International Trade

Wed 3 July 2019

International political change is placing great stress on global development and trade at a time of vulnerability. The effects of this stress are exerting downward pressure on the Australian economy when aggregate demand and productivity growth are weak. There are, however, some short-term boosts for Australian exports from the international stress, that may temporarily partly obscure the extent of the challenge that we face.

The MEF will analyse the international political stress (the forces driving Trump budget expansion and protectionism late in the economic cycle when unemployment was low by historical standards; US-China tensions; Brexit and political incoherence in Britain affecting other parts of Europe; decline in support for open multilateral trade generally). It will focus especially on the dynamics of US-China relations and their global and Australian implications. Modelling results on the global and bilateral Australian effects of US tariff increases and Chinese discrimination against goods from some sources will be presented.

General discussion will draw out implications for Australian output growth, inflation and budget outcomes, and explore fiscal and monetary policy responses.

Dr Jiao Wang, Research Fellow Melbourne Institute of Applied Economic and Social Research

SLOWING TRADE AND DEVELOPMENT: THE GLOBAL CONTEXT

This session will lead the discussion with introduction to the development in global economic growth, policy uncertainty, and international trade in 2018-19. Special attention is paid to the developments and forecast of the US and Chinese economies. Impact of these global factors on Australia will be discussed as well.

Craig Emerson, Adjunct Professor Victoria University College of Business and Distinguished Fellow ANU and former Australian Minister of Trade

WEAKENING GLOBAL INSTITUTIONS FOR MULTILATERAL TRADE: RECENT HISTORY, PROSPECTS AND COSTS

The Trump Administration’s refusal to appoint new members to the WTO’s dispute-settling body will cause it to cease operations by December 2019. This will allow the US and any other country to impose new trade barriers without fear of WTO-sanctioned penalties. It constitutes the effective dismantling of the rules-based global trading system established in the aftermath of World War II. The US was pivotal in building that system through the GATT but is now preparing to tear it down. its actions will have profound implications for global peace and prosperity.

Christine Wong, Professor of Chinese Studies and Director of the Centre for Contemporary Chinese Studies

SINO-US TENSIONS AND FEEDBACKS INTO CHINESE POLICY & GROWTH

More than a year into the trade war with the U.S., China’s political and economic elites are reaching a consensus that can be summed up as follows: China opposes the trade war but is prepared for it. The Chinese economy is resilient and national dignity should not be compromised. Even if an agreement is reached to end the “trade war”, China must prepare for the economic conflict with the US to continue as a long-term problem. While there are nationalistic voices calling for direct confrontation, others are calling for using the crisis as an opportunity to push through difficult reforms to strengthen conditions for supporting economic growth and technological innovation. One such voice is Fan Gang, director of China's National Economic Research Institute and Secretary-General of the China Reform Foundation, who explains that while China has benefited hugely from the late-comer’s advantage of borrowing and imitating technology in the past, its size and current stage of development mean that it must now enter a stage of own-knowledge creation and innovation, and reform efforts should focus on creating an environment conducive to it.

James Giesecke, Professor and Director of Centre of Policy Studies Victoria University

MODELLING THE EFFECTS OF POSSIBLE CHINESE & US TRADE INTERVENTIONS

Modelling a number of issues related to the U.S.-China trade war we begin by examining the effects of the bilateral tariff exchange on the economies of the U.S., China, Australia and the rest of the world. We then go on to examine a scenario in which a U.S.-China trade deal is struck involving removal of the trade war tariffs and an undertaking by China to reduce its bilateral trade surplus with the U.S. We end by noting that the U.S.-China tariff exchange can be viewed as part of a wider recent pattern of use of trade instruments in pursuit of non-economic aims. Australia itself appears to have been subject to such instruments, with reports of a slowdown in processing of Australian coal imports through Chinese ports. We end by simulating the effects on Australia and China of a rise in Chinese barriers to Australian imports.

Ross Garnaut, Professorial Research Fellow in Economics at The University of Melbourne

WEAKENING GLOBAL TRADE AND GROWTH: FEEDBACK ON THE AUSTRALIAN ECONOMY

The Australian economy is slowing as slowing growth in global output and trade threaten new contractionary pressures. There are some short-term offsets, as Chinese fiscal expansion to counter the effects of increased US tarde barriers boost demand for steel-making raw materials and therefore Australian terms of trade. But the longer term effects of trade and investment uncertainty in China and in Asia more generally challenge to Australian Australian prosperity. This presentation focusses on Australian fiscal, monetary and trade policy responses to the challenge.

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