Alan Dupont wrote a nice piece on the weekend at The Australian summarising Australia’s immediate trade war challenge:
If tensions over trade and technology are not resolved, they will almost certainly spill over into the geopolitical domain, heightening the risk that a trade war could eventually trigger a new cold war or, worse, an actual shooting war.
Political risk consultancy the Eurasia Group says this is shaping to be the likeliest year for the geopolitical equivalent of the 2008 global financial crisis. A key reason is that in the absence of US leadership, China faces less resistance in setting the international standards in trade and investment and technology development.
The Eurasia Group believes this could lead to a technology cold war and fragmented tech space in which China and countries in its sphere of influence will seek to “control the flow of information” while the US “guards against foreign investment in American tech companies”.
What makes the outcome of the present trade and tech imbroglio so hard to predict, and why the world needs to prepare for the worst while hoping for the best, is Trump’s chaotic and disruptive leadership style, underlined by the recent purge of senior officials that was unusual even by the standards of this White House. In the space of 16 tumultuous days last month, we saw the demise of national security adviser HR McMaster, secretary of state Rex Tillerson and chief economic adviser Gary Cohn, all of them members of an establishment group that had exercised a moderating influence on Trump’s impulsive behaviour and populist instincts.
…The problem for Australia is that although our interests are directly and seriously engaged, there is little we can do to prevent a trade war or influence the conduct or outcome of negotiations between the US and China. In fact, our leverage has been significantly diminished by the departure of Cohn, Tillerson and McMaster, who were all well disposed to Australia as well as being globalists.
…What we can do is ensure our economic, security and trade policy settings are adjusted for the likelihood that an even more turbulent international environment awaits us, in which the possibility of a trade war must be added to the growing list of risks Australia must negotiate.
This might be amusing if it were not so tragic. Such preparations should have been made fifteen years ago not today.
A quick survey of what they ought to be makes the point much better than I can. Our preparations should include:
- valuing competitiveness and productivity to ensure as broad a mix as possible of exports and trade partners is sustained;
- using fiscal policy and soverign wealth funds to lean heavily against Dutch Disease;
- holding immigration at historic levels to ensure a balanced geographic mix in people-to-people connections, policy integrity and lower household debt;
- policing foreign buying of realty to ensure foreign powers do not gain leverage over household wealth;
- using monetary tools and tax reform to prevent excessive offshore borrowing that funds unproductive debt and is vulnerable to sudden reversal, and
- using industry policy to promote manufacturing and energy independence.
Mr Dupont is right. But given every single political economy decision we’ve made post-millennium explicitly denied the possibility of, and leveraged us to, any ultimate economic (or broader strategic) contest between the US and China, it’s all a bit of a dark joke to tell us to do it today.
Any national preparations made now for said trade war will bring on the very catastrophic economic adjustment they seek to hedge.
Thus prayer is Australia’s best strategy.
