Trade war threatens an already weak global economy and Australia has a place in this too

By Joe Montero

As the trade war being waged by the United States against China escalates, and China responds by imposing its own counter moves, the world economic system begins to tremble.

Leaders of the twenty biggest economies are meeting at Osaka in Japan, for the latest gathering of what is known as the G20. The trade war lurks behind everything on their agenda.

There has been a call, led by the European Council head Donald Tusk and head of the European Commission Jean-Claude Junker, for more action on reforming the World Trade Organisation (WTO). A big part of this is the strengthening of the dispute settlement mechanism.

Although it is making fewer headlines at the moment, Europe is in its own trade war with the United States. This is adding to the continent’s anxiety.

Europe joined China last year, to ask the WTO to investigate the Trump administration’s decision to impose tariffs on steel products on national security grounds.

These tariffs have also had an impact on Mexico and Canada.

There is growing nervousness about the impacts of the trade war. Europe is a major force trying to use its influence to de-escalate the use of tariff as a means impose political pressure.

Other countries are affected by the increasing resort to this form of economic pressure. World trade is beginning to be distorted and economies adversely affected.

Even in Australia, prime minister Scott Morrison has warned about what he has called “collateral damage,” resulting from the conflict with China.

Part of the nervousness, is that business sectors exporting to China, or manufacturing there and importing back, are being hit, or face the prospect of being hit. They also fear that if their governments participate in this war, they are vulnerable to retaliatory action.

When the United States blocked the Huawei network, Australia followed.

In Chinese society the effect was immediate. The song below went viral in no time at all. It is an indicator that public opinion there might be hardening.

Anti-US trade war song

Video from the South China Morning Post

China will not back down and has the capacity to source business elsewhere and make more at home to substitute for imports. This means American companies, and potentially Australian companies will lose markets. Putting sanctions on China is a foolish policy. There is little chance of it working.

The danger with this is that there is always the potential of an escalation into a military confrontation.

No doubt, the Australian government is being pressured by a section of important backers to pull back from going all the way with the United States. China is Australia’s biggest trading partner and loss of this trade would hit hard.

But this doesn’t mean that Scott Morrison and his government will change. The ties with the United States are too deeply entrenched. American business is the dominant economic force in the Australian economy. And President Donald Trump is a sort of soul mate of the prime ministers.

Photo from AAP: Scott Morrison and Donald Trump together at last year’s G20 gathering in Buenos Aires

A change in position will only be likely if there is division within the ranks of American business, seeing a growing number sending messages to get Donald Trump to pull back.

Many very big companies have a major dependence on doing business with China. Among these are the car, big tech companies and agriculture. They may be keeping quiet for now. It remains that they will be major victims if it keeps on, and will therefore be pushing their interests behind the scenes.

Whether this will become big enough to change the course remains the big question.

Whichever direction the Australian government goes in the near future, it is going to have a major impact on Australia.

Either way, the prospect is greater economic instability. But if its all the way with the USA, it is inevitable that trade with China will be hurt, and this will mean further economic decline and much greater burden on ordinary Australians.

What is Scott Morrison’s solution?

“we embrace free trade, global engagement, and an international system where [we] agree to the rules, stick to them and honour our commitments,” He says.

In the context of publicly sitting on the fence, while in reality, remaining the number one mouthpiece for the United States in this part of the world, it means very little.

In the real world, there will eventually be no other choice but to openly take sides.

The International Monetary Fund (IMF) has cut back expected global economic growth to 3.3 percent. The Organisation for Economic Cooperation and Development (OECD) to 3.2 percent. And the level of positive growth expected is accounted for by China. Another ominous sign, is that the world’s big investment banks are casting further doubts on the global economy.

Then there is the matter of Iran, where sanctions have been joined by open military threat. The other side of this coin, is that this too threatens an already weak global economy, in addition to creating greater political instability in the Middle East and beyond.

These three areas of tension bring another threat. It is, that they could block progress towards decarboning the global economy and building new growth on the sustainable foundation of new, clean technologies and industries. This is serious. Failure to move on this front, is in itself a major trigger for economic decline. It is not the case of either the environment or the economy. They are part of the same package.

For the Australian government the choice is, whether to continue as part of a slowly declining and increasingly isolated American empire, or choose the road of a truly independent nation, carving its own place in the world, as a force for stability, equality and respect between nations, and doing what is best for the citizens of Australia.

This government will ultimately be judged for the choice it makes.

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