Australia's incoming Prime Minister Scott Morrison speaks at a press conference in Canberra on August 24, 2018.Photo: AFP/Saeed Khan
Australia's incoming Prime Minister Scott Morrison speaks at a press conference in Canberra on August 24, 2018. Photo: AFP/Saeed Khan

As US President Donald Trump escalates his trade war with China, slapping a 10% tariff on roughly US$200 billion worth of imports, which will climb to 25% if China retaliates, he appears to have found something of a soulmate in Scott Morrison.

“We both get it,” Australia’s new prime minister said this week. What they get, he told The New York Times’ Maureen Dowd, is that some people feel left off the globalism gravy train: “The president gets that. I get it.”

Morrison’s words signal a profound change of tack in Australian economic diplomacy as the new US approach threatens to break down the World Trade Organization and universal trade agreements in general.

Under Trump, trade will depend on stronger bilateral (one on one) agreements that support US geopolitics.

It will mean Australia picking sides.

Double dangers in middle of the road

The status quo of relying on China for trade surpluses and on the US for security patronage might not be sustainable in the long run.

Siding with neither China or the US, attempting a “third way” of non-alignment, runs the risk of losing out on both trade and security.

Broadly speaking, we can summarize the trade war between the US and China as a contest between sea and land.

The US aims to secure trade routes through the Indian and Pacific oceans. China wants to shift the bedrock of international trade to Central Asia.

Its Belt and Road Initiative is a grand strategic plan to join Eurasian economies from Lisbon to Vladivostok. The plan would end the historic era of Anglo-American hegemony founded on controlling trade routes across the Atlantic, Indian and Pacific oceans.

Australia faces an existential strategic choice.

Leaving political ideologies aside, its economic prosperity depends on trade by sea. The return of Marco Polo’s world would eventually make Australia little more than a price-taking commodity supplier to trade and investment hubs from Beijing to Venice.

This means Australia’s national interests lie with the US defense of its seaborne trading routes.

Picking a side will be costly

In the short term, especially if the trade war escalates, siding with the US will be costly. Australia could lose a good deal of China-related export and business opportunities. Over the longer run it could offset the losses by diversifying, to trade and invest in countries with shared strategic interests, such as Indonesia and India.

Australia would be well advised to reconsider the diplomatic benefit of the China-led Regional Comprehensive Economic Partnership. This mega regional trade deal between the 10 members of the Association of Southeast Asian Nations and their bilateral trade partners has been dubbed the Chinese Trans-Pacific Partnership. It can be seen as an extension of President Xi Jinping’s major-power agenda.

After a promising start, RCEP negotiations now appear to be stuck. The main obstacle is India’s fear of worsening its already significant trade deficit with China.

Australia’s interests lie with US, and India

Another sticking point is that India, the Philippines and other potential members want such countries as Australia, New Zealand and Japan to open up their markets for information technology and professional services.

In pure trade terms Australia would lose little if the RCEP did not proceed. Australia already have strong bilateral ties with all the negotiating countries apart from India, with which it is currently negotiating a free-trade agreement.

Australia would be well advised to use its limited diplomatic resources for that and supporting the US when it comes time to pick sides.

This article originally appeared on The Conversation.

Dr Giovanni Di Lieto teaches international trade law in the International Business program at Monash University in Melbourne, Australia, and engages in expert analysis on the geopolitics of trade and investment for media, industry and government outlets. His professional career developed as a commercial law practitioner in Italy, and then as a global value chain specialist across the US, Europe and China.

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