Divorce – British or Chinese style

It took Britain nearly half a century to correct its mistake. How long will it take China to recognise that divorcing Australia is in no one’s best interests?  Just as Australia’s then biggest customer pulled the plug on us in 1973 to pursue its economic self-interest, so China, now an even bigger biggest customer, appears to be moving in that direction, but for totally different hegemonic reasons – and despite the best interests of its (increasingly urban middle-class) citizens whose standard of living relies heavily on Australian imports. If last week’s tentative ice-breaking comments in New York by China’s Foreign Minister Wang Yi, are an indication, what has looked like the precursor of a permanent marriage breakdown may turn out to be only a trial separation. But so far, neither Prime Minister Morrison nor his senior ministers have had their phone calls returned or meetings accepted by Beijing. China’s withdrawal from connubial trade bliss after a year of escalating tensions has seen the imposition of punitive tariffs, port delays and outright bans, along with absurd claims of ‘dumping’, on Australian exports, all in conflict with China’s World Trade Organisation obligations. While these have hit our barley, wheat, beef, coal and wine, where China had become a major market, the ‘matters of principle’ involved do not extend to the iron ore China desperately needs that is flowing freely from Australia (much to the necessary benefit of our corona-virus-hit balance of payments) as rival exporters like Brazil have supply problems.

Australia is well aware of the disruptive nature of a trade divorce. After Britain succumbed to the seductive appeal of its exciting Common Market neighbour and divorced Australia (along with the rest of the Commonwealth) in a settlement that was all Britain’s way back in the 1970s, the new romance eventually soured as the true nature of the sovereignty-emasculating harridan emerged, under a new guise as the European Union. It took a bitter and divisive referendum to start prolonged and complicated divorce proceedings that have at last been (sort of) completed. So now it’s full speed ahead with proposed Australian trade agreements with Britain (and the EU) to try to make up what can at best be only a fraction of what was lost when Britain dumped us.

The end of Australia’s (and especially New Zealand’s) one and a half centuries of overwhelming dependence on the mother country was initially not as economically disruptive as predicted, beyond the serious impact on rural exports from which Britain was excluded under Europe’s disgracefully protectionist Common Agricultural Policy. The trend away from reliance on Britain had well and truly begun by the 1960s when Britain’s share of our exports had fallen from 40 to 25 percent (all but a fraction of which was wool, wheat, meat and dairy). It was the same with our imports from Britain as our growing trade relations with the US (with its objections to the Empire Preference that gave Britain favoured status throughout the Commonwealth) meant that both Britain and Australia needed a new trade direction. As Britain looked more to its region, so did Australia – but only for trade; investment remained firmly in the Anglosphere.

Trade Minister Jack McEwen had meanwhile discovered Japan as a trading partner (over the post-war objections of many Australians), Lang Hancock and Peter Wright discovered iron ore and Australia’s trade was reoriented to the Orient. Especially to China which has become so large a trading partner that Australia is now economically vulnerable to Beijing’s whims. From less than one percent of our imports and exports in the early 1960s Australia now depends on China to take 40 percent of our exports (56 percent of our iron ore and 30 percent of our agricultural products) and provide almost 30 percent of our imports (many crucial items in supply chains).

Just as Britain’s failed attempt to join the Common Market in the 1960s was a wake-up call to diversify away from heavy dependence on the UK, China’s current bully-boy behaviour has served as a call to do likewise; it is safer to have trade relations with a wide range of partners (with appropriate protection!) than run the risk of a disruptive divorce from a favoured concubine.

Like Britain’s current divorce from Europe, China’s marital spat with us is based less on economics than on national identity. For Britain, it was to restore a loss of sovereignty; for China it is anger that Australia, which should be deferential to its biggest customer, refuses to kow-tow to the dictates of a totalitarian regime that now says it is willing to engage with Australia “if it stops seeing Beijing as a threat,” (which probably means, stop cosying-up to the US, and stop criticising human rights abuses, Hong Kong and Covid-19). Despite the entreaties of Australia’s pro-China lobby on the left, there is little prospect that the current dispute will alter Australia’s determination to defend both its sovereignty and its democratic values even at some economic cost. So this is unlike the risk that faced Australia when Britain joined the Common Market in 1973 which, as I noted on this page some years ago, marked the formal end not only of a major Australian-UK trading relationship, but also of significant non-tangible links that were an essential element of our national values.

The importance of this heritage was underlined by former governor of the Reserve Bank, Glenn Stevens who  said, ‘It was not just money, land and minerals that made Australia. Our British heritage was of higher value. Things like a language that is understood virtually anywhere, common law and parliamentary democracy, property rights and governance. The ties that bind are not just history (nor the Crown or the world’s smallest sporting trophy). We share an outlook on how our economy should be organised and governed, on the role and limits of markets in setting prices and allocating resources. We share a commitment to a world economy in which trade is free and capital is free to move… Perhaps the most important thing Australia and Britain have in common is the strong belief that societies prosper when policies are debated in an open way, where evidence, reason and judgement can be brought to bear on decisions and where accountability and evaluation are key attributes of the process. But in the agenda for reform, we need to contain the growth in the regulatory agenda and respond only to the most important calls.’

As I then wrote, on almost every score, Stevens’ catalogue is now at serious risk. Britain’s belated recovery of its sovereignty should reinforce Australia’s determination not to kow-tow to China or bow to international conventions and agreements that subvert our right to govern ourselves in accordance with the British traditions we inherited – and must defend whatever the cost.