Australia and its partners in the global trading system, in 2024

Cross-cutting drivers of change

Carlos Primo Braga notes that the global economy faces significant headwinds this year and these may redound in reduced trade flows. From an Australian standpoint probably the most significant issues concern China’s economic trajectory, and demand for our commodities. As he notes neither looks good, and this will constrain Australia’s trade growth. At least our trade relations with China are likely to continue their slow burn improvement from the 2020-2023 coercion nadir.

Much depends on the overhaul health of United States (US)-China relations. Naoise McDonagh reminds us that bipartisan suspicion of China in the US political system means a downward spiral is the underlying trend. Furthermore, as he notes the US-China relationship could deteriorate rapidly particularly if, as Stephen Olson elaborates, Donald Trump is re-elected as US President come year-end. Moreover, Olson points out that President Biden’s trade policy stance consists of doubling down on the Trump Administration’s framework so, if Biden is re-elected, we can expect more of the same — not much beyond the cooperative arrangements embodied in the Indo-Pacific Economic Framework.

More immediately, geopolitics is directly aggravating trade flows pressure via the Red Sea conflict anchored on the Yemen-based Houthis’ missile strikes on shipping through the Suez canal. Additionally, “de-risking” (pick your term) between the West and China builds up, adding to cost pressures as multinational companies continue to build “China resilience”.

Moreover, climate transition economics will add to cost of living pressures everywhere, now and into the future. Susan Stone points out that in 2024 governments will continue to scale up industrial policies in various forms, including incentivising local production of cutting-edge green technologies and sensitive energy production systems through subsidies and import barriers, inter alia. The European Union’s (EU) Net Zero Industries Act will likely grab the headlines this year. While these policies may contribute to sorely needed technological breakthroughs, in the short-term trade protections will contribute to cost of living pressures.

Against these negatives interest rate reductions are expected to start in the major economies this year — and likely Australia too. Furthermore, McDonagh reminds us that global trade volumes are likely to remain resilient since countries still need to trade. To which I note that the Southern African shipping route remains an alternative to the Red Sea.

Additionally, a services trade reform agenda could contribute to reducing cost of living pressures. In Australia the heavy-lifting of productivity-enhancing, cost reducing, trade reforms took place under the Hawke-Keating governments in the 1980s and 1990s, but there is still a large domestic services agenda to embrace.

Christopher Findlay’s contribution demonstrates APEC’s continuing relevance as a promoter of Asia-Pacific services economy and trade reforms and makes a case for governments to embrace its forward-looking agenda. However, on the broader services and digital trade cooperation front storm clouds have been gathering for some time and, as Jane Drake-Brockman argues, may break this year. As she notes business, both large and small, will bear the brunt of increasing recourse to domestic regulatory tightening and the growing fragmentation of global digital services markets.

Resilient architectural frameworks?

Notwithstanding the various headwinds blowing in its direction, Milton Churche argues that the global trading architecture remains resilient, and still anchored on the World Trade Organization (WTO). However, as he notes increasingly dysfunctional populist politics in the major economies pose ever greater systemic risks, and so middle powers like Australia need to remain vigilant in defending the rules-based order.

Richard Pomfret addresses the US challenge to the system, especially the WTO, and identifies the variety of ways in which countries, especially in the Asia-Pacific region, have responded. Overall, he sees a system bifurcated into 3 parts corresponding to degrees of interest in adopting modern trade rules — and the US’s future commitment to engaging with the system beyond 2024 rather uncertain.

It is not only the US that is struggling to adapt. Andreas Freytag spells out a core dilemma in the EU’s trade agreements agenda: maintaining extensive agricultural protections while demanding adherence to increasingly demanding sustainability policies from trading partners. This tension will continue to pervade the stalled Australia-EU free trade agreement negotiations and may worsen after the EU’s June Parliamentary elections. The farmers currently blockading many French cities and towns bear testimony to the challenges.

Keeping a watchful eye on key partners

Most contributors discuss China to varying degrees, and for obvious reasons. While our bilateral trade relations are likely to improve this year, Lauren Johnston reminds us that we are not the only ones pursuing diversification. China’s dependence on Australia, and other western countries, for key commodities imports prompted a major push into Africa about two decades ago. She updates on China’s Africa strategy and recent movements.

And let’s not forget that New Zealand, our partner in Closer Economic Relations, is in the post-elections process of recalibrating its trade strategy — having set a goal of doubling exports in 10 years. Catherine Grant-Makokera lays out the key elements, emphasising reduction of trading partners’ non-tariff barriers and the enduring importance of the Pacific — goals Australia shares.

Some Australian priorities

Grant-Makokera also notes that New Zealand is keen to diversify its trading partners, leveraging India in particular. Australia is relatively far down that road, making up for ground lost in the EU market to New Zealand. As Pradeep Mehta and Advaiyot Sharma elaborate, this year both Australia and India need to build on the platform created by their interim Economic and Trade Cooperation Agreement to cement the envisaged Comprehensive Economic and Cooperation Agreement. Again, trade in services will be critical to success.

Last, but by no means least, Nathan Gray reminds us that this is the year of delivery for Australia’s newly minted Southeast Asia Economic Strategy. The region remains central to Australia’s agricultural exports, and future market expansion, as well as the trade diversification agenda. He offers some thoughts on what can be done this year to build on the momentum, particularly identifying a coherent outward investment (into Southeast Asia) strategy.

There is much more that could be said, of course. I hope you enjoy the read.

Professor Peter Draper is Executive Director of the Institute of International Trade, School of Economics and Public Policy, the University of Adelaide.