating an already “dire situation” for their own countries’ economies with “a lot of self-inflicted damage from a trade war”.

In Giesecke’s presentation, he simulated that there will be significant economic damage for Australia, America and China “if the White House makes good on their threat to go for the full 301 tariffs on the totality of Chinese imports into the US”.

Emerson explained the motives behind America’s decision to expand the tariff war to a technology war in a conflict against China’s strong and innovative nationalism.

“China is, let’s say, copying or demanding the provision of technology by US companies that are operating in China, and the US doesn’t want China to get an edge on technology,” he said.

“I think the US is saying look, China’s bound to fail, we’ll contain it and then it will fail and everything will be back where we want it to be. I think that’s a very rosy view, from an American point of view. I don’t believe China is going to revert to the century of humiliation or to a developing country. 

Back in May, Trump signed an executive order that declared a national emergency and barred US companies from dealing with Huawei, which was considered a national security risk.

 According to Christine Wong, many Chinese would view the ban on Huawei as “pretty close to a death sentence”.

“What was more damaging was the attack on Huawei, which to many Chinese began to look like an act of economic warfare,” she said.

“This is a war on technology, it’s an economic war, and in a certain sense, it reveals the difficulties of development.

“[China] will continue to imitate and borrow…China is now creating knowledge, and it’s innovating.

“It needs to have institutions that provide incentives to protect intellectual property.”



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