Australia’s trade balancing act
The Trump presidency has been a wild ride for its ally Australia, and is becoming dangerously more bizarre by the day. Canberra is being railroaded into a confrontation with Beijing, which is clearly not in its economic or strategic interests. The Morrison government knows as much and is struggling to deal with America’s ambition in a way that assures Australia’s prosperity and security.
The degree of difficulty became apparent at last weekend’s Australia–United States Ministerial Consultations (AUSMIN) in Sydney. To borrow Paul Keating’s description of Mike Pompeo from ABC TV’s 7.30, the US secretary of state rode into town “doing the Rodney Rude act”. What incensed the former prime minister was Pompeo’s suggestion that Australia, unlike the US, was prepared to sell out its values for a quick buck. Pompeo put it this way: “Look, you can sell your soul for a pile of soybeans, or you can protect your people. Our mission is to do both.”
Pompeo’s efforts to force the Morrison government to choose sides between the US and China were in fact rebuffed. Aware that China is Australia’s biggest trading partner, the secretary of state countered by reminding his hosts that the US “is by far the largest investor here in Australia, accounting for more than 25 per cent of all foreign direct investment”. It’s worth $170 billion, he said, “each and every year”.
At a joint news conference with Pompeo, the Australian foreign minister, Marise Payne, repeated the formula used by Scott Morrison at the Osaka G20 summit in June. She said in terms of regional engagement “we see China as a vitally important partner for Australia”. The defence minister, Linda Reynolds, echoed the sentiment on ABC Radio’s RN Breakfast: “For Australia, it’s not a matter of choice between the United States or China. When it comes to China we have a strong and longstanding relationship, and with the United States they remain our strongest ally.”
On his way to Australia, Mark Esper, Trump’s third secretary of defence in four years, told journalists he wanted to see ground-based intermediate-range missiles in Asia “sooner rather than later”. This alarmed the Australian ministers. At a dinner at the swank Aria restaurant in Sydney, Esper sounded out Reynolds’ support for the idea – a tentative approach she rejected. She put it more diplomatically later, saying that when she directly asked Esper about his missile deployment intentions, he said he was not asking Australia. Morrison was even more emphatic, saying deploying the missiles here – which experts say would certainly be nuclear-armed, despite Esper’s denials – was “not something the government would consider”.
Morrison is, however, “carefully considering” another request for Australia to join the US in keeping oil tankers safe from Iranian interception and seizure through the Strait of Hormuz. The prime minister insists the request is about freedom of navigation, entirely separate from Donald Trump’s inflaming of tensions in the Middle East. Against the better judgement expressed by countries such as Germany and France, Trump has reimposed sanctions on Iran and torn up the Obama nuclear non-proliferation deal with Tehran.
Lieutenant General Peter Leahy, AC, former chief of the Australian Army, says it’s “time for the US to do a bit more talking before we start putting our warships in and around the Strait of Hormuz”. There’s no evidence this view was put to the Americans in the Sydney talks. Leahy is against putting our already-stretched navy in harm’s way in the Middle East yet again. “We have plenty of other things to do back here in our region,” he says. But Professor Hugh White, defence analyst and former adviser to the Hawke and Howard governments, says it’s easier for the Australian government to commit to action with the Americans in the Middle East, rather than risk provoking China in the Asia-Pacific. He calls it “a ploy” to keep our Washington ally on side. But, as we saw at AUSMIN, the Americans aren’t buying it anymore.
The Morrison government is trying to reach the sort of accommodation achieved by previous Australian governments with Beijing and Washington. But Beijing has been particularly frosty in recent years, particularly after Canberra’s handling of foreign interference laws. Keating says that “a little bit of diplomacy and manners wouldn’t have gone astray” from the Turnbull government.
Kevin Rudd, who these days heads one of the world’s most prestigious foreign-policy think tanks, the Asia Society Policy Institute in New York, says Australia does not currently have “an effective China strategy”. At the Byron Writers Festival last weekend, he claimed that under his prime ministership the country did, but the fact is his government did not have to deal with two giant disrupters – Xi Jinping and Donald Trump.
On Tuesday the cost of Trump’s bravado hit home. The president had announced last week on Twitter that, despite talks that were meant to stop the trade war continuing into September, he would impose more tariffs on the “remaining 300 Billion Dollars of goods and products coming from China into our Country”. He added, “This does not include the 250 Billion Dollars already Tariffed at 25%.” China had already stopped buying millions of dollars’ worth of soybeans and other agricultural products from the US – a move aimed precisely at hurting farmers, Trump’s most ardent supporters. This week, Beijing retaliated to Trump’s announcement by devaluing its currency. This made China’s exports cheaper in America, an attempt to lessen the impact of Trump’s protectionism.
The impact was not restricted to the US. It created financial carnage in markets around the world. On Tuesday, the Australian dollar plunged to a 10-year low and $86 billion was wiped off the value of the country’s biggest companies in two days. It began to hit home that ordinary investors were having to pay a price for Trump’s heavy-handed attempts to stall China’s march to becoming the world’s largest economy. Already it is the second-largest global economy and Xi Jinping is intent on spreading his country’s influence and controversially consolidating its territorial claims in the South China Sea.
Alarm bells grew even louder when the Reserve Bank warned further interest rate cuts were on the cards in the months ahead as it downgraded forecasts for jobs and growth. Former treasurer Peter Costello, who as chairman of the $148 billion Future Fund is plugged into high-powered investment analysis, warned retirees that their savings would be eroded further. He told The Australian, “Unless the parties can sit down and actually sensibly negotiate, I think you are going to have a lot of uncertainty and a lot more gyrations on global markets in the weeks which are ahead.”
You know there’s “trouble at mill” when the current treasurer, Josh Frydenberg, rushed into the media just to say there was no need to panic. He told ABC Radio, “We shouldn’t overreact to these developments, but we should recognise that China’s currency moves and the increase in US tariffs are an unwanted escalation.” Federal cabinet discussed the situation on Tuesday. Top of mind was the credibility of the government’s economic credentials and the key promise of delivering a budget surplus next year.
The government is holding tight no matter the headwinds, nor the demands to add more stimulus to the economy by boosting the pitifully inadequate Newstart unemployment benefit for more than 700,000 Australians. “We will still deliver a surplus next year,” Frydenberg says. “Absolutely determined to do that.” Some economists believe that Australian farmers may pick up some of the business lost by their US counterparts. But it is surging commodity prices – far healthier than the budget’s assumptions – that should see the treasurer bring home the bacon.
According to one government source, “We’ll get a clearer picture in the March national accounts. That’s when the tax cuts should show their value as economic boosters.” Clouding any optimism that things will improve is Rudd’s appraisal that there is no quick end in sight. He says Trump’s tweets dashed expectations that the trade war would be all over by the end of the year. In truth it is hurting both combatants, but the expert view is China can withstand the pain better.
Daniel Russel, an adviser to former president Barack Obama on East Asia and the Pacific, told ABC TV that Trump has seriously miscalculated. He says Trump’s style in business and governance “has been to unleash a lot of pressure against a negotiating partner or an adversary and create a lot of friction, a lot of tension, in the expectation that the other side would capitulate”. But he says that “anyone who knows China and anyone who knows what authoritarian Leninist one-party systems are like would have been able to tell him that that’s unlikely to be a winning strategy”.
Scott Morrison has been invited to Washington next month to be schmoozed in a very big way. He will receive all the trimmings of a full state visit. Rudd says he should be putting more effort into working with other G20 countries – especially Japan, France, Germany and even Boris Johnson’s Britain – to push back against Trump and Xi’s protectionist slugfest. While he’s at it, Morrison could also reinforce the dangers of white nationalism and the folly of climate vandalism.
This article was first published in the print edition of The Saturday Paper on Aug 10, 2019 as "All at sea with the USA". Subscribe here.