The nice way of saying it is that Hugh White has painted himself into a corner by declaring China the winner before the game was afoot. At the AFR again:
We should not be surprised that Australia is finding it hard to get our relations with China right, because we have never encountered a country like this before.
China today is a ruthless country determined to use its growing power to expand its influence and reshape our region to suit its interests, with little if any regard for the interests of others. But it is also a country that we must learn to work with, and not just because no other country will offer anything like the same export opportunities in the years and decades ahead.
…Sometimes it won’t be pretty, but that is the way international politics works when you are dealing with great powers.
It is not clear that Scott Morrison has understood this. He seems to think that Australia can set the terms of the relationship unilaterally. Again and again over the past few months, as things have plunged to new lows, he has told Australians that there is simply no choice but to defy Beijing the way he has done. Anything else, he says, would betray Australia’s interests and impugn our sovereignty.
This absurd oversimplification of such a complex and important issue is, frankly, an insult to our intelligence.
OK, so let’s talk absurd oversimplification. Here’s one:
China’s rise is inevitable. China will reshape the region. We must trade with it. Therefore we must give in. By Hugh White.
Come now. China will be one force in the region among several. Not the overwhelming force that Hugh sees because he has no idea about economics. For years he has recycled Treasury modeling about the inevitable rise of the Chinese economy and equated that directly with military might. Yet the truth is China is exiting not entering its high-growth period. It is struggling to do so without crashing because of the debt burden it has accumulated to keep investment-led growth so high. This means that ahead it will grind into a Japanese style stagnation, exacerbated by horrible demographics, that ends its catch-up growth advantage. Other emerging markets will offer Australia greater opportunities as their catch-up growth periods run for decades. For more on this try an excellent weekend piece by Rowan Callick.
In fact, Hugh White has the wrong end of the tiger entirely. He sees Chinese aggression as a sign of its growing strength when it is the complete opposite. The CCP knows that as growth slows its legitimacy with Chinese peoples will decline. Its answer is to arouse nationalism and direct anger outwards.
The reality is that international relationships, like any other kind, always require a good deal of accommodation and compromise. Our national interests do not all lie on one side of the issue, and we need to balance competing interests that pull us different ways.
It is simply not true to say that doing this undermines our sovereignty or threatens our democracy. It is what we have to do as a sovereign nation to get the best outcome we can in a world where we cannot have everything our own way.
That means we are going to have to make some hard choices and some nuanced judgments. We do need to guard against Chinese interference in our politics, but we might talk less about how we are doing it. We do need to keep an eye on Chinese investments, but we should not exaggerate the risks they pose. And sometimes we will have to accept risks to avoid unacceptable costs.
Those are just weasel words. China’s 14 demands are in black and white:
Compromise any of these while under threat and you egg on Beijing to double down until you’ve compromised all.
This is what our neighbours are doing. Morrison’s trip to Japan last week was designed to show that we can deal with China by teaming up with other regional countries to isolate it. He brandished the low-level defence administrative agreement which he signed as evidence that Tokyo was on board for this.
But that is not so. This week, hard on Morrison’s heels, China’s Foreign Minister went to Tokyo to plan a state visit by President Xi Jinping. That is possible because Japan has been able to build better relations with Beijing without compromising its core interests. That shows how different Japan’s approach to China is from ours, despite the much more serious differences between them.
In a ham-fisted attempt to mend things with Beijing, Morrison in a major speech this week, and in these pages on Wednesday, distanced himself from Washington by saying Australia was not taking America’s side against China. He stressed that Australia does not see China as a strategic rival the way America does.
But he also said that Australia is “absolutely committed” to its alliance with the United States. How can that be so, if we do not share America’s strategic aims? Do we support America against China or not? If not, how can we claim we are committed to the alliance, given that containing China is America’s highest strategic priority – and will remain so under Biden?
More overly simplistic tripe. Hugh White knows there’s a difference between declaratory and actual foreign policy in most if not all nations. Double-speak is exactly what you use to mollify and confuse China while doing whatever is in our interests. If you’d like to read another equally dumb take on ScoMo’s speech then try Kelly Cowards.
As well, it has taken Japan almost ten years of fighting China over the Senkaku Islands to reach a point where they can talk again. This involved much worse boycotting of Japanese goods than Australia is experiencing. It also involved a major scaling up of Chinese naval aggression and Japanese aerial response, in a kind of faux war that is ongoing to this day.
Korea has spent three years warring with Bejing over its THAAD deployment which included cutting off tourism and all kinds of underhanded boycotts. Canada is fighting a hostage war with Bejing right now. India has been fighting a real war with Beijing including tit-for-tat economic boycotts. The Phillippines has recently swung back to the US military and is caught in a daily game of military cat and mouse over South China Sea oil. China is threatening the UK over HK and other points. The US has decisively swung away from China and its supply chains are diversifying. Australia is neither isolated nor particularly worse off than a whole range of nations on the receiving end of a Chinese jackboot.
Did any of these nations reach happier times by giving up their own systems of government? No. Japan defended its interests and eventually thawed into the “tactical detente” of today as Donald Trump scared the Bejesus out of both in 2018. Korea still has THAAD and its affected businesses have diversified away from Chinese influence. The Phillippines tried grovelling to Beijing only to find that being shat upon wasn’t much fun and scurried back to the US. The other conflicts appear to be worsening by the day.
We might ask ourselves why Hugh White misrepresents Australia as isolated when in actuality we are only the latest case in a pattern of escalating Chinese aggression. That is not to say that we are blameless in today’s conflict. But it does mean that it was inevitable so we might as well get it over with before we are irretrievably enmeshed, which we ARE NOT. As I’ve noted many time, the damage to date is far from macro econmmic in scale, via Citi:
Our baseline scenario currently points to a 10 per cent drop in total exports to China over the next 12 months, without any restrictions on iron ore shipments. This would leave growth only minus 0.33 per cent lower as a percentage of nominal GDP.
While China is a major export destination for the products that are exposed to China’s trade sanctions, their overall contribution to export suggests that the damage is manageable.
Our modelling suggests that there would be an undeniable hit to the Australian dollar export earnings, income and growth under a worst-case scenario which includes restrictions on iron-ore.
This would cause Australia’s total merchandise exports to decline by 20 per cent, leading to a $76 billion loss in export earnings, causing a sizeable 3.8 per cent hit to nominal GDP.
Our modelling suggests that in this scenario, the Australian dollar would be around 16¢ lower compared to baseline over the next 12 months.
Which would repair the damage quickly anyway by shifting trade to other nations which we need to do anyway because iron ore is going crash as China slows regardless.
The irony is that, as Hugh White preaches hedging, he has personally gone so long CCP omnipotence that he seems no longer able to maneuver in a forum of fact.
Australia should not make his mistake.
- Daily iron ore price update (to infinity and beyond!) - December 21, 2020
- Angry China blacks itself out with Aussie trade war - December 21, 2020
- Australian dollar booms again - December 21, 2020