Friday, September 25, 2020

China trade questions confound Australia’s Indo-Pacific shift

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The ‘Indo-Pacific’, stretching from the eastern Indian Ocean to the Pacific, is the Australian government’s framing of the international environment for its foreign policy. In strategic terms, it encompasses major powers such as India, Indonesia, China, Japan and the United States — a multipolar region that is resistant to the emergence of a new and potentially unfavourable hegemon. There is an economic dimension too, with a vision of more diversified trade. High hopes are placed on India, with the Australian government releasing in 2018 its India Economic Strategy to 2035.

On the strategic front, Canberra would be mostly pleased with developments last year. In November, Australian Defence Minister Linda Reynolds made her first official visit to Japan. The measures Reynolds unveiled with her Japanese counterpart Taro Kono were designed to deepen Australia–Japan defence cooperation, explains Grant Wyeth, ‘consolidating the perception that Tokyo and Canberra now see each other as their most important and reliable security partner after their respective alliances with the United States’.

In September, Quadrilateral Security Dialogue (Quad) meetings involving Australia, Japan, the United States and India were upgraded to the ministerial level. But disappointingly, in the same month, Australia was again not invited to participate in the Indian-led Malabar naval exercise involving its three fellow Quad members, India, the United States and Japan.

It has become clear over time, and dramatically so last year, however, that the Indo-Pacific frame has limited utility in delivering Australia its hoped-for pattern of economic ties. Trade flows are driven by factors exogenous to Australia — notably markets and comparative advantage. The wishes of elected politicians and bureaucrats sitting in Canberra are largely irrelevant.

In 2012, when the Indo-Pacific was starting to make a regular appearance in official government documents, China was the destination for 27.3 per cent of Australia’s total goods exports. Among Australia’s more substantial regional trading partners, the shares of East Asia excluding China (Japan, South Korea, Hong Kong and Taiwan), Southeast Asia (Indonesia, Malaysia, Philippines, Thailand and Singapore), India and the United States were 33.3, 9.5, 4.9 and 3.8 per cent, respectively.

Despite fervent championing of the Indo-Pacific, in the 12 months leading up to October 2019, China’s share of goods exports leapt more than 10 percentage points to 37.7 per cent. But the shares of East Asia (excluding China), Southeast Asia, India and the United States all fell to 26.4, 8.8, 3.8 and 3.7 per cent, respectively.

The story is mirrored on the import side of the trade equation. In 2012, China supplied 17.3 per cent of Australia’s goods imports while East Asia (excluding China), Southeast Asia, India and the United States accounted for 13.2, 16, 1 and 11.8 per cent, respectively. In the 12 months to October 2019, China’s share surged to 25.5 per cent. The shares of East Asia (excluding China), Southeast Asia and the United States all fell to 12.9, 14.2 and 11.1 percent, respectively. Only the importance of India had risen, but to a still marginal 1.6 per cent.

The evidence is mixed on whether Indo-Pacific countries have sympathy for Australia’s preferred economic architecture, headlined by a multilateral rules-based order. Countries like Japan and Singapore have emerged as strongly like-minded, being fellow members of initiatives like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP-11) and the Regional Comprehensive Economic Partnership (RCEP).

In contrast, the United States has veered in the opposite direction. On his first day in office, President Trump withdrew the United States from the CPTPP’s predecessor, the Trans-Pacific Partnership (TPP). Now, US blocking actions have rendered the WTO’s Dispute Settlement Body unable to provide independent adjudication on new cases.

Developments with India are similarly dismal. Despite launching negotiations for an Australia–India Comprehensive Economic Cooperation Agreement in 2011, progress towards such a bilateral deal has stalled. And in November, India opted out when RCEP’s 15 members successfully concluded negotiations.

Last November too, Peter Varghese, the author of the Australian government’s India Economic Strategy to 2035, admitted that ‘the big end of town still doesn’t buy the India story’. Varghese’s report…

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