Trade
Is Australia trading too much with China?
Author: Shiro Armstrong, ANU
China accounts for close to a quarter of all of Australia’s international trade, and over a third of its exports, including both goods and services. Is Australia trading too much with China and too dependent on the Chinese economy, as a lot of the public commentary would have you believe?
This question has come into sharper focus with the Australian government’s travel ban on China due to the COVID-19 coronavirus outbreak. Australia’s tourism and higher education sectors suddenly lost their largest markets overnight.
A narrative is developing that universities were warned about their overdependence on one international market, and now deserve to pay the price for not diversifying. Two of Australia’s top economists, former Treasury Secretary Martin Parkinson and ANU’s Warwick McKibbin, have called on universities to become less reliant on Chinese students, going as far as describing the travel ban as a ‘net positive’ for universities in helping that along.
Hillary Clinton gave similar advice to Australia’s mining sector. Diversifying away from over-reliance on China would seem like the obvious strategy to pursue but if it makes sense, why haven’t Australia’s internationally competitive miners, education providers and the tourism sector not done it already? And is it a good idea to diversify no matter what?
Universities may wish to reduce the number of Chinese students they have, increase students from elsewhere, or both, but will do so only at significant cost. Chinese students are spending family savings and choosing Australian universities over American, British, Japanese and other universities to buy, for the most part, a quality international educational experience. The number of Indian and Southeast Asian students are growing but the biggest growth in the demand for international educational services, and most dynamic market globally is China. It’s the same in tourism and many other sectors of the Australian economy.
Australia policymakers can choose to reduce trade with China by impeding exports and imports, or it can reduce the share of trade with China by intervening in the market to expand trade with other countries, including by diverting trade away from China. President Trump has shown us exactly how that is done. These policy strategies necessarily incur costs. The question for those advocating such a strategy: if one-third of total exports to China is too much exposure, what’s the acceptable or the right share? And what’s the cost of attaining it?
It shouldn’t require too many sophisticated sums to show that de-concentration of Australia’s resource exports on markets in China, Japan and South Korea would come only at huge cost to the mining sector, Australian trade and the Federal coffers. The costs to China, Japan and South Korea on de-concentration in their imports of these materials would be similarly huge.
Australia’s ability to utilise its endowments and take advantage of opportunities internationally should be celebrated and protected. Australia is no stranger to having one country dominate its international trade shares. At its peak in the 1970s and 80s, Japan accounted for roughly the same share of Australia’s trade as China does today. Trade with the United States peaked during World War 2, accounting for 39 per cent of Australian imports and 40 per cent of its exports. The United Kingdom consistently accounted for over half of Australia’s trade, and up to 60 per cent, up until the end of Commonwealth preferences after World War 2.
Instead of intervening in the market to reduce trade shares with China, a far better strategy is to manage these highly interdependent economic relationships and manage the inevitable shocks in their fortunes, some self-inflicted, that occur from time to time.
Universities, farmers and other businesses make commercial decisions based on risk assessment that includes diversification. Diversification is a form of self-insurance and comes with a cost. One of the biggest risks for many businesses is to limit engagement in the huge Chinese economy with a rapidly growing middle class.
The first line of defence against economic shocks from abroad is a well-functioning and robust macroeconomic framework. A flexible exchange rate that acts as a shock absorber, a flexible economy and labour market that adjusts to the large prices changes, a robust social safety net and fiscal and monetary space to cushion and facilitate that adjustment. That’s what saved Australia from recession in the last 28 years…
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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