The Australian 5 September 2018
As part of the Forgotten People radio addresses, Robert Menzies wrote “Scrap Iron for Japan”. It was a defence of Australia’s trade with Japan when he was Prime Minister the first time from 1939-41.
Menzies argued Australia must always be open for trade.
Australia’s fundamentals are similar today. We are a medium sized nation, with an enormous land mass and untapped productive capacity.
We rely upon open markets and a competitive economy for our high living standards. We have never had enough money to reach our potential. Protectionism would destroy the economy, 40 per cent of which is trade exposed.
My rewrite of the Menzian classic offers three lessons.
First – protectionism is harder to spot today but has never gone away.
There has always been discontent about the waves of foreign investment Australia has relied upon since the First Fleet. First Americans, then Japanese now Chinese.
Fig leaves are used to justify protectionism.
A little-known clause called Investor State Dispute Settlement is the latest fig leaf. ISDS provides for investment disputes to be resolved by independent tribunals run by the World Bank or Permanent Court of Arbitration.
The ACTU has said of ISDS: "Our democratically elected governments must be free to make laws that put people first without fear of being sued in a secret court. These are bad clauses that sell out our sovereignty and we shouldn't agree to deals that include them."
Translation: don’t do trade deals. The truth is ISDS reinforces the rule of law as a conscious act of sovereignty, Australian companies use ISDS to resolve disputes abroad, there is no such thing as a secret court and ISDS drives investment into developing nations.
We have had ISDS in 27 separate trade and investment deals since 1988 and just one case has been brought against Australia which was won by the Australian government.
Second, Australia cannot afford to flirt with protectionism.
With a much bigger domestic market, cheap energy and a less trade exposed economy, the Americans can probably try some highly risky ideas we could not.
President Trump’s risky tariffs on steel are having an immediate impact on the US economy.
A full blown trade war could emerge from the US President’s desire to change China’s trading behaviour.
This objective could be met through an free trade deal with China - a way to address US concerns on market access into China, dumping and intellectual property transfers. I said in February last year:
"Australia should be prepared for a Nixonian move by Trump. Richard Nixon, the great anti-communist, shocked the world when he recognised Red China. Trump may well do the same through a trade deal with China in this presidential term."
However the initial consequence of the tariffs in the U.S. are higher input costs and some component parts for manufacturing are now unaffordable.
China is retaliating with tariffs of their own on US produce including a major US agricultural export: soybeans.
Soybeans going into China now face a 25% tariff and massive subsidies have been announced to buttress U.S. farms.
The stakes are high. The US Chamber of Commerce has produced cutting analysis here to highlight the local impact of the tariffs.
The President’s strategy is surely to get China to the negotiating table.
The deal making cannot take forever as soy bean farmers cannot live with the 25% Chinese tariffs permanently.
Third, calmly maintaining public confidence in foreign investment remains essential.
The Foreign Investment Review Board was established in 1976 following the acquisition of the Chiko Roll company by American investors.
From investment rules to foreign interference laws, Australia must be prepared to set firm national interest boundaries which are fair, transparent and non-discriminatory.
We have spent 18 months debating Chinese influence in Australia. China is borrowing the playbook used by the great powers of the past century – they seek to influence all parts of the foreign nation in which they have an interest.
Australia should calmly and coolly view China through this historical prism and address foreign interference in a non-discriminatory fashion – set the boundaries on an equal basis.
We cannot let emotion drive our decisions. Menzies said of the opposition to his Japan trade deal:
I have the honour to be supported in the Commonwealth Parliament by 100 members. Of these, 69 are ex members of the armed services. Their love of Australia is proved in action. Of these, no fewer than 32 served against the Japanese in the recent war. Of these, five were prisoners of war in Japanese hands. Are these members pro-Japanese? Or have they realised that the happiness of the future depends upon the future and not nursing the bitterness of the past for cheap political gain.
Long may we remember this sentiment. Bold, realist leadership which spurns protectionism and populism will best serve Australian interests. Australia needs the world more than the world needs Australia.