Trade
Is Australia too dumb and too China-dependent?
Author: Adam Triggs, ANU
Having been labelled ‘dumb’, ‘getting dumber’ and ‘too dependent on China’, it’s been a rough few weeks for Australia’s exports. Luckily, these criticisms are largely misguided. They misunderstand how and why markets produce certain outcomes in an open economy. The remedies proposed are solutions in search of a problem.
Take the ‘dumb and getting dumber’ criticism first. This comes from the Harvard Kennedy School’s Atlas of Economic Complexity. The Atlas ranks Australia 93rd out of 133 countries in the complexity of its exports. And Australia is getting worse on that measure, falling 36 rungs down the ladder since 1995.
Being the eighth-richest economy in the world (in per capita terms), Australia is obviously ‘rich and dumb’ according to commentators panicked by a perceived lack of complexity and innovation in an otherwise wealthy economy.
But the Atlas measures the diversity and complexity of a country’s exports, not its economy. Coal and iron ore — Australia’s two largest exports — account for about a third of its total exports, but the entire mining sector accounts for less than one-tenth of its economy. Australia’s exports might be concentrated, but its economy is much more diverse.
And a few things are conspicuously absent from the Atlas. Most notably, it doesn’t include education, which happens to be Australia’s third-largest export (education is omitted from the Atlas because education is not reported consistently by countries).
But the most substantial problem with the ‘dumb and getting dumber’ criticism is that it misunderstands how trade and markets work in shaping a country’s trade profile. This is a misunderstanding that fuels another common criticism of Australia’s exports: that they are too dependent on China.
It’s true that Australia exports a lot to China — about 38 per cent of its exports. This is far more than to Japan, Australia’s second-largest export destination at around 16 per cent. At roughly AU$144 billion (US$99 billion) a year, exports to China contribute 8 per cent of Australia’s GDP.
Is this a problem? Some fear that these benefits could be at risk if China were to weaponise its trade with Australia as part of a geopolitical dispute, or if the Chinese economy were to suffer a crisis. Luckily, neither is a realistic threat.
As Shiro Armstrong and Peter Drysdale have noted, China has zero strategic interest in weaponising trade against Australia. Yes, Australia is dependent on China, but China is also dependent on Australia. Australia supplies 61 per cent of China’s iron ore, 53 per cent of its coal and 23 per cent of its thermal coal. Australia’s shares in each are increasing.
Others warn that an impending financial or economic crisis in China puts Australian trade at risk. But historically the opposite has been true. Economic shocks in China have often brought increased demand for Australian exports as Chinese authorities seek to stimulate their economy. China is more than capable of managing shocks. In fact, most analyses suggest that Chinese authorities have too much control over their economy, not too little.
At its root, the concern that Australia’s exports are too concentrated — both in what it sells and who its sells it to — reflects a misunderstanding of how and why markets deliver these outcomes in an open economy.
The reason is straightforward. Trade is about specialisation. As with all countries, Australia has limited resources — limited capital, labour, energy and materials — with which to produce things to sell to other countries. Because Australia is a clever country, it produces things that it is good at making and that receive the most money on international markets. This process of specialisation maximises returns and the prosperity of the Australian people. It is a process that is delivered by markets, not governments, and is made possible by free trade.
Some argue that Australia should cut trade with China out of fear that this trade might one day be cut in a geopolitical dispute. This is a bit like becoming so worried your car might be dented in the supermarket car park that you get in first and dent it before anyone else does. It seems strange to bring forward the thing you fear.
Australia trades with China and not with Iceland, for example, because that’s where the money is. Australians could ship coal and iron ore to Iceland, but the shipping costs would be high — and Icelanders probably don’t want Australian coal and iron ore anyway.
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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