Treasurer Josh Frydenberg in a speech today at the ANU Crawford Leadership Forum:
During the Cold War, the Soviet Union was largely cut off from the rest of the world. It did not trade or invest much outside of its sphere of influence.
Contrast this to the present day. The IMF estimates that China’s share of global GDP will increase to 18.8 per cent in 2021, up from just 7.7 per cent in 2001.
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Almost 130 countries now have China as their largest trading partner. This combination of economic weight, global integration and assertiveness poses new and significant challenges for many countries around the world.
…We have faced increasing pressure to compromise on our core values. And when we have stood firm, as we always will, we have been subjected to economic coercion.
Our task is to prepare for and manage this competition. And in this new world, economic resilience is key. Key to our strategic interests and key to our economic interests … our economic and security interests increasingly overlap.
…Many of the firms and industries targeted by China’s trade restrictions have also been successful in re-directing goods to other export destinations.
A strong economy is the foundation of a country’s resilience and strategic weight. And our strong and flexibly economy has served us well.
…They have hurt specific industries and regions, significantly in some cases. Nevertheless, the overall impact on our economy has, to date, been relatively modest. This is perhaps surprising to many.
…Many have worked hard to access the lucrative Chinese market. This has brought great benefits to them and to Australia overall. And they should continue to pursue these opportunities where they can.
But going forward, businesses also need to be aware that the world has changed. And that this creates greater uncertainty and risk.
In this respect, they should always be looking to diversify their markets, and not overly rely on any one country. Essentially adopting a ‘China plus’ strategy.
And in the same way that governments are investing in economic resilience. So too, should Australian businesses – from cyber risks to supply chains and everything in between.
This is a responsibility we all need to take very seriously.
…heightened strategic competition is the new reality we face, now and likely into the future.
Our task is to prepare for and manage this competition. And in this new world, economic resilience is key – key to our strategic interests and key to our economic interests.
All fair enough. And certainly vastly better than Labor’s reflexive reversion to kowtowing, as we saw last week from the groveller-in-chief, Paul Keating.
We have been successful so far thanks to two reasons. First, commodities are fungible and can always find new markets.
Second, much of the conflict has transpired through the peak of the post-COVID commoities cycle so any volume impacts have been swamped by price gains.
It is this latter point that means that the Morrison Government will need to tread more carefully in a political sense ahead. Iron ore is headed below $100 in a hurry and the coal boom will follow it swiftly.
Within six months and certainly by this time next year, a giant commodity income suckhole will appear under the Australian economy, and beating one’s chest about China will have much more material consequences.