JOHN KERIN.  Free Trade (sic), Current ‘Negotiations’ (Part 3)

Jan 22, 2019

The world is agog with the constantly changing state of play between the US and China on trade issues and also the possible outcomes of Brexit. Both have the high probability of affecting our economy.

The US is not completely wrong about China’s trade policies and its strategic security posture. At the time, I thought that to have China in the WTO was problematic (State based enterprises, Party doctrine involved in business operations etc), but the fact is that China is too big to ignore and is better ‘in the tent’ – it now champions ‘open markets’ and lower tariffs at the same time as Trump promotes protection.

The industrially developed world has never before had to deal with a communist regime in a country with such a large population, which conducts a ‘market-inclined’, planned economy (market socialism?). The USSR never provided the same economic threat. US foreign and strategic policy in recent times has not been marked by overwhelming finesse, e.g. the invasion of Iraq.

Apart from Trump’s unpredictability, constant lies and bullying as a negotiating tactic, his justification for such an approach is that China has a trade surplus with the US and therefore China has to make concessions so that America can be ‘great again’. This is plainly ignorant nonsense; America has a trade surplus with Australia so America should make concessions so that ‘Australia can be great again’.

It is obvious that Trump puts no store in our existing US trade agreement, nor did he with NAFTA and wanted no part of the TPP which was designed to compose a bloc which excluded China – and India and Indonesia! It is ridiculous to believe that every country can or should have equally balanced exports and imports – the economic situation changes through time.

The incurious Trump’s closed mind on closed borders and closed markets is exceptionally dangerous. By only wishing to appeal to his ignorant, but possibly disadvantaged ‘base’, he is ignoring what is happening in the world of digitisation and with other pressing industry challenges. For example, if he wants to get jobs back in the US, from  US firms which have set up in China, ignores the fact that many of those jobs have already disappeared.  He ignores the reality of Boeings, John Deere tractors and Hondas being made in many countries and that trade develops new markets. He ignores the market response to his trade threats by firms building higher stocks, pre-tariff rises, which cannot continue.

His buffoonery on the China deal is sucking the air out of the US’s capacity to deal with other pressing issues, while China’s Belt and Roads initiative continues and Indian Ocean countries increases in relevance. It is hard to work out if there is method in Trump’s madness or is he just mad? How can anyone deal with his tweets, lies and personal attacks,  which may change by the hour?

US GDP was $2.3 trillion in 1978, when China’s sprint for economic growth commenced, and China’s was $0.1 trillion. That of the US in 2018 was $20.4 trillion and $14.1 trillion for China: millions have been lifted out of poverty and on balance that is good.  The Chinese have a long memory and the political capacity to outlive the Trump aberration.

Trump’s demands are over trade imbalances (which are silly) market access (which may be passé) and abuses of intellectual policy (I remember the same charges applying to Japan and South Korea, both of which are now good customers for the US). Trump has imposed extra tariffs on $245 billion of Chinese exports putting up their cost to US consumers and threatens to impose tariffs on $300 billion of imports from China in March including 25% on cars – possibly disastrous?

China’s economy is slowing and Trump’s ‘sugar hit’ of tax cuts for the rich, massive deregulation and rising budget deficits, abuse of the Fed and touting of the performance of Wall St,  hasn’t so far resulted in much new productive investment. China also holds massive reserves of US bonds which may come into play. Japan, also has a trade surplus of $69 billion with the US and holds the most US bonds of any country.

Trump is also not completely wrong about the plight of people in his ‘base’, but, again, as with trade, his approach is wrong-headed. Not that I expect that Trump will do anything about it and that it will take a long time for his ‘base’ to wake up to being ‘conned’ by the power of the financial sector, massive tax avoiding transnationals, corporate malfeasance, tech giants out of control and billionaires financing political parties of the right.  The obscene level of inequality is both the cause and potential cure of what could be carried out to enhance the US economy; currently there is less domestic demand because wages and conditions have been static.  It is one thing to live with ‘trickle down’, but not to the point where democracy is becoming no longer fit for purpose. Dark money is now being used to change governments. The ultra rich Koch Bros are open in their actions to “destroy the current statist paradigm” having funded right wing organisations based in the UK (Guardian, 14 December 2018).

The ongoing effects of the US’s invasion of Iraq and massive consequential refugee flows have seen racism and parties of the right rise in Europe. The ‘dark money’ which funded much of the Brexit campaign is now being enhanced by the activities of Trump’s mate, Steve Bannon, in Europe.

If Trump pushes China into a serious economic downturn, Australia’s exports with suffer – Japan is also in his sights.

It is still too early to predict what will happen in the UK since P.M. Cameron’s referendum, because British Conservatives are fundamentally split on Europe. At least Britain has a Parliamentary system of government. If Britain departs we will be negotiating a trade deal with it and continuing with our negotiations with the EU.


John Kerin was Minister for Trade in 1992-93.


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