Australia can bridge trade war differences

Australia

Economists can argue about who is right but the lesson the markets have already drawn is that the dispute is not going to be resolved soon and it will hurt China, the US and, indirectly, the global economy. Most likely, that will hurt Australia, too. China will cut imports from Australia as its economy slows.

This trade war will only heighten the dilemma Australia has long faced of navigating between the US, our key strategic ally, and China, our key economic partner. US Secretary of State Mike Pompeo, during his visit to Australia last weekend, mocked countries that kowtow to China for fear of losing export markets. He said they “sold their soul for a pile of soybeans’’.

He is right that Australia should not be bullied into giving away our security in exchange for Chinese cash. But the current trade war is a commercial dispute, not a test of faith. Australia agrees with some of the US criticism of China’s trade policies, but the trade war is now so messy that Australia should not take sides rashly.

The White House has its own political agenda, which includes forcing China to boost imports of everything from Boeings to US beef. That is not in Australia’s interests. Treasurer Josh Frydenberg has rightly said the events of the past week are an “unwanted escalation”, and called on both sides to reach a negotiated solution.

There is a school of thought that argues trade sanctions should be maintained forever to pressure China on military and strategic issues. Yet it could work the other way. Locking China out of global trade will encourage the world to split into two increasingly hostile camps and promote even more dangerous strategic rivalries.

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Liberal MP Andrew Hastie told The Age on Wednesday that the belief that economic liberalisation would change China for the good was like France’s misplaced faith that the Maginot Line would stop the Nazis in 1940. It was a strained metaphor and it predictably annoyed China. More importantly, Mr Hastie is wrong to play down the importance of trade. Trade may not be a panacea, but it is a great way to build bridges between countries.

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