What’s worse than the US-China trade war? A grand peace bargain


Giovanni Di Lieto, Monash University

It’s hard to tell if Donald Trump’s trumpeting of “substantial progress” in trade talks, leading to a cosy weekend at Mar-a-Lago to sign a deal with Chinese president Xi Jingping, represents reality.

Most observers, though, will be relieved by his decision to again defer his threat to escalate the US-China trade war and hike up tariffs from 10% to 25% on US$200 billion worth of Chinese imports. (The total value of US imports from China in 2018 was US$493 billion.)




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Trade wars are generally considered bad for everyone. KPMG has calculated a full escalation of the trade war – with a 25% tariff applying to all goods traded (worth US$604.5 billion in 2018) – would cost Australia A$58 billion over the next decade.

But far worse for Australia, and its Asia-Pacific neighbours, could be a deal to end the trade war, especially if it involves a grand geopolitical bargain between the US and China.

Bilateral world order

Considering the US administration’s hard-line approach, for a truly comprehensive deal to occur China would have to subscribe to a serious restructuring of its industrial system. This would ultimately mean phasing out covert state subsidies, liberalising its financial markets and giving up on meaningful technological competition in security-sensitive sectors.

But out of fear an ongoing trade war will harm its export-driven economic progress, and also as an expedient step for advancing its regional hegemony, China might eventually agree to all this as part of a grand bargain.

Essentially, a grand bargain with an “America First” US administration makes sense on the mutually beneficial assumption it would lay the foundations for a bilateral world order.

As part of the deal the US would dramatically reduce its strategic footprint from the Middle East through to the Korean peninsula. The advantage would be it could focus resources on limiting China’s naval role across Indo-Pacific trading routes.

Retreating to a more sustainable role as the indispensable maritime power across the Pacific and Indian oceans would leave China free rein to exert its weight on land in Eurasia.

The US might see that as advantage. Chinese regional hegemony inland would give Russia more to think about on its south-eastern border, rather than causing problems for US allies in eastern Europe. It would also put extreme pressure on India to finally evolve into a subsidiary power to the US maritime empire, one of the wildest strategic dreams in Washington.




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The downside would be that Russia might end up as a subservient commodity supplier to China’s regional empire. Russia’s geo-economic downgrade would strengthen European resolve to run independently of the US, one of the worst nightmares in Washington.

For China, the prize would be achieving the main strategic ambitions of its Belt and Road Initiative, ultimately controlling land trading routes from Beijing to Venice. The strategic cost would be abandoning its maritime ambitions.

Where this leaves Australia

Where would this bilateral world system vision leave Australia?

Certainly worse off than the current situation. With interlocking spheres of influence across the Indo-Pacific rim (US) and the Eurasian landmass (China), at best Australia would become a marginal economic and security appendage of the two hegemons.

Relegated to the role of a price- and rule-taking commodity supplier to China, Australia would remain only nominally a US ally. It would be a rather disposable buffer state at the frontier of two empires, caught between the economic and security crossfire of proxy conflicts.

Weaknesses and opportunities

Compared to this scenario, a protracted US-China trade war may well serve Australia’s national interests much better.

Though tariffs will weaken the global economy, it will hurt the US and China the most. It might even weaken their respective commercial and military grips on the Asia-Pacific region to the point that patterns of more distributed power relations could emerge.




Read more:
Why there will be no winners from the US-China trade war


Economic analysis suggests many Asian economies are already relative winners, as tariffs motivate US and Chinese businesses to “decouple”.

Malaysia, Japan, Pakistan, Thailand and the Philippines lead the nations gaining from US and Chinese companies buying goods elsewhere. Vietnam, Malaysia, Singapore and India are the top beneficiaries from US companies shifting production away from China.

Several Asian countries have also seized the opportunity to play the US and China against each other.

The Philippines has revitalised relations with China to manage the South China Sea dispute more independently from the US. This has not stopped it remaining by far the largest recipient of US military aid in Asia.

South Korea has signed bilateral free-trade agreements with both China and the US, positioning itself as an intermediary that will allow American and Chinese companies to trade in a way that circumvents the tariffs.

Malaysia’s government has affirmed strategic neutrality by pulling back from deals that would put it in debt to Chinese investors.

This is arguably an unprecedented opportunity for Australia to start carving a more independent foreign policy.

Our interests lie in taking an active role in promoting a world system truly based on multilateral rules rather than great power relations.

The worst-case scenario for an ongoing US-China trade war is that it turns into real war. But that’s unlikely.

So long as it remains a manageable trade dispute, it is better for Australia, and much of the rest of the world, than trade peace leading to a bilateral world system.The Conversation

Giovanni Di Lieto, Senior Lecturer of international trade law, Monash Business School, Monash University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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A Trump-aligned World Bank may be bad for climate action and trade, but good for Chinese ambitions


File 20190130 108355 11qgq1d.jpg?ixlib=rb 1.1
A World Bank in sync with Donald Trump’s views about climate change and multilateralism would probably help to increase Chin’s role in international development and finance.
Shutterstock

Usman W. Chohan, UNSW

The seat of World Bank president is becoming vacant. Its president, Jim Yong Kim, will step down on January 31, three years earlier than his term formally ends.

His move – described as “sudden” and a “shock,” particularly since the World Bank has been going through significant internal restructuring – gives US president Donald Trump the chance to appoint a replacement more aligned with his outlook.




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This is because, since the World Bank’s establishment in 1945, the United States has had outsized influence as its largest shareholder. Its president has always been an American citizen nominated by the US government. Kim was chosen by the Obama administration in 2012.

Rumours circulated early on that Trump was considering his daughter Ivanka for the job. Even though that has since been denied, it’s likely he will choose a candidate sympathetic to his worldview.

This may mean a substantial change in the World Bank’s priorities. In particular, in two areas the bank has played an important and positive role: funding sustainable projects to deal with climate change (“climate resilience”); and encouraging robust international connectivity through trade.

Focus on climate resilience

The World Bank has put substantial emphasis on funding projects in developing countries that address climate change. Last financial year 32% of its financing – a total of US$20.5 billion – was climate-related.

Recently approved World Bank projects included climate resilient transport in the Oceania region (such as in Tonga and Samoa), and solar projects across Sub-Saharan Africa. This is all part of a detailed five-year Climate Change Action Plan underway since 2016.

This concern about the consequences of climate change stands in marked contrast to the Trump administration’s record.

Trump’s disregard of climate science is reflected in the defunding or reorganisation of climate-related research projects and institutions. His appointee to head the US Environmental Protection Agency, Scott Pruitt, played a key role in the US withdrawing from the Paris Climate Agreement and energetically worked to gut pollution protection regulations.

So there’s good reason to believe the Trump administration’s pick for the World Bank will reflect its hostility to climate security, and that the bank’s priority towards funding climate resilience will change as a result.

Antipathy towards multilateralism

The Trump administration has already sought to curb salary growth among World Bank staff. More severely, Trump’s National Security advisor, John Bolton, has argued the World Bank should be privatised or simply shut down.

This is part of a wider “antipathy towards multilateralism” that includes institutions such as the United Nations and the World Trade Organisation.




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Australia has to prepare for life after the World Trade Organisation


Trump’s belief that free trade has hurt the US is at odds with the World Bank’s long history of facilitating reforms designed to promote international trade.

Part of the original logic for the World Bank was that trade was seen as a means to create interdependence, and thus reduce economic conflict that might lead to war.

The Trump administration has shown it is more than willing to revert to an old-fashioned trade war.

Its tariff contest with China (which joined the WTO in 2001 with the World Bank’s help) is already hurting global manufacturing, with the International Monetary Fund downgrading its global economic growth forecasts as a result.

Though a Trump appointee might not upend the World Bank’s commitment to free trade in principle, the result might be an organisation less active in promoting multilateralism in practice.

Playing to China’s strengths

Ironically a Trump-compliant World Bank might result in promoting its sidelining to the advantage of China.

In its first six decades of existence the World Bank was an immensely powerful international institution. But its relevance to international development and finance is now being overshadowed by alternative funding mechanisms such as private-sector lending and particularly institutions related to Chinese international development initiatives.

China is planning through its Belt and Road Initiative to spend US$1 trillion on international infrastructure projects over the coming decade. Much of these are focused on Eurasian and African regions where the World Bank has struggled most to promote sustainable prosperity.

China has also has built a rival to the World Bank in the form of the Asian Investment Infrastructure Bank (AIIB), which has a sizeable balance sheet and a proactive approach to funding projects, including those in sustainable development.




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US sparks new development race with China – but can it win?


But in climate resilience and global economic integration, the World Bank still retains the mantle of global leader. Thus far it has welcomed cooperation with the AIIB, signing a memorandum of understanding in 2017.

Blunt its work in these two areas and the World Bank becomes more irrelevant. Combined with the organisation’s serious governance problems, which are most unlikely to be addressed by a Trump appointee, the future for the World Bank is not bright.The Conversation

Usman W. Chohan, Economist, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Government hopes Jerusalem compromise will smooth Indonesian trade deal


Michelle Grattan, University of Canberra

Scott Morrison has announced a compromise position that recognises West Jerusalem as Israel’s capital but does not move Australia’s embassy there until a peace settlement determines Jerusalem’s final status.

Instead Australia will simply establish a Trade and Defence Office in West Jerusalem.

The government briefed Indonesia before the Prime Minister outlined the new Australian policy in a speech in Sydney on Saturday.

Morrison’s announcement in the run up to the Wentworth by-election that Australia would consider moving its embassy from Tel Aviv to Jerusalem caused Indonesia – a Muslim country that is hostile to Israel – to put on ice the conclusion of the free trade agreement between the two countries. It also led to criticism from Malaysia. The government is hoping the compromise will mollify the Indonesians, and enable the finalisation of the trade deal.

In a speech strongly sympathetic towards Israel and condemning the “rancid stalemate” that had emerged in the negotiations to resolve the Israeli-Palestinian dispute, Morrison outlined Australia’s position.

“Australia now recognises West Jerusalem, being the seat of the Knesset and many of the institutions of government, is the capital of Israel.

“And we look forward to moving our embassy to West Jerusalem when practical, in support of and after final status determination”.

Morrison said Australia would start work now to find a suitable site for an embassy in West Jerusalem.

“Out of respect for the clearly communicated preference of the Israeli government for countries to not establish consulates or honorary consular offices in West Jerusalem, the Australian government will establish a Trade and Defence Office in West Jerusalem.”

Morrison said the defence aspect of this office would be concerned with defence industry, not diplomatic activity, because the Israeli defence ministry was in Tel Aviv.

He also said that “recognising our commitment to a two-state solution, the Australian government has also resolved to acknowledge the aspirations of the Palestinian people for a future state with its capital in East Jerusalem”.

Bill Shorten described the Morrison announcement as “a humiliating backdown”.

Shorten said the government had “walked away from their initial rush of blood to the head”.

Asked whether a Labor government would reverse the decision, Shorten said the ALP believed “Jerusalem should be recognised as the capital of both Israel and Palestine as part of the final stages of a negotiated two-state peace deal”.

Labor would do this “at the final stage and we’re not at the final stage of a two-state peace deal”.

Shorten said he hoped the trade deal with Indonesia would go ahead.

There was no immediate reaction from Israel because of the Jewish Sabbath. At the time when Morrison announced that Australia was considering moving its embassy, this was warmly welcomed by the Israeli Prime Minister, Benjamin Netanyahu, so the Israelis might be disappointed with the Morrison halfway house.

The official Indonesian reaction gave no indication about whether the Morrison announcement would be enough to move along the trade agreement. An Indonesian statement called “on Australia and all member states of the UN to promptly recognise the state of Palestine and to cooperate towards the attainment of sustainable peace and agreement between the state of Palestine and Israel”, based on a two-state solution.

The Sydney Morning Herald reported a member of the main Indonesian opposition coalition, Dian Islamiati Fatwa, a candidate for next year’s election, was critical of the announcement and said the free trade deal should be put on hold.
The Australia Palestine Advocacy Network denounced the Morrison announcement saying that it “was appeasing extremist elements of the party while further slamming closed the door to peace”

“As Israel claims exclusive sovereignty over all of Jerusalem and refuses to abide by United Nations resolutions calling it to withdraw from occupied East Jerusalem, we cannot give them a free kick,” said Bishop George Browning, President of the Australia Palestine Advocacy Network.

SUNDAY UPDATE: Malaysia slams Morrison Jerusalem decision

Malaysia has issued a strong statement opposing the Australian decision to recognise West Jerusalem as the capital of Israel.

As statement from the Malaysian government said: “Malaysia firmly believes that this announcement, made before the settlement of a two-state solution, is premature and a humiliation to the Palestinians and their struggle for the right to self-determination”

“Malaysia reiterates its long standing position that a two-State solution, in which the Palestinians and the Israelis live side by side in peace, based on the pre-1967 borders, with East Jerusalem as the capital of Palestine is the only viable solution to the Palestinian-Israeli conflict.”The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

G20 summit bring a truce in US-China trade relations – but it’s likely to be temporary


Tony Walker, La Trobe University

The United States and China have arrived at a temporary truce in a trade conflict that was threatening to further destabilise world equity markets, entrench a global slowdown and cause more damage to a rules-based international order.

Agreement by US President Donald Trump and his Chinese counterpart, Xi Jinping, to allow further negotiations before threatened tariff increases on Chinese imports come into effect is a welcome development.

However, this is a temporary respite, a short-term fix, not a long-term solution to myriad trade and other tensions that have put the US and China at odds with each other.

For their own purposes and in their own interests, Trump and Xi have come away from the Argentine capital with a deal that papers over differences that extend from China’s activities in the South China Sea to its mercantilist trade policies.




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As far as we know, China’s ruthless assertion of its sovereignty over disputed waters in the South China Sea was not a material subject for discussion in Buenos Aires except, possibly, in passing.

China’s rise and America’s relative decline ensure these global economic superpowers will continue to bump up against each other.

So, what was achieved and what are the prospects for an accord reached on the sidelines of the G20?

In their efforts to lower trade tensions and prevent a further erosion of global confidence, Trump and Xi agreed to a 90-day extension on the imposition of additional US tariffs on some US$200 billion of Chinese imports.

Trump had threatened to increase tariffs from 10% to 25% on an initial batch of Chinese imports from January 1. He had also flagged his intention to impose levies on another US$267 billion worth of imports if progress was not made in resolving broad-based trade differences.

A joint statement laid out a timeline for continuing negotiations. It reads:

Both parties agree that they will endeavour to have this transaction completed within the next 90 days. If, at the end of this period of time, the parties are unable to reach an agreement, the 10 percent tariffs will be raised to 25 percent.

In return for these temporary concessions, China agreed to:

… purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between the two countries. China has agreed to start purchasing agricultural product immediately.

China also agreed to crack down on sales of Fentanyl by making it a controlled substance. The US is battling an opioid crisis in which Fentanyl is a lethal component.

In retaliation for US trade actions, China had imposed duties on US$110 billion of imports. A principal component of this is soybeans, effectively killing one of America’s more lucrative export markets.

Trump has been under huge pressure from his Mid-Western rural heartland over a collapse in the Chinese market for American agricultural products.

The two sides also agreed to address structural problems in the trading relationship. These extend to five areas – forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft.

These are highly complex issues and unlikely to be resolved in the short term, if at all.

In the wash-up of the Xi-Trump discussions it appears China has got more out of the deal than the US – at least for now. It has secured a stay of execution for the implementation of tariff increases and forestalled, for the time being, tariffs on an additional bloc of Chinese exports.

In return, it has agreed to buy unspecified quantities of US products and to talk about differences.

Trump’s willingness to compromise after months of bombast reflects pressures from a shellshocked grain-producing constituency and alarm on Wall Street at prospects of a full-blown trade war.

From Beijing’s perspective, China has demonstrated that its growing economic heft has enabled it to avoid the appearance of yielding to US pressure.

If not a “win-win” for China – as Chinese officials are fond of saying – it is certainly not a “lose-lose”.

In a statement at odds with months of fire-breathing rhetoric over China’s allegedly perfidious trade practices, Trump hailed his understanding with Xi. He said:

This was an amazing and productive meeting with unlimited possibilities for both the US and China.

For their part, Chinese officials were more circumspect.

Foreign Minister Wang Yi said the talks were conducted in a “friendly and candid atmosphere”. The presidents:

agreed that the two sides can and must get bilateral relations right… China is willing to increase imports in accordance with the needs of its domestic market and the people’s needs.

Impetus for a face-saving deal in Buenos Aires has been prompted by growing concerns about the global economy. The signs of a slowdown are clear. Trade volumes had begun to moderate in the third quarter, heightening worries of a global retrenchment.

International Monetary Fund managing director Christine Lagarde at the G20 summit.
AAP/EPA/G20 handout

On the sidelines of the G20, the International Monetary Fund’s managing director, Christine Lagarde, noted:

Pressures on emerging markets have been rising and trade tensions have begun to have a negative impact, increasing downside risks.

In its October Outlook statement, the IMF warned about threats to global growth due to trade disturbances.

In their final communique, G20 leaders danced around contentious issues on trade to accommodate American objections to having the word “protectionism” inserted in the document.

In the end, participants settled on the need for reform of the World Trade Organisation to describe a world trading system that is falling short of its objectives. Washington has been agitating for a review of the WTO to strengthen its dispute resolution and appeal procedures.

The US has also objected to a continuing description of China as a developing country, with concessions that enable it to take advantage of less developed country status in its access to global markets.




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On climate change, Washington separated itself from the other G20 members. All, except the US, reaffirmed their commitment to the Paris Agreement. The US announced in 2017 it was pulling out of Paris.

Foreign policy specialists will be sceptical about a de-escalation of trade hostilities given the range of issues bedevilling the US-China relationship.

Reflecting a hardening of US attitudes towards China, and in contrast to the optimism that had prevailed for much of the past two decades, Ely Ratner in Foreign Affairs notes:

Even if tariffs are put on hold, the United States will continue to restructure the US-China economic relationship through investment restrictions, export controls, and sustained law enforcement actions against Chinese industrial and cyber-espionage.

At the same time, there are no serious prospects for Washington and Beijing to resolve other important areas of dispute, including the South China Sea, human rights and the larger contest over the norms, rules and institutions that govern relations in Asia.

A stiffening view in the US towards China is shared more or less across the board. In those circumstances, a temporary ceasefire in Buenos Aires is unlikely to be sustained.The Conversation

Tony Walker, Adjunct Professor, School of Communications, La Trobe University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The many ways Australia isn’t as pro-trade as we claim


Gabriele Gratton, UNSW

Chinese President Xi Jinping’s speech at the annual Boao Forum this week caused sighs of relief after a month of mounting threats of tariff escalations between China and the US. Instead, Xi pledged a “new phase of opening up”, including cutting tariffs on car imports.




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US President Donald Trump’s vision of the global economy as a zero-sum game is at odds with Australia’s experience: the mining and education booms that benefited millions of Australians were fuelled by the Chinese economic miracle of the last three decades.

History too is on the pro-trade side: when trade wars waged on both coasts of the Atlantic in the 1930s, claims of unfair competition became nationalist rhetoric, tariffs became guns, and the economic tragedy of a trade war turned into the real immense tragedy of the second world war.

With such powerful images in mind, we are rightly proud to defend the merits of a well-regulated free-trade world. But perhaps we may be too generous with ourselves. As it turns out, Australia is not innocent when it comes to anti-trade sentiments.

On July 1, 2018, the Australian government will extend GST to low value direct imports of physical goods. The mode of collection, designed to limit enforcement costs, relies on the voluntary participation of foreign retailers, with Treasury (perhaps optimistically) estimating compliance rates as low as 50%.

But border controls on parcels will remain a heavy burden on the budget. To cover the losses, the government is likely to impose a A$5-to-A$10 per-parcel levy on international retailers, in addition to GST. This is a new barrier to trade.

Many more barriers go unnoticed. Of course, the fragile and unique ecosystem of the continent needs to be protected, so we naturally impose some barriers to the importation of biologically sensitive material. The immediate economic costs for Australian consumers are large, albeit difficult to estimate precisely, but probably necessary to protect our environment from bio-threats to seeds, meat – and books.

Yes: books. Thanks to restrictions on the parallel importation of books, Australian publishers (including local representatives of multinational publishers) sell books written, published, and printed outside Australia, at much higher prices (in many cases, more than 50%) than what is charged for essentially identical goods just outside our customs.




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In 2009, the Productivity Commission concluded that this policy is a net transfer from Australian consumers to publishers and authors around the world. The Commission forgot to add that books feed knowledge, and a knowledge economy is critical to the future of our children. That is, if more expensive food damages consumers now, more expensive books damage the present as well as the future of the country. Despite the report, the policy stands. As a nation we chose to protect our publishers instead of our children’s future.

Our recent pro-trade score is not much better.

In 2016, the Anti-Dumping Commission found canned tomatoes exporters La Doria and Feger guilty of dumping – that is, selling products for less than they sell for in their own country. The government responded by imposing dumping duties up to 8.4% on all Italian tomatoes. Such anti-dumping retaliations are perfectly legal within the WTO framework, but often cover protectionist policies.

According to a 2017 WTO report, Australia was responsible for almost a third of all such retaliations among the G20 countries in 2016, second only to the US. Not bad for a nation that sees itself at the forefront of the fight for free trade.

To be fair, Australia has contributed to world peace with many unilateral free-trade decisions in the past. Car import tariffs are now a small fraction of what they were 30 years ago and may well be scrapped completely this year. But if we want to contribute to maintain this peace in the future, we may need more than the pride of feeling on the right side of history.

The ConversationThe government should stop flirting with Trump’s new anti-trade wave, and not be content with being excluded from Trump’s steel and aluminium tariffs. As a pro-trade nation, Australia should speak loud and clear.

Gabriele Gratton, Senior Lecturer in Economics, UNSW

This article was originally published on The Conversation. Read the original article.

Shorten’s plan to triple anti-dumping penalties misunderstands the law


Weihuan Zhou, UNSW

Bill Shorten’s proposal to triple anti-dumping penalties demonstrates a misunderstanding of dumping and its impact on the economy. It also misunderstands when anti-dumping measures may be lawfully applied and to what extent.

Shorten’s proposal is purportedly to prevent Australia from becoming a “dumping ground for cheap foreign goods sent here by trade cheats”. The Opposition Leader says Labor is a strong believer in trade, but it should be conducted on a “level playing field”. He also wants to give the Anti-Dumping Commission 30 new staff and new responsibilities.




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There are no existing penalties in the World Trade Organisation (WTO) anti-dumping regime, or in Australia’s anti-dumping regime – that would be in breach of WTO rules. Australia’s current regime involves the use of anti-dumping measures to counteract injury caused by dumped imports to domestic industries. These typically take the form of import tariffs.

Anti-dumping measures like duties are not “penalties” as such, but simply taxes in the form of a customs duty to remove the injury caused by dumping.

In recent years, the use of anti-dumping measures has been on the rise predominantly to protect the steel industry in Australia.

Current dumping rules

“Dumping” is when an exporter exports goods to another country at an export price less than what it sells the same like goods in its own country. Under WTO rules, this is neither illegal nor unlawful.

It is a perfectly legitimate commercial practice. In fact, in 2016 the Productivity Commission found there was no compelling economic rationale for a country like Australia to act against dumping.

Rather than prohibiting the practice of dumping, WTO anti-dumping rules only provide a remedy where the dumping causes material injury to a domestic industry in the country of import, for example reduced revenues and profits. The remedy is the imposition of dumping duties, or customs duties.

This should be equal to or less than the margin of dumping – the extent to which an exporter’s export price is lower than its home market price.

It’s not clear how the “triple penalties” proposed by Shorten could be imposed in line with the WTO rules.




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It’s time to drop Australia’s protectionist anti-dumping rules


Increasing penalties could hurt the economy

Mr Shorten’s anti-dumping penalties would have several effects – including to increase prices of imported goods and inputs for Australian produced goods. This price rise would be passed on to Australian companies and consumers. For example, this would increase the cost of steel for construction industries.

Shorten’s policy would benefit a small group of import-competing industries, such as those producing steel and A4 copy paper, including companies that are wholly owned by foreign companies. But such policy completely ignores the interest of Australian manufacturers using imported materials, their employees or consumers.

Increased dumping penalties could also stifle competition, increasing prices. This could also increase unemployment, as the imposition of the penalties would make the cost of business uneconomical.




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Consumers lose out to Australia’s protectionist anti-dumping laws


Shorten’s policy on dumping seems misguided and ill-informed and can only operate to Australia’s detriment. These observations are consistent with the findings of the Productivity Commission that Australia’s anti-dumping system has become increasingly more protectionist and damaging.

In the interests of fair trade, similar penalties would need to apply to Australian companies engaged in dumping, and to both export and domestic sales to ensure a “level playing field”.

More fundamentally, as the Productivity Commission has observed, “fairness” does not provide a justification for anti-dumping measures which fail to consider the impact of such measures on the community as a whole.

What’s more, Shorten’s “triple penalty” could drag Australia into the ongoing trade conflict and harm Australian consumers and industries using imports from China. If the “triple penalty” provokes China’s retaliation, that will hurt Australian goods and services exporters.

The ConversationThis article was co-authored by Andrew Percival, Principal at Percival Legal.

Weihuan Zhou, Senior Lecturer and member of China International Business and Economic Law (CIBEL) Initiative, Faculty of Law, UNSW Sydney, UNSW

This article was originally published on The Conversation. Read the original article.

Move over Canada and EU, Australia is best placed to benefit in the US-China trade tug-of-war


Giovanni Di Lieto, Monash University

Australian firms are in a sweet spot between the bickering United States and China, where they can sell more and buy more cheaply because of weaker competition in both markets. Essentially, the mutual tariffs are a double blessing for Australia.

The latest escalation of the ongoing tariff war promises to impact on international trade exchanges to the tune of A$130 billion per year across a broad range of economic sectors, including metals, drugs, motor vehicles, electronic components, industrial machinery and foods.

Australia is one of the best placed countries in the world to reap the gains of the likely trade diversions. For example, Australian beef producers will be much more competitive in exporting to China as their American competitors have to grapple with the 25% tariff on their beef. On the other side, as China raises tariffs on soybeans, Australia could buy this product more cheaply from US farmers keen to find new distribution channels.

And the same goes for all other products appearing in the US and Chinese hit lists on both the export and import sides of markets.




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Australia’s main competitors for this double market grab are just a handful of highly developed economies with sizeable commercial ties with both the US and China. These include Canada, the EU, Japan and South Korea.

But in comparison with these trading competitors, Australia has a natural advantage due to the ease of access to maritime routes right across the Asia Pacific region.

While Europe is also in between the American and Asian continents, its overland trading routes are far less developed than the maritime ones and are also clogged by hostile countries such as Russia, Turkey, Iran, Pakistan and India.

Canada is also at a disadvantage to Australia because of its more embedded economy and supply chains with the US. The challenging renegotiation of the North America Free Trade Agreement with the US and Mexico could also stunt Canada’s range of trading action.

Similarly across the Pacific, Japan and South Korea share Canada’s tricky position as they are too close to their powerful neighbour, in this case China. Not to mention that South Korea is also under intense geopolitical pressure from President Trump to renegotiate its advantageous bilateral free trade agreement with the US.

Australia is sitting pretty

Australia doesn’t pose a direct strategic threat to either China or the US, as its economy and military power is not too big. And it’s not so small that it can be easily trumped. Also, its location is not too close, yet not too far from any of the major contenders for primacy in the Asia Pacific region.

Australia has skin in the game but not to an indispensable degree. More important still, Australia has solid and mutually beneficial bilateral free trade agreements with both China and the US, which gives more predictability to the country’s trade and investment flows.

In fact, as the Australian Trade minister, Steve Ciobo remarked, Australia is relatively safe from any retaliatory action from the Trump administration thanks to a negative trade balance with the US.

On top of that, in terms of foreign direct investment Australia has ample room and need to diversify its over-reliance on US money. Official data show the US tops the list of foreign investment in Australia with 27% of total value by country, which is a level 10 times bigger than Chinese investments. On the other hand, Australian capital mostly flows out to the US (28% of total value) and not very much to China (only 4%).




Read more:
Why Trump’s tariffs will have little impact on Australia and a trade war is unlikely


It’s handy for Australia that the US Trade Representative has flagged new restrictions on Chinese investment in the US to
contain “China’s stated intention of seizing economic leadership in advanced technology as set forth in its industrial plans, such as Made in China 2025”. This means more investment spillovers are likely to flow between China and Australia with more favourable terms than ever.

Deeper investment ties with China will make an increasing negative trade balance with Australia more acceptable to China over the long term. Also this dynamic places Australia’s economy in pole position to take advantage of the improving quality of Chinese financial markets. This is evident in the ongoing rebalance of the Chinese economy, as it moves towards more reliance on growing consumer demand and away from inefficient, debt-fuelled investment.

Overall we are in the presence of a paradox. What in ordinary times used to be Australia’s vulnerabilities may instead prove its strategic strength in the context of a trade tug-of-war between the US and China.

As long as the trade war does not escalate to a full-blown military conflict, on the face of it Australia can still afford to sit on the commercial fence. With this pragmatic economic approach, cynics may well define Australia as a vulture country.

The ConversationBut to be realistic, the US-China trade war gives Australia the unprecedented chance to expand its economic footprint in the geopolitical agendas of both global superpowers. At such uncertain times, even more than pure economic profit, this strategic improvement will be the sweetest fruit for the lucky country.

Giovanni Di Lieto, Lecturer of international trade law, Monash Business School, Monash University

This article was originally published on The Conversation. Read the original article.

Why China is a leader in intellectual property (and what the US has to do with it)


Alice de Jonge, Monash University

United States President Donald Trump is not the first to complain about intellectual property (IP) theft by Chinese companies but ironically it was US companies’ use of China’s resources that led to the development of its powerhouse of patents.

In the late 1980s and throughout the 1990s, western firms like Apple and Intel made large profits by investing in China to take advantage of the cheap labour, often at terrific human cost. As China’s economy grew, and the population became wealthier, western firms were then able to profit by selling their products back to the wealthier children of the same labour force which made them.

The Chinese government saw this happening, and wanted western firms benefiting from the Chinese market to give something back. It established a system of approving foreign investments on the condition the businesses involved agreed to partner with local firms and transfer knowledge and skills to the local Chinese market.




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Australia should steer clear of the sanction fight between the US and China


In December 2001 when China joined the WTO it entered into the Agreement on Trade-Related Intellectual Property Rights to bring its IP laws up to a minimum international level. At the same time, the government was keen to transition from being a manufacturing-based economy to an innovation-based economy. This large step forward (as opposed to great leap) would be fuelled by expanding China’s domestically owned intellectual property.

One of China’s more controversial growth tactics has been to focus on fostering IP innovation within China. For example, the government preferences procurement of high-technology products whose IP is owned or registered in China.

This has been called a strategic attempt to commercialise non-Chinese ideas in China, and as a trade barrier potentially contravening China’s WTO commitments, including those under the Trade-Related Intellectual Property Rights agreement.

In 2010 the Obama administration filed a complaint with the WTO over China’s use of its innovation policies in the wind power industry. There’s been other complaints lodged relating to Chinese IP laws, one notably in 2007 argued that China has failed to enforce IP law on pirated products, even when they had been identified by victims and/or the Chinese authorities.

Since the late 1990s, China has been steadily improving the quality of its IP protection and the standard of its IP law enforcement. Many of its preferential policies favouring Chinese IP development have been wound back so as not to discriminate against foreign IP; or at least not so obviously. Other amendments have strengthened IP protection and enforcement, as well as increasing penalties for IP infringements.

In March 2017, for example, the General Provisions of the Civil Law were amended to make clear that trade secrets can be protected under civil IP laws. Amendments to the 1993 Anti-Unfair Competition Law in early 2017 also improved protection for trade secrets.




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China’s most recent, 13th five-year plan, approved by the National People’s Congress in early 2016, envisions China as a world leader in science, hi-tech and intelligent machines:

We will…expedite implementation of national science and technology programs… make breakthroughs in core technologies in fields including next generation information and communications, new energy, new materials, aeronautics, biomedicine and smart manufacturing…

Perhaps the best example of China’s goal of becoming a global leader in artificial intelligence (AI) is in the area of facial recognition technology. These systems, which automatically identify an individual from a database of digital images, are now a part of everyday life in China in areas such as public security, financial services, transport and retail services.

This technology is also just one aspect of a broader system being rolled out by the Chinese authorities. It aims to monitor and influence the whole of Chinese society (individuals and organisations) through social credit ratings.

The global facial recognition industry is forecast to be worth US$6.5 billion by 2021, and its continued growth in China is being spurred by innovative start-ups like Yitu Technology and DeepGlint.

China knows that an essential part of achieving its aim of “science and intelligent technology leadership” is putting in place high quality legal protection for intellectual property. However, as recent reports from the United States have found, there remain many deficiencies in China’s protection of trademarks, copyrights, and patents.

IP enforcement in the case of piracy and other breaches is often inadequate. Either there is no prosecution of breaches, no positive finding that a breach has occurred or the penalty applied is too light to have any deterrence value.

The ConversationHowever, for firms that do take the trouble to properly register their IP in China, protection does exist and enforcement is improving and will continue to improve.

Alice de Jonge, Senior Lecturer, International Law; Asian Business Law, Monash University

This article was originally published on The Conversation. Read the original article.

Australia should steer clear of the sanction fight between the US and China


Bruce Baer Arnold, University of Canberra

Even though Australia follows the United States in much of its policy, Australian exporters and consumers will be hoping we don’t get caught in the crossfire as the US and China impose sanctions on each other.

US President Donald Trump has the power to impose trade sanctions on China for its disregard of US intellectual property (IP) rights: patents, trademarks and copyright.

These sanctions could make Chinese exports more expensive or prevent access to the US market. China has already indicated it will play tit for tat, imposing its own sanctions.




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Trade disputes are often as much about rhetoric as about reality. China will remind the world that the US began as a pirate nation, harvesting European technological innovation and cultural production (such as work by Byron, Shelley, Dickens and Trollope) on the basis that it was a developing nation and because it could.

Away from the headlines China will likely take the US to the World Trade Organisation (WTO), a global mechanism for resolution of trade disputes. The US has announced it will take China to the WTO over patent violations.

The US will presumably ramp up claims with the WTO against other trading partners (such as India, Indonesia, Thailand and members of the European Union) that appear on its watch list for allegedly pirating US knowhow.

What this means for Australia

Academics such as Matthew Rimmer have astutely highlighted disadvantages for Australian consumers as citizens of an IP colony. This is where we import more than we export in content and pay a premium for work from overseas.

For example, we pay more than our US counterparts for software and hardware that most people take for granted. Our IP regime – in principle and practice – construes many violations of IP rights as piracy.

Our regime is aligned with that of the US. That reflects our traditional defence policy and the significance of US investment. What is good for US companies Microsoft, Pfizer and Disney is deemed to be good for Australia.

But joining in this cascade of retaliation will jeopardise economic growth, foster political unrest in developing economies and penalise consumers. The salient feature of economic growth over the past four decades has been globalisation – trade and investment across borders – rather that fundamental productivity gains through information technology.

Integration with the global economy (alongside the hollowing-out of local manufacturing and the TAFE system) mean that we cannot turn back the clock to the days of Alfred Deakin. Deakin’s grand compromise – the Australian Settlement – promised to protect small farmers, local manufacturers and workers behind walls that restricted migration and imports.

The headline-grabbling sanctions from Trump might also not necessarily be supported. Some business leaders recognise the importance of trade across the global economy and are perplexed by the current policy that seems to be driven by Trump’s late-night tweeting rather than anything coherent.

Where does that leave China?

China’s response has so far been cool. Moderation in the public arena highlights the idiosyncratic nature of Trump’s statements. It also reflects a deeper reality.

China wants to sell high-technology products to Australia, the US and other nations. One is example is 5G telecommunication networks from Huawei.

It wants the advantages that come from exploitation of the global IP regime, with its innovators and entrepreneurs building portfolios of patents and buying leading Western brands. It is likely to emulate what we saw with Japan: from “pirate” to IP citizen, complying with laws, within a few decades.




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Beijing is slowly strengthening the enforcement of IP rules in key regions such as China’s Pearl River Delta. In part that’s an effort to reduce the backlash in its export markets and it’s also a recognition that growth may be a matter of fostering innovation rather than copying or cheap labour.

The ConversationAustralia sources many manufactured items from China, with that production often dependent on US, Japanese and EU IP. Our own economy depends on exports of commodities; universities are dependent on overseas (particularly Chinese) students. So we don’t want to see an increase in international tensions and don’t want a slowing of the global economy because of a cascade of tit-for-tat sanctions.

Bruce Baer Arnold, Assistant Professor, School of Law, University of Canberra

This article was originally published on The Conversation. Read the original article.

China, North Korea and trade the key talking points when Turnbull meets Trump



File 20180220 161908 1br71rj.jpg?ixlib=rb 1.1
Malcolm Turnbull will be relieved to have some time away from the Barnaby Joyce affair when he arrives in Washington this week.
Reuters/Jonathan Ernst

Tony Walker, La Trobe University

Malcolm Turnbull was no doubt relieved when the prime ministerial jet lifted off from Australian soil yesterday, bound for the United States and his first formal round of discussions in Washington with an American president.

In Turnbull’s own words – applied to Deputy Prime Minister Barnaby Joyce’s domestic troubles – he will be hoping to leave behind a “world of woe”.

After a steadier start to the new year, the Joyce scandal, involving an affair with a political staffer, has cut the ground from under those improved prospects.

This has been reflected in the latest round of polling, which shows the Coalition slipping back against the Labor opposition. Turnbull’s own approval rating has taken a hit.

For these and other reasons, not least the need to establish a sound working relationship with a new administration, the prime minister will be looking to a circuit-breaker.




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Whether Turnbull’s “first 100 years of mateship” visit to Washington – with state premiers and business leaders in tow – provides a diversion from his domestic woes remains to be seen.

The hokey branding for the mission refers to the centenary of American soldiers fighting under Australian command on the Western Front in the Battle of Hamel in 1918.

In Washington, Turnbull’s discussions with President Donald Trump will focus primarily on China’s rise, the North Korean nuclear issue, and trade.

How to respond to North Korea’s provocations represents an immediate problem. But in the longer term, China’s expanding power and influence constitute the greatest security challenge facing Australia since the second world war.

In his public statements, Turnbull has been alternately hawkish and conciliatory toward Beijing, but it appears his instincts tend to align themselves with an American hedging strategy.

The Turnbull view of how to manage China’s rise was given particular expression in a speech in June 2017 to the annual Shangri-La Dialogue in Singapore. In this speech he called for “new sources of leadership [in the Indo-Pacific] to help the United States shape our common good”.

Turnbull’s Shangri-La speech was forthright for an Australian prime minister. He sharply criticised China’s “unilateral actions to seize or create territory or militarise disputed areas” in the South China Sea.

Beijing denies it, but it is clear it has been constructing a defence perimeter on islands and features in disputed waters. This prompted the following from Turnbull:

China has gained the most from the peace and harmony in our region and it has the most to lose if it is threatened … A coercive China would find its neighbours resenting demands they cede their autonomy and strategic space and look to counterweigh Beijing’s power by bolstering alliances and partnerships, between themselves and especially with the United States.

That speech was followed by increased efforts to expand a quadrilateral security dialogue between Australia, Japan, India and the US.

Turnbull’s visit to Japan in January for high-profile talks with Japanese Prime Minister Shinzo Abe emphasised shared regional security goals with other members of the so-called Quad.

What steps might be taken to further develop security collaboration between Australia, the US, India and Japan will almost certainly be on the table in Washington.

The Trump administration’s appointment of Admiral Harry Harris, the outgoing head of the US Pacific Command, as the ambassador-designate in Canberra is a signal of its intentions.

Harris has a hawkish view of China’s expanding influence in the Indo-Pacific. His participation in a security conference in Delhi in January along with Australian, Japanese and Indian naval commanders was significant in light of stepped-up efforts to bolster maritime collaboration between Quad members.

However – and this is a sizeable “however” – Turnbull needs to be careful not to be sucked into an American slipstream where China is concerned. Australia’s commercial interests dictate prudence in how it positions itself between a rising China and the US under an unpredictable Trump presidency.

The new US National Defence Strategy exposed differences between Canberra and Washington in their views of “revisionist” China and Russia as threats to US hegemony.

Foreign Minister Julie Bishop felt obliged to distance Australia from the Trump administration’s characterisation of attempts by China and Russia to “shape a world consistent with their authoritarian model”. She said:

We have a different perspective on Russia and China, clearly. We do not see Russia or China as posing a military threat to Australia.

Turnbull, for his part, provided a more nuanced response. He said:

We don’t see threats from our neighbours in the region but nonetheless every country must always plan ahead and you need to build the capabilities to defend yourself not just today but in 10 years or 20 years hence.

Australia’s 2016 Defence White Paper and 2017 Foreign Policy White Paper (the two documents should be read in conjunction) sketched out a future in which the country needs to buttress its defence capabilities in light of China’s rise.

Apart from China and related security matters, Turnbull will focus on trade in Washington. He will no doubt try to persuade Trump to revisit his decision to pull the US out of the Trans-Pacific Partnership trade agreement, now rebranded as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

The US withdrawal from the TPP, as one of Trump’s first executive acts as president, was disappointing. A trading bloc in the Indo-Pacific accounting for 36% of global GDP would have served as a counterweight to China’s surging trade and investment ambitions.

The revised CPTPP – including Australia, Japan, Canada, Mexico, New Zealand, Malaysia, Peru, Singapore, Chile, Vietnam and Brunei – remains significant. But clearly the abrupt US withdrawal has lessened its reach.

Significantly, Turnbull will discuss the CPTPP on the eve of the initialling of the agreement among the 11 remaining participants on March 8.

Trump has indicated he might be receptive to arguments for American re-engagement in the CPTPP process. However, this would require the renegotiation of provisions on such contentious issues as dispute settlements, copyright and intellectual property.

It is hard to see this happening in a timely manner. In a sense, the train has left the station.




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The Turnbull-Trump focus on China may also yield discussion about a competing regional infrastructure investment initiative to balance China’s “Belt and Road” program.

The latter is a vast Chinese infrastructure scheme. China is seeking to strengthen its influence in surrounding states by recycling a portion of its foreign exchange reserves in road, rail, port and other such projects.

It is not clear just how Turnbull and Trump might seek to provide alternative sources of infrastructure funding for projects to counter Chinese attempts to buy influence far and wide.

The ConversationSuch a scheme emerged from a pre-summit briefing in Canberra. The fact it is being floated attests to concerns in Washington and Canberra about China’s success in using its financial heft to extend its security interests.

Tony Walker, Adjunct Professor, School of Communications, La Trobe University

This article was originally published on The Conversation. Read the original article.