War is peace. Freedom is slavery. Ignorance is strength. George Orwell.
They say truth is the first casualty in war. When it comes to trade, truth has been missing in action for quite some time.
In his first week as the US President, Donald Trump tore up the Trans-Pacific Partnership (TPP) and threatened Mexico — via his press secretary Sean Spicer — with a 20 per cent border tax that would help pay for the wall along America’s southern border.
His actions took many by surprise, including our own Government, despite his relentless campaigning on those very issues in the run-up to the US election.
Just hours after the Mexican border tax was announced, the new administration appeared to be on the back foot, hosing down the idea and describing it as a just one possible strategy.
Perhaps someone in the new administration twigged it might well be illegal under World Trade Organisation rules or that, ultimately, it would be US consumers that end up paying for the Mexican wall.
When it comes to muddled thinking and poor strategy, however, Mr Trump’s decision to tear up the TPP was a bravura performance.
He has long railed against the influence of China, and vowed to counter its emerging regional dominance both as an economic and military superpower. What he failed to understand was the best way to achieve that would have been for America to ratify the TPP.
He was right to conclude the TPP was a sham. But not for the reasons he believes.
It was never about trade and certainly had nothing to do with free trade. It was a diplomatic and security agreement designed to hurt China by limiting free trade and specifically by deflecting China’s trade to its near neighbours.
Australia runs trade balance in favour of the US
The TPP was a stinker for Australia. Negotiated by Labor and Coalition governments for the best part of a decade, it delivered almost no benefits and came saddled with a dreaded clause that would deliver foreign companies the power to seek compensation for any decision that might harm their business activities.
In effect, foreign commercial interests were to take precedence over the actions of democratically elected governments.
In its original form, the TPP was a bold US play to deliver greater patent rights and protections to American pharmaceutical companies — the kind of changes that are anti-competitive and trade restrictive.
All up, it would have been a pretty sweet deal for corporate US with the added strategic bonus of keeping China in check — exactly what Mr Trump claims to stand for.
Perhaps it was intended as comic relief. Whatever the reason, immediately after Mr Trump trashed the deal, Australia’s Prime Minister Malcolm Turnbull indicated it was still a goer and that maybe, er, China should take America’s place.
He was ably backed up by former prime minister Kevin Rudd — now president of the Asia Society.
If that strategy was designed to niggle Mr Trump, it did not work.
He is pretty busy right now, and in any case, the Donald thinks we are a terrific country. Really, really terrific. Such great people. Really, really great people.
And why wouldn’t he? Mr Trump hates countries that sell more to the US than they buy. Luckily for us, or unluckily, depending on how you look at it, Australia is one of the few nations that runs a trade balance in favour of the US.
Free trade deal with US has hurt Australia: ANU
The US last year clocked up an $US11 billion ($A14.6 billion) trade surplus with us thanks to the US Australian Free Trade deal we signed 12 years ago that also was a stinker.
As the Australian National University’s (ANU) Thomas Faunce reported, that deal was a major contributor to the 80 per cent blowout in the cost of the Pharmaceutical Benefits System, which has put enormous strain on the federal budget.
According to the ANU’s Crawford School, that pact has hurt Australia every year since it was signed, with $57 billion in lost and diverted trade in 2012 alone.
Strangely, that little nugget never seems to be mentioned by our leaders whenever they wax lyrical about the benefits of free trade deals.
Nor do they ever refer to the numerous reports and studies from their very own Productivity Commission that repeatedly call for greater caution in signing “free trade agreements” because they deliver few benefits and may “impose net costs on the community”.
As the Productivity Commission consistently has pointed out, these agreements are Preferential Trade Agreements — deals that inhibit and distort free trade not promote it.
No wonder the Government refused point blank to let the Productivity Commission anywhere near the details of the TPP before we signed it.
The World Bank had a quick squiz at the TPP after the fact and rightly concluded it did little for Australia.
It found an annual benefit of about a half of one-tenth of 1 per cent of GDP a year — a finding then trade minister Andrew Robb not surprisingly rejected.
A scenario where everyone loses
The World Bank found countries outside the deal, like Thailand, would be hurt, primarily because TPP member nations would be penalised if they sourced materials from countries outside the agreement.
Hello! That’s the reason China, our biggest trading partner, was excluded.
Mr Trump has indicated he plans to take the fight to China in a more direct way, with thinly veiled threats he would extend his border tax idea to Chinese imports, based on the spurious claim that China is a “currency manipulator” by keeping its currency artificially low.
It is true China is manipulating its currency but not in the way Mr Trump is portraying. In fact, it is the opposite.
Rather than depressing the renminbi to make itself more competitive and hurt the US, China is desperately trying to stop a rout by supporting its currency and limiting flood of capital fleeing the country.
Should Mr Trump take China on, it could spell disaster for the US and the global economy. US consumers will foot the bill through higher prices, they will have less cash to spend which will hurt corporate America.
Even if no-one retaliated, and that is doubtful, the border tax would push the US dollar higher, rendering America uncompetitive.
Either way, it is a scenario where everyone loses.
It is worth remembering China holds more than $1.46 trillion in US government debt, which could become a handy weapon in the event hostilities do break out.
The US does not have a monopoly on capriciousness.
In the same week Mr Turnbull suggested China took the US’ place in the TPP, our very own Critical Infrastructure Centre came into being.
That is a body designed to protect Australian assets from foreigners (read China) and follows on from the Treasurer Scott Morrison’s decision last year to ban a Chinese buyer from snapping up Ausgrid.
The Turnbull Government is right to be wary of an authoritarian, autocratic and undemocratic government attempting to secure vital assets for strategic rather than commercial interest. Greater scrutiny should have been imposed years ago.
But a little policy consistency would not go astray.
29 January 2017 | 8:08 pm
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