04/06/2020 - 10:04

Time to broaden trade ties

04/06/2020 - 10:04

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OPINION: The virus has created a major shift in sentiment about the cost of diversifying our economy and trading relationships.

Time to broaden trade ties
Much of Australia’s production has been outsourced to China. Photo: Stockphoto

OPINION: The virus has created a major shift in sentiment about the cost of diversifying our economy and trading relationships.

The COVID-19 pandemic has opened up two strategic conversations that are connected but have very different time frames.

These discussions circle around the awkward issue of our reliance on China, both as a marketplace for our goods and the source of so many things we consume.

The latter is relatively obvious, easy to talk about, and comes with a long time frame.

We need to manufacture more things in Australia, because the cost of production is not the only metric when it comes to the supply of key inputs in our businesses and private lives.

The former is much harder and feels more urgent. We have to diversify our customer base for our key primary resources products; otherwise we box ourselves in to the position where we can’t upset a commercial partner for fear of the cost.

We have upset China, as most readers will be aware, with Prime Minister Scott Morrison calling for an inquiry into the origins of the virus.

China has reacted badly to this and decided to throw its weight around. Our barley producers have been initial collateral damage.

The fact that our farmers are the least subsidised in the world has been ignored as China delivers a nasty elbow to the ribs – one that warns of the potential for so much more.

I am on the record stating that China has a lot to answer for in this pandemic, notably the delays in communicating it had an issue.

But I am also aware of the consequences of a trade spat with China.

Arguably, a one-party state with control of its army can withstand the medium-term consequences of cutting off our grain, wine, seafood and, quite possibly, iron ore and coal.

High-profile business leaders with a lot to lose, such as Andrew Forrest and Kerry Stokes, have been on the front foot criticising the prime minister for his call.

However, I have been surprised in many conversations how much stomach people have for dealing with this issue right now.

In the midst of a pandemic, it seems many of us have braced for worse to come, and there’s a strong feeling that if not now, then when? It can only get harder if we bow to pressure now, I am told.

That is quite a spectre; one that would make treasuries around the country – federal, state and corporate – take a very deep breath.

A better answer is to sell more of what we have to other markets.

Unwinding our reliance on China will take a long time because we have to find other markets that need volume at the premium we are used to.

Those markets are hard to find for precisely the same reasons Australia doesn’t manufacture as much as we should.

We have all outsourced production to China and it will take time to pull that back. On the upside, many nations will be feeling the same as we are.

They will be noting how they simply couldn’t get things during the pandemic – both luxury items and vital inputs to the cogs of their economy.

The desire to manufacture more locally will be a common thread across the globe. Another unspoken element of this is funding.

Perhaps Australia, typically a recipient of global development funding, needs to take a leaf out of other nations’ books and seek to directly sponsor the opening of new markets.

Typically, funding in Australia has come from the end users of resources, initially Britain, then the US, then Japan, South Korea, and most recently China.

Is it outrageous to suggest that we reverse that? Could we seek to fund the development of manufacturing in neighbouring countries, encouraging them to take our raw materials while we share in the profits? This has, in the past, been fraught.

Experience taught us not to believe that such development capital is safe.

But perhaps, post-pandemic, our regional neighbours will be more open to arrangements that provide security to investment from Australia, in order to diversify their economies and their own reliance on one major source of funding.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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