Brian Pinkstone
Perils of Australian trade policy
The prime minister's recent remarks in Japan regarding the need for Australia to line up with that country in any international trade war could be viewed as no more than a sensible reflection of the fact that Japan is Australia's single largest market, accounting for around one-quarter of our total exports.
However, Senator Robert Ray subsequently intimated that, in the future, Australia would be happy to expand its military ties with Japan, in the context of Japan playing a more active role in guaranteeing regional “security”.
Unfortunately, this has overtones of the enthusiasm which Australian governments have shown in the past for dependence on powerful allies. This has never proved a terribly successful policy with respect to trade. When it comes to the crunch, the juggernauts of the world economy follow their own imperatives, with little regard for their supplicants.
In the early 1970s, Britain chose the European Community over its ties with the Commonwealth. During the 1980s and 1990s, the US, in its sales of grossly subsidised wheat, has paid scant heed to the problems this raised for Australian rural producers. Is Japan likely to show any greater concern for Australian interests? Not if events during the past decade are any guide.
Since the oil price rises of the 1970s, Japan has followed a policy of diversifying its sources of raw material supply, with Australia being one of the chief losers. Secondly, Australia possesses little bargaining power relative to Japan, and our local market for Japanese manufactures is relatively small. Thirdly, Japan's main preoccupation in trade is with minimising retaliatory action from the EC and the US, with which it runs large trade surpluses.
Hence the partial opening up of Japanese domestic markets in recent years. But the liberalisation which has occurred has been highly selective and biased towards countries which furnish major markets for Japanese goods. Consequently, the benefits to Australia have been quite small.
If an all-out international trade war did develop and Australia was tied to an Asian bloc, it seems likely that the transformation of Australia's export trade towards a greater emphasis on high value-added manufactures and services, which
government policies have encouraged over the last few years, would stall. On the one hand, Asian competition in low value-added manufactures is robust and, on the other, Asian demand for sophisticated consumer goods is still relatively weak.
Europe and the US are the markets par excellence for manufactures. They provided the markets for the rapid export-led growth which the Asian region experienced over the past two decades. The value of Australian exports of elaborately transformed manufactures taken by Japan is still only on a par with Britain, and almost one-third of that taken by the US.
On balance, with over half of our total exports going to Asia, Australia's interests clearly are well served by a full recognition of Asia's significance and our geopolitical location within it. But it will be important not to swing too far. From a longer perspective, we will also need to keep the links firmly open to the rest of the world.
An independent and non-aligned approach to both trade and foreign policy, which aims at extending trade with as many nations as possible and avoids trade discrimination in all but the most exceptional circumstances, may in the long run prove the most prudent path for Australian governments of all political persuasions.
[Brian Pinkstone is completing a PhD in economic history on Australia's export trade in the 1970s and 1980s.]
