Friday, March 29, 2024

ALTERNATIVE VIEW: Australia wants it both ways

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We’ve been in Australia for the last few weeks and there is major concern over the trade war between the United States and China.
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A trade war is futile, merely a tit for tat between the big boys without much thought for the consequences.

It started with President Donald Trump labelling China a currency manipulator. China possibly is but so is America.

Since the global financial crisis the Federal Reserve has injected trillions of new dollars into the American financial system, which supports its banks and holds down interest rates.

There’s also the issue of American subsidies. Since China stopped American agricultural imports the US government has pumped $US16 billion into supporting its farmers.

Both moves are currency manipulation.

The issue is that once Trump hit Chinese imports with tariffs it was inevitable China would retaliate. 

The Trump strategy, like most of his moves, reflects an America-first philosophy of protectionism.

The iniquity is it will be America that suffers. No-one wins trade wars.

According to top Australian civil servant Martin Parkinson the trade war could rage for decades.

Trump is regularly increasing the rhetoric and the stakes.

A trade war can also provide opportunities for third parties and that’s where Australia has a problem. 

On one hand China is Australia’s largest export market with a third of all trade going there. 

On the other Australia is becoming increasingly aligned with the US, especially in the Pacific.

On the trade side you can read that beef and sheep meat exports to China are red hot.

In the first three months of 2019 beef exports to China were up 67% and sheep meat by 83%. Forward contracts for spring lambs are running at $8.80/kg.

Every article I read indicates a bullish outlook for exports there. Writers predict increases in both price and volume.

It’s all boom with no gloom.

It’s not just trade. Queensland University relies on Chinese students to the tune of A$250 million annually, for Sydney University the figure is A$50m. All major Australian universities rely on China.

In addition to Australian exports China has invested $100 billion in Australia since 2007.

That means Australia is increasingly vulnerable to China’s whims.

Goldman Sachs estimates if demand for Australian imports to China cools it will wipe $25b from the Australian economy.

So, while Australia is desperate for Chinese support, both from trade and financial perspectives, it is the US they are strongly backing against China in both a strategic and military sense.

Surprisingly, the Australian Treasurer Josh Frydenberg came out strongly supportive of America by endorsing American values in the Pacific.

That outburst was preceded by Liberal back bencher Andrew Hastie comparing China’s rise to that of Nazi Germany.

There were screams of righteous indignation over Papua New Guinea wanting China to refinance its A$11.8b debt.

Having Chinese interests a very small step from Australia’s northernmost border isn’t something Australia wants but it can do little about it short of paying off the debt.

Australia is developing massive military bases in PNG as a bulwark against Chinese aggression.

There was a further announcement of an A$3b boost to Australian special forces to meet the Pacific threat.

Australia and the US have previously accused China of coercive conduct in the South China Sea including the militarisation of disputed islands.

Australia is being urged to boost its armed forces in the north of the country to counter the threat from China.

Queensland University, despite getting $250m annually from Chinese students, wants the government to work with universities to put a red line around areas of research that shouldn’t be shared with China.

Pacific Island countries that have welcomed Chinese support and investment have been pilloried in the Australian media.

Last week Australian Prime Minister Scott Morrison was in Vietnam vowing to work together as a strategic partnership. Vietnam is in conflict with China over the Spratly Islands.

That followed a promise of military support for America in the Strait of Hormuz to remedy a problem largely created by the US. 

So, Australia is between the proverbial rock and hard place.

On one hand it describes the US as Australia’s greatest friend, strongest ally and biggest investor.

Conversely China is its biggest trading partner.

Australia can’t have it both ways.

It could offer to mediate in the trade war but it’s decided to participate – on America’s side.

New Zealand is in a great position providing we maintain our neutrality while concentrating on the opportunities the contretemps provides.

My view is the Australian economy is about to take a $25b hit along with a devalued dollar so I’m happy leaving the Australian Reich to the Australians.

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