There’s nothing like some serious pressure to test whether our actions really-do-match our beliefs, and this pandemic has certainly dispelled any notion, that at least for a rich country, you can always get what you need, when you need it, from a globalised economy.
Like so many, Australia discovered early on just how dependent we were on imports, especially from China, even for PPE as basic as masks; later, the EU refused us a major shipment of vaccines, ordered and paid for, because it wanted to protect its own people first.
There’s no doubt, that in extremis, it’s every country for itself, at least until panic has subsided and judgment has re-asserted itself. Hence this question: to what extent should globalisation – that’s countries and people specialising in what’s most profitable in an increasingly border-less world – be replaced by a more strategic approach to trade?
First, let’s be clear, a tariff is just a tax, albeit a tax on imports. Taxes are necessary, to pay for the works of government, but they should be as low, as simple and as efficient as possible; and the impact of a tariff – which makes imported goods more expensive than local ones – is higher costs and distorted choices.
Compared to many other taxes, such as a universal sales tax, tariffs are an inefficient and wealth-stifling way for governments to raise money, yet they’re often less unpopular than other taxes because they can be portrayed as “hitting foreigners”; and cutting them can be quite unpopular, with vested interests certainly, because it exposes them to more competition.
There’s no doubt that globalisation – the reduction of tariff and regulatory barriers to trade – at least so far, has been a huge boon to the whole world. Everywhere is richer and some countries have moved dramatically from relative poverty to great wealth.
At least prior to the pandemic, the percentage living in absolute poverty had fallen from over 30 per cent to under 10 per cent in the past thirty years; likewise the percentage not having access to clean drinking water; and global wealth had increased by as much in the past 25 years as in the previous 25,000.
But because it’s meant sharing the advanced technology that was once the preserve of the West, globalisation has meant equalisation too. Indonesia for instance, which 20 years back, had under half the total GDP of Australia, has now drawn almost level, even though the average Indonesian still has a far lower standard of living than ours.
Then there’s China. Sure, the rise of China has so far been good for everyone. Not only have half a billion Chinese people come from the third world to the middle class in scarcely a generation, the largest and fastest advance in human well-being in all history, but countries like Australia have grown substantially richer as a source of resource, energy and food security to the rising superpower; while the world has gained a stream of inexpensive but high quality consumer goods.
In the process though, the West’s industrial base has been hollowed out, with large scale unemployment in so-called rust belt areas; and the West’s technical advantage has been eroded, and in some cases lost, thanks to technology transfers and sometimes outright intellectual theft. In much of the West, the middle class has been economically squeezed, grievances have accumulated, and politics has become more polarised.
And now, after 40 years of “bide and hide”, China is asserting itself aggressively in what’s at best a cold peace, and more likely, a new Cold War; only against a strategic competitor that’s far more formidable than the old Soviet Union, because it’s been increasingly embedded inside the global economy and can bring economic as well as military pressure to bear against its targets.
Barring a change of dynasty in Beijing, China is likely to be the challenge of the century – with big implications for economics as well as for security.
That doesn’t mean stopping trade with China. Of course, countries that can sell to China and can buy from China should continue to do so. It does mean though, being much more careful about becoming economically dependent on China, and about exchanges with China that have far more long term value for them than for us.
It would be most unwise, for instance, to sell technology businesses to Chinese interests, notwithstanding mutual goodwill between Chinese buyers and Western sellers, because – in the end – every Chinese business is subject to the direction of the Beijing government, in a way that no Western country’s businesses are.
Likewise, university collaborations, at least in the hard sciences, however beneficial they might ultimately be for global knowledge and understanding, should probably be seen as too much of a one way street.
As Australia has found, the Beijing government sees trade as a strategic weapon to be turned on and off like a tap, to reward friends and to punish foes. In my judgment, it should be every business’s concern to minimise the critical place that Chinese intermediate goods might have in our supply chains, lest they be denied just when they’re most needed.
That’s not to deny that, by and large, a business should do what minimises its costs and maximises its quality and its returns to shareholders – but this might be one of those instances where the long-term national interest does not coincide with short-term economic interests, and where character is demanded of our business leaders, more than just commercial savvy.
In my judgment, post-this-disruption, countries should be conducting a kind of national audit of what’s needed to maintain a reasonable life in an emergency: what they need to be able to do for themselves, or should stockpile; what they’re happy to trust close allies to provide; and what they’re happy to obtain from the wider world because swift supply is not critical.
Rather than tariffs, in Australia’s case, this could mean using government purchasing to ensure that we keep a sufficiently sophisticated manufacturing base to produce essential goods at need, such as the masks, hand sanitiser and ventilators that were suddenly in critical shortage at the start of the pandemic.
I’m not advocating a retreat from freer trade, just the importance of distinguishing between countries that really are open for business and those where business is more politics-by-other-means.
Trade deals, after all, aren’t just about the cost and the quantity of the goods exchanged; they’re pledges of economic trust and partnership. I can’t imagine that China and Australia, for instance, would contemplate concluding a trade deal today, notwithstanding that the deal my government did back in 2014 produced a big increase in their exports to us and an even bigger increase in our exports to them, because it’s hard to trust a country that uses spurious pretexts to block our exports to punish policy positions it doesn’t like.
On the other hand, Australia and Britain have just concluded a high quality trade deal that will eventually eliminate all the old EU-driven tariffs and quotas, despite anxieties about animal welfare, for instance, and climate change – because both countries accept that each other’s attitudes are essentially comparable and that these can be trusted to drive policy.
Both Britain and Australia are eager to conclude trade deals with India, despite some different standards, because India is a democracy under the rule of law, with a well developed civil society at arm’s length from government. It helps that India is the world’s emerging democratic superpower with the potential to substitute for China in many supply chains.
While no western country would weaponise trade, there are strategic overtones.
When President Obama first announced America’s “tilt” to the Indo-Pacific, its economic arm was the proposed Trans-Pacific Partnership. The idea was that a new free trade grouping among Pacific-rim countries committed to a rules-based global order would supplement a stronger US alliance commitment to the western Pacific. Regrettably, both sides of US politics subsequently retreated from this, because too many American voters worried that freer trade had mostly just shifted US factories to China.
It could be that Britain’s application to join the TPP, that Japan and Australia strongly support, becomes the catalyst for the US to reconsider. A TPP that became a global economic partnership would be an important sign of democracies’ willingness to work together at a time of increasing global tension. Trade means prosperity. Freer trade means more prosperity. And freer trade between like-minded countries will strengthen them in the face of whatever challenges might come. As global citizens we should want all countries to succeed; but as supporters of democracy and the rule of law, it might sometimes be best to preference those who share our values.