WHY ARE YOU ATTACKING MY FAMILY? CAN ANYONE WIN A TRADE WAR? AND WHAT SHOULD AUSTRALIA DO NEXT?
Business Breakfast hosted by Perth USAsia Centre, WA Chamber of Commerce and Industry and the Australian Institute of International Affairs
FRIDAY, 6 APRIL 2018
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“Why are you attacking my family?”
That’s what George W Bush said to Romano Prodi, the President of the EU, 15 years ago.
What were they talking about?
Bush had just put tariffs steel imports to the US.
Australia was largely exempted. But the EU wasn’t. They took the US to the WTO and they won.
The WTO ordered that the US pay two billion dollars in sanctions.
But Bush didn’t back down, so the EU threatened to impose tariffs on goods produced in key battleground States.
Harley Davidsons built in Pennsylvania. Textiles from the Carolinas, and oranges from Florida.
Florida sells a lot of oranges to Europe.
And who was the Governor of Florida? Jeb Bush.
A month after complaining that the EU was picking on his family Bush backed down, and the steel tariffs were history.
15 years later we are talking about tariffs again. But this time it’s a bit different.
Donald J Trump is no George W Bush.
Trade is a big part of why Trump was elected.
He promised a lot more than just tariffs on steel. That’s just the first whiff of grapeshot.
He promised a 45 percent tariff on everything imported from China.
He called the TPP “a rape of our country”.
A couple of weeks ago he announced tariffs on $50 billion worth of Chinese imports.
He’s also talked about introducing mirror tariffs - that is, if a country puts a certain tariff on US goods he will put the same tariff on their goods.
And he’s also had a big crack at the WTO. He’s called it a disaster, he’s currently blocking the appointment of members to its Appellate Body, making it more difficult to hold hearings and resolve disputes and he’s threatened to pull out all together.
This is a different President. And this is a different ball game.
The target’s not Europe. They have already been given an exemption from the steel tariffs. So has most of the world.
The target is China.
And how they react to all of this will determine what the next decade and beyond looks like.
I’m an optimist. I’ve got to think common sense will prevail.
I find it hard to believe that the two biggest economies in the world are going to let themselves be sucked into the vortex of a full blown trade war.
But if they do? What happens then? Does anyone win?
If this is just a game of brinkmanship to get a better deal for America Trump might succeed. He’s got the world’s attention. South Korea has just agreed to double the number of US cars sold there. China might do a deal too.
They have been talking tough this week – and they have backed it up with action. They’ve just announced tariffs on more than 200 different US imports on things like pork, soy beans and orange juice. This is very targeted. It will hurt a lot of farmers who voted for Trump. Straight out of the EU playbook.
That’s just a warning shot. If this escalates into something bigger - into a genuine trade war - then both countries will suffer. On that almost everyone agrees. The only real question is who suffers the most.
Bush’s steel tariffs cost 200,000 US manufacturing workers their jobs. This would cost a lot more.
And because we are talking about two countries that make up almost half the world’s GDP, it won’t just affect them. It will affect everyone.
For us it might mean some of our farmers get more access to China but there’s not much else to look forward to. Our dollar would drop, the price of things like iron ore and coal would drop, business investment would tank, the mining and construction sectors in particular would be hit hard, and there would be a lot more Australians out of work.
So what happens over the next few weeks is very important.
And we can play a role here.
We are a middle ranking power that has the ear and I hope the respect of both countries. And we should use that.
Lecturing them about how good we are or the perils of protectionism won’t influence what happens next, but a few quiet phone calls might.
There is a lot at stake. And we should pick up the phone and talk to our friends in Washington and Beijing and urge them to do a deal, for all our sakes.
There is also a lesson for us in what’s happening here - in particular what’s happening in the United States.
And if we really care about open markets and free and fair trade, it’s a lesson we have to learn.
Trade wars don’t just pop out of thin air.
There has got to be something that fuels it. Something that ignites it.
In the US it’s a lot of angry and resentful voters. People who feel like their lives are getting harder not easier.
It’s not just a feeling it’s a fact. Real wages in America are about the same as they were 50 years ago. In the last decade they went backwards.
In places like Manhattan median household income today is almost 18 percent higher than it was when Lehmann Brothers collapsed almost a decade ago.
But in places like Detroit Michigan it’s fallen by around 7.5 percent. It’s the same story in Ohio and Wisconsin.
These are places that voted for Trump.
They are places where - unlike the rest of the developed world - the mortality rate of middle aged, working class White Americans has gone up over the last twenty years. That’s more white working class Americans dying in their 40s and 50s because of things like drugs, alcohol, suicide and heart disease.
They are places where factories have shut and jobs have been lost. Not all of that is because of trade. A lot of it is because of automation. But if you have just lost your job you don’t care why it’s happened. You just want it back.
I think this explains why Trump made the promises he did and why he won.
If you don’t have a floor underneath you, you will reach for a wall. And that’s what a lot of people in the US did last year.
It also helps explain why Trump is doing what he is doing right now.
Last month the Republicans lost a special election in the 18th Congressional District in Pennsylvania. This is a place that just over a year ago voted for Trump. He won it by almost 20 points. It’s working class. Blue collar. They have lost jobs in the steel industry and mining. And last month the Democrats won it. A week later Trump announced more tariffs on Chinese goods.
There is a lesson for us here.
There are parts of Australia like the America I just described.
You can see it in parts of North Queensland where unemployment is through the roof and Pauline Hanson gets 20 percent of the vote.
I see it in my own electorate in Western Sydney. It’s about 20kms as the crow flies from Malcolm Turnbull’s electorate. But they might as well be a world apart. Unemployment in my electorate is almost triple what it is in Wentworth, and median incomes are about a third. You can see the same thing here in Perth but on a smaller scale.
What we have done over the last few decades in opening up our economy has made us a stronger and a richer country.
It’s made the things we buy cheaper and made the average Australian wealthier.
We don’t have anything like the sort of gap between rich and poor that you see in the US.
But that gap is still big and it’s growing.
Not everyone benefits equally from free trade. Some do better than others.
That’s not a reason to oppose free trade or an argument to increase tariffs, but it does mean our government has a special responsibility to make sure that as our country grows it doesn’t grow apart.
That’s why when Hawke and Keating were tearing down tariffs walls they were also setting up Medicare and compulsory superannuation. They were increasing school retention rates and making our tax system fairer.
And its why now Federal Labor has announced a series of reforms to make our tax system fairer - tackling everything from negative gearing and capital gains tax to family trusts and cash payments from dividend imputation.
None of it is easy, but it’s important. So are the changes we need to make and the extra investments we need to make in early childhood learning, in schools, in TAFEs and in our universities.
If we do these things it will make us a stronger and a fairer country, where more people benefit.
The sort of country we all want. Where your opportunities aren’t limited by the postcode you live in. Where you can get the skills you need for the fast changing world we live in. Where you can afford to buy a house. Where everyone gets a fair go.
If we do that, we also make the case for free trade a much easier sell.
If we don’t, well we’ve seen what happens.
That’s one challenge.
There’s another one I also want to talk about today that’s related to this - and that’s how do we make the most of what’s happening in Asia.
That’s what our FutureAsia policy is focused on.
I am not going to rattle off all the statistics about the rise of the world’s biggest middle class. You’ve heard them before.
Most of the trade we do today is in Asia. Almost two-thirds.
But that doesn’t mean we are making the most of it. Not by a long shot.
What do I mean?
We currently invest more in New Zealand than we do in China, Japan, India and all of Asia combined.
Indonesia is our next door neighbour but we barely look over the fence.
More than 18,000 Australian companies export to New Zealand at the moment. Only about 2,000 export to Indonesia.
Fewer Australians are learning Indonesian today than there were when I was born in 1972.
Not enough young Australians are learning any Asian language. In 2015, there four thousand HSC students were studying Chinese. That doesn’t sound too bad, but only 10 per cent of those students were from a non-Chinese background.
We have got an extraordinary asset in our Asian diaspora. More than four million Australians have links back to Asia. But you won’t find many of them in senior roles in our top 200 listed companies.
And not many of the people who are in those roles have a lot of experience working in Asia.
There are lots of great examples of Australian companies kicking goals in Asia.
You can see the names of some of them on the skyline here.
The resources sector has led the way.
Macquarie Bank owns a heap of infrastructure assets in Asia. Everything from toll roads in India to wind farms in Taiwan.
Linfox is expanding across South East Asia.
Cochlear is right now building its first manufacturing facility in China.
One in every four bottles of imported wine drunk in China is made here in Australia.
There is a big beer market there for the taking too - which is probably why WA’s own Little Creatures has just set up a microbrewery in Hong Kong and a bar in Shanghai.
That’s just a few examples.
Last year 65,000 Australian companies used Alibaba to sell their products to Chinese companies and consumers.
And the deal Australia Post has just done with Alibaba - which I am sure Andrew will talk about - will help more do the same thing in Malaysia, Singapore and Indonesia and eventually Vietnam, Thailand and the Philippines.
There is a lot to be excited about. But there is also a lot more to do.
Non-tariff barriers are a big problem - particularly in Asia. Even where we have Free Trade Agreements lots of companies still struggle.
A lot of other companies are reticent to make the leap at all.
Some of that’s got to do with risk. Some companies are just comfortable doing what they are doing. Some don’t have the patience that’s needed to toil away and succeed in parts of Asia.
But one of the main reasons is a lot don’t have the skills and experience.
Last year PWC and AsiaLink did some work on this. They surveyed the board directors and senior executives of our top 200 companies. What they found is more than half had little or no knowledge of Asian markets.
It explains a lot. Why would you jump in and put shareholders’ money and your job on the line if you didn’t know the market.
But if we don’t others will.
Which is why we have said in our FutureAsia plan that we will:
- boost the number of students studying an Asian language;
- set up an Australian Asian Diaspora Program to better coordinate and tap the skills and experience and connections of our Asian diaspora here at home and our Australian diaspora in Asia;
- get more Australians with Asian business experience on our boards by running a mentoring program with the Australian Institute of Company Directors; and
- if the Chinese Government agrees, we will also set up an internship program for young Australians who have just finished university to work in China for six months and get some real life commercial experience working in China. It would be reciprocal. And if it works we could expand it to other countries as well.
We will also set up a joint team made up of staff from DFAT, AusTrade, Agriculture and Industry to coordinate the work the Australian Government does to help companies struggling with non-tariff barriers imposed by other countries.
That’s just the start, there’s more to come.
Two final things.
This year I hope we will finally see a Free Trade Agreement with Indonesia.
I hope it’s a good agreement. It has the potential to be economically and strategically very important.
Indonesia is an economic juggernaut in the making. It’s already the fourth biggest country in the world in population terms. In most of our life times it will become the fourth biggest economy in the world.
We don’t know each other, speak to each other or trade with each other anywhere near as much as we should. If this agreement can help change that we will reap the dividends of that for decades to come.
And just finally let me say something about the revised TPP that’s just been signed - what it is and what it could be.
There are good things in it. It cuts tariffs and opens markets. It lays down a set of road rules for trade in our region. But it could be even more.
At the moment it doesn’t include most of ASEAN or the two countries I’ve talked most about today - the US and China.
As you can see playing out right now, it’s how these two giants get on and work with each other that will shape what this century looks like - and whether Asia rises the way we all hope, and us with it.
We need more than just a deal to avert a trade war. And we need more than just a US that’s engaged with Asia. We need a US and China at the same table. Working together. Neither feeling excluded, contained or ripped off.
And something that could help with that is an Asia Pacific wide trade agreement that includes both of them and all of APEC - including one day India.
Given everything that is happening at the moment that might seem like a pipe dream - but given everything at stake I think it should be our driving ambition.
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