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[Analytics] China trade questions confound Australia’s Indo-Pacific shift

Australian Foreign Minister Marise Payne attends talks to her Chinese counterpart Wang Yi (not pictured) at the Diaoyutai State Guesthouse in Beijing, China, 8 November 2018 (Photo: Reuters/Thomas Peter/Pool). Sketched by the Pan Pacific Agency.

The ‘Indo-Pacific’, stretching from the eastern Indian Ocean to the Pacific, is the Australian government’s framing of the international environment for its foreign policy. In strategic terms, it encompasses major powers such as India, Indonesia, China, Japan and the United States — a multipolar region that is resistant to the emergence of a new and potentially unfavourable hegemon. There is an economic dimension too, with a vision of more diversified trade. High hopes are placed on India, with the Australian government releasing in 2018 its India Economic Strategy to 2035. James Laurenceson specially for the East Asia Forum.

On the strategic front, Canberra would be mostly pleased with developments last year. In November, Australian Defence Minister Linda Reynolds made her first official visit to Japan. The measures Reynolds unveiled with her Japanese counterpart Taro Kono were designed to deepen Australia–Japan defence cooperation, explains Grant Wyeth, ‘consolidating the perception that Tokyo and Canberra now see each other as their most important and reliable security partner after their respective alliances with the United States’.

In September, Quadrilateral Security Dialogue (Quad) meetings involving Australia, Japan, the United States and India were upgraded to the ministerial level. But disappointingly, in the same month, Australia was again not invited to participate in the Indian-led Malabar naval exercise involving its three fellow Quad members, India, the United States and Japan.

It has become clear over time, and dramatically so last year, however, that the Indo-Pacific frame has limited utility in delivering Australia its hoped-for pattern of economic ties. Trade flows are driven by factors exogenous to Australia — notably markets and comparative advantage. The wishes of elected politicians and bureaucrats sitting in Canberra are largely irrelevant.

In 2012, when the Indo-Pacific was starting to make a regular appearance in official government documents, China was the destination for 27.3 per cent of Australia’s total goods exports. Among Australia’s more substantial regional trading partners, the shares of East Asia excluding China (Japan, South Korea, Hong Kong and Taiwan), Southeast Asia (Indonesia, Malaysia, Philippines, Thailand and Singapore), India and the United States were 33.3, 9.5, 4.9 and 3.8 per cent, respectively.

Despite fervent championing of the Indo-Pacific, in the 12 months leading up to October 2019, China’s share of goods exports leapt more than 10 percentage points to 37.7 per cent. But the shares of East Asia (excluding China), Southeast Asia, India and the United States all fell to 26.4, 8.8, 3.8 and 3.7 per cent, respectively.

The story is mirrored on the import side of the trade equation. In 2012, China supplied 17.3 per cent of Australia’s goods imports while East Asia (excluding China), Southeast Asia, India and the United States accounted for 13.2, 16, 1 and 11.8 per cent, respectively. In the 12 months to October 2019, China’s share surged to 25.5 per cent. The shares of East Asia (excluding China), Southeast Asia and the United States all fell to 12.9, 14.2 and 11.1 percent, respectively. Only the importance of India had risen, but to a still marginal 1.6 per cent.

The evidence is mixed on whether Indo-Pacific countries have sympathy for Australia’s preferred economic architecture, headlined by a multilateral rules-based order. Countries like Japan and Singapore have emerged as strongly like-minded, being fellow members of initiatives like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP-11) and the Regional Comprehensive Economic Partnership (RCEP).

In contrast, the United States has veered in the opposite direction. On his first day in office, President Trump withdrew the United States from the CPTPP’s predecessor, the Trans-Pacific Partnership (TPP). Now, US blocking actions have rendered the WTO’s Dispute Settlement Body unable to provide independent adjudication on new cases.

Developments with India are similarly dismal. Despite launching negotiations for an Australia–India Comprehensive Economic Cooperation Agreement in 2011, progress towards such a bilateral deal has stalled. And in November, India opted out when RCEP’s 15 members successfully concluded negotiations.

Last November too, Peter Varghese, the author of the Australian government’s India Economic Strategy to 2035, admitted that ‘the big end of town still doesn’t buy the India story’. Varghese’s report nominated an aspirational target of tripling Australian exports to India by 2035, reaching US$31 billion. It’s not trivial but pales in comparison to the current exports to China of over US$112 billion.

Strong Australia–China economic ties extend beyond goods trade. In July, a report by the Australia–China Relations Institute showed that China was set to become Australia’s leading international research partner in terms of the number of joint scientific publications produced.

During Australian Prime Minister Scott Morrison’s US state visit in September, his audience may have been surprised by his assessment of China relations. Morrison noted that ‘the first thing to do is acknowledge that Australia and the United States come at this from a different perspective’. He added that ‘from Australia’s point of view, the engagement with China has been enormously beneficial’ and led to a comprehensive strategic partnership that Australia hopes to continue.

A foreign policy frame has its uses. But trade trends are a stark reminder that economic reality is not easily moulded to conform to strategic dreams. The tension between Australia’s strategic and economic interests will remain, making the practice of foreign policy, particularly vis-a-vis China, an ongoing challenge.

James Laurenceson is Director of the Australia–China Relations Institute (ACRI) at the University of Technology Sydney.

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