The election of Donald Trump on an economic nationalist platform means we now live in a world of American economic isolationism. President Trump has vowed to withdraw or renegotiate the trade agreements signed by the United States. This is on top Britain leaving the European Union (EU) through Brexit.
This means Australia may sign an agreement with the UK separately to the EU, as Britain scrambles to sign its own trade deal around the world. And it also signals the end of the Trans Pacific Partnership (TPP) that has just been given its death knell by President Donald Trump with the potential replacement with the rival pact Regional Comprehensive Regional Comprehensive Economic Partnership (RCEP) proposed by China.
But why is international trade important?
Despite Trump’s inauguration speech that said “Protection is prosperity” and he will “Put America first.” But what happens if America only buys America, Australia only buys Australia, Malaysia only buys Malaysian etc.? That’s right – you get a worldwide recession just like in the 1930s when tariff protectionism was associated with mass unemployment.
By contrast, open trade goes hand in hand with a growing world economy. For example, in our own backyard, in the Asia pacific, in the latter part of 20th Century, international trade has proved to be one of the world’s greatest ever anti-poverty programmes.
Why does trade matter to Australia?
Australia has been a trading nation ever since the Indigenous people of Arnhem Land traded sea cucumber with the people of Makassar (now the part of Indonesia) and our reliance on trade continued as a convict colony after European settlement. In fact, according to economic historian Geoffrey Blainey, the penal colony of New South Wales was “saved by the growth of Pacific Commerce.”
Ever since then, Australia has been dependent on importing foreign capital given our small population. And we have needed exports to pay for our imports as our economy has developed and our population has grown with it.
Fortunately for “The Lucky country” we’ve had a number of export booms to help pay for our prosperity. In the 19th century “rode on the sheep’s back” with the wool boom followed the gold rushes, We had similar booms in both rocks and crops (that is minerals and agriculture) in the 20th century, and now in the 21st century with resource finds like LNG.
Of course we can’t just export and not import. That would be unacceptable to our trading partners and bad for us. After all, much of our exports depend on imports. For example Qantas may import planes from Airbus or Boeing, but with those planes they carry tourists and international students to Australia, and create export revenue.
And two thirds of our exporters are importers too. And those exporters’ pay 60 per cent higher wages on average than non-exporters provide better Health and Safety and education and training. In the end trade is good for workers as well as the businesses who employ them.
The Power of Proximity
So whilst Trump turns his back on trade, and the UK on Europe, should Australia worry? Since Japan took over the UK as Australia’s number one export partner in 1966, Australia has been looking to Asia with China India and ASEAN following North East Asia’s lead. Australia will soon have more trade pacts in Asia as ‘the Power of Proximity’ replaces ‘the Tyranny of Distance’ in the Asian Century.
Because after all, as our economic history shows, Australia’s path to prosperity depends on our success as a trading nation.
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