DFAT: ‘Australia would be significantly worse off in the event of a regional or global trade war‘

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The nation’s top diplomat has delivered Canberra’s sharpest rebuke of Donald Trump, accusing the US President of unsettling the international trading system that has allowed economic prosperity to flourish for seven decades and warning that Australia stands to be significantly hurt by a global trade war.

As Mr Trump unleashed a fresh wave of tariffs to punish China, , Department of Foreign Affairs and Trade secretary Frances Adamson issued a rallying cry to business leaders to become more vocal in standing up for free trade and the international rules-based order as it comes under assault.

“On several fronts, the US is unsettling the international trading system that has underpinned global economic growth for 70 years,” Ms Adamson told Australian and New Zealand business leaders in Canberra on Tuesday.

“Perhaps most concerning for Australia, the United States has withdrawn some of its support for the World Trade Organisation, while raising unilateral tariffs and quotas against some of its trading partners.

“Credible economic modelling suggests Australia would be significantly worse off in the event of a regional or global trade war, with the extent of the damage depending on the extent and duration of higher trade barriers.”

Mr Trump on Tuesday, slapping a 10 per cent impost on about $US200 billion ($279 billion) of imports that will rise to 25 per cent within months unless China capitulates.

The trade tensions spooked investors. The local S&P/ASX 200 index fell 23.5 points, or 0.4 per cent, to 6161.5 on Tuesday, following Wall Street’s weak market close as anticipation of the tariffs rose in late trading.

initially fell after Mr Trump unveiled the tariff package, before the currency later rallied.

China unbowed by threat

The Reserve Bank of Australia’s monetary policy minutes published on Tuesday, based on its September 4 meeting, said “significant tensions around global trade policy” represented a “material risk” to the global economic outlook.

The 10 per cent tariff will take effect on September 24, and remain in place until the end of the year, before rising on January 1 to 25 per cent.

Mr Trump also warned that any retaliation by China to the latest attack would “immediately” trigger preparation into tariffs on another $US267 billion in imports.

But China was unbowed by the threat, and lashed out at Mr Trump for defying the overwhelming majority of domestic and international opinion.

Top Chinese officials reportedly convened an emergency meeting, with the Commerce Ministry late on Tuesday afternoon confirming it would hit back at the US, although it did not specify countermeasures.

“We deeply regret this. In order to defend its legitimate rights and the free trade order, China will be forced to retaliate simultaneously,” the Commerce Ministry said in a statement translated by Bloomberg.

“The US side insisted on imposing tariffs, which has brought new uncertainty to the bilateral negotiations. We hope that the US side will recognise the negative consequences of such acts and take convincing measures to correct them in a timely manner.”

While the latest announcement covers a vast array of agribusiness, technology, consumer electronics and toys, Mr Trump’s ultimatum would ultimately see the equivalent of a tax on every item imported into the US by the world’s second-largest economy and Australia’s No. 1 trading partner.

Alarm among businesses is intensifying throughout the US, China and beyond. They fear that doubling down on trade sanctions will end up damaging the global recovery and eventually whip back at the US economy, which is currently enjoying a sweet spot.

Trump unrepentant

Mr Trump, whose Republican Party is under pressure ahead of the November mid-term elections, has shunned appeals from businesses in the US for restraint, and is now directly challenging China to either backdown or face even tougher measures.

The President believes the US is being unfairly treated because it has a massive trade deficit with China, and is subjected to the forced transfer of intellectual property as the cost of doing businesses in the country.

America has already imposed tariffs on $US50 billion of Chinese imports, triggering matching measures from Beijing.

“We have been very clear about the type of changes that need to be made, and we have given China every opportunity to treat us more fairly,” Mr Trump said late on Monday (Tuesday AEST).

“But so far, China has been unwilling to change its practices.”

Trade and Investment Minister Simon Birmingham said one in five Australia jobs were dependent on exports and Australia would continue to push for countries to follow the international trade rules on tariffs and subsidies.

He said the Morrison government would protect local producers by enforcing anti-dumping laws to ensure below-cost Chinese goods are not diverted into the Australian market.

“Today’s announcement from the United States is a concerning development and we urge all parties to step back from further escalating tariffs and to tackle trade distorting subsidies or other issues,” Senator Birmingham said.

“Australia’s strong and growing economy – some 27 consecutive years of economic growth – is an example to the world of looking outwards, of engaging and of seizing export opportunities and the benefits that come from trade and investment.”

Plea for business support

Ms Adamson said business had an important part to play in setting the general tone of public debate concerning international affairs and trade.

“Business must also provide the momentum, the constituency for further trade liberalisation,” she said.

“When diplomats negotiate, we bring your interests to the table. Meanwhile, as protectionist sentiment rises around the world, government and business need to be partners in making the case for trade and investment to the public.

“Business has the practical experience as participants in trade and investment, and can provide persuasive examples of how trade delivers real benefits across the Australian community. We in government need your support.”

Ms Adamson said international institutions and the rules-based system were under strain as the US changed tack in global affairs.

“We may disagree with the approach of the current administration, but our response is to step up our engagement with them – we are certainly not pulling back,” she said in her speech to the Trans-Tasman Business Circle.

“The US position on trade is part of a wider pattern – withdrawal from the multilateral agreement to monitor Iran’s nuclear program; vacating a seat on the Human Rights Council; signalling withdrawal from the Paris Climate Agreement.

“None of this changes the fact that the United States and Australia are close partners. We share values and pursue common interests energetically and in line with shared long-term strategic interests.”

Ms Adamson said following Mr Trump’s recent policy approach of pulling back from the international order had to be resisted, and Australia instead had to renew and re-energise its engagement to multilateral diplomacy.

‘Multilateral diplomacy’ vital

“The great powers will sometimes act unilaterally – that is in the nature of things,” she said.

“Yet our nations can and do make a difference. We can shape our international environment through persuasion and collaboration, and multilateral diplomacy provides important opportunities for this.

“So it’s a concern when countries not only begin to question the value of multilateralism, but actively resist and oppose it.

“This is the context within which we must do all we can to sustain the multilateral trading system: Not only to keep trade flowing and ensure disputes are settled according to trade law, but as a component in the order that flows from agreed rules, rather than power, and which sustains peace and prosperity in the broad.”

Economists issued a gloomy outlook for Australia if the US and China did not step back from their tariff war.

Shiro Armstrong, an economist specialising in Asia at the Australian National University, said with Mr Trump also threatening to impose tariffs on Japanese cars, Australia’s top three export markets were on the brink of entering a risky international economic clash.

“We could quickly descend into a contagion of a global trade war where every country retaliates tit for tat,” Dr Armstrong said.

“Even if we do not get tariffs directly levied on us, we’ll suffer significant consequences.”

Economic modelling by KPMG suggests the local economy would be about 0.5 per cent smaller over four years if the trade war between the US and China escalated to a 25 per cent tariff on all goods traded between them.

This article was originally published by the Australian Financial Review. Read the original , or follow the AFR on .

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