Australia’s evolving Cold War 2.0 circumstances continue with stunning speed. The personality-disordered PM is on the hustings today with a new round of China-bashing:
- Morrison has warned about an emerging struggle between authoritarianism and liberalism.
- The Indo-Pacific is its epicentre with the rising risk of conflict.
- He aims to reform the WTO to fight economic coercion and to rally capital of the liberal bloc to aid states vulnerable to Chinese bribery.
All music to my ears. But while he galavants around the globe rallying it against China, Morrison appears to have given not a moment’s thought to what comes after.
We now know what that will be: the end of the iron ore age. For once, yesterday, CCP mouthpiece, The Global Times, made perfect sense:
- Australia should diversify its iron ore exports away from China.
- China will lift its proportion of scrap steel output to 30% by 2025 and 40% by 2030.
- “For every ton of steel that is based on scrap steel, you save 1.6 tons of iron ore,” Suchan said. “By 2025, if China’s plan to make steel from scrap goes as planned, the country will save 480 million tons of iron ore imports each year. By 2030, imports will decrease by 660 million tons annually.”
Is this possible? I doubt it. The amount of scrap required to move that fast is surely impossible to source. But, that does not make the advice untrue. We know that Chinese urbanisaton is running out of rope at 64%. One more decade like the last and it’s at the 80% typical of developed economies:
By my own calculations, if we assume a 20% fall in steel output by 2030 and a ramp-up of scrap at the current rate of growth then China can still cut half a billion tonnes of imported iron ore by 2030:
So, what’s PM Morrison to do other than float around on his public jet sounding important?
There are two examples we could follow. One good and one not so good. The first comes from Chile:
- Chile’s parliament is pushing through new copper super profits taxes.
- There will be a flat 3% levy on sales plus a sliding scale of marginal rates topping out at 75% as prices rise.
Chile has a giant sovereign wealth fund that it stuffs with windfall commodity gains. Chile does this to keep the peso lower to avoid Dutch disease, ensure that the dividend from a finite resource is available to future generations, and guarantee a fiscal stabilisation fund that can be tapped when copper goes bust.
So, there’s your first blueprint. If we were to apply a blanket $20 levy to iron ore, half from extractors and half from customers, then we could raise $10-15bn per annum for the next five years and sliding away from there. It could double the Future Fund.
Next up, we need a “no holds barred” reform campaign for higher productivity. Not the bullshit lower-wage version promulgated by Michale Stutchbury and company. Proper multi-factor productivity that targets capital as well as labour, including:
- Scrap negative gearing and capital gains giveaways for property.
- Scrap the various superannuation giveaways.
- Massively boost industry, R&D and innovation policies.
- Slash taxes for industry.
- Merge the RBA and APRA to ensure the lowest possible currency.
- Slash immigration and launch a massive robotics push.
- Crush the east coast gas cartel.
- Re-install the carbon price to dramatically accelerate the low carbon energy transition and industry.
Combined, this policy mix will provide a big buffer of savings as the terms of trade are smashed to smithereens plus a competitive economy as we come out of the iron ore era and have established leadership in the industrial rebuilding needed post-carbon and within the emerging liberal bloc.
The second possible plan is not quite so good. It comes from Nauru. It is to allow the savings of the guano boom to be frittered away on unproductive stuff like house prices by a greedy generation that leaves behind it nothing but deflated assets, a vast debt overhang and massive inequality for successive generations to have to clean up. In the process, this leaves the nation vulnerable to being pushed around by larger neighbours seeking to dump their political garbage on the island.
Welcome to Morrison’s post-China “plan”.