Australian Treasurer Jim Chalmers flew back from Beijing last weekend keen to emphasise that our trade relationship with China has been, to use the overused buzzword of this government, ‘stabilised’. A lack of turbulence is admittedly what you want as you settle back in your seat, snug in your designer pyjamas, and prepare to tuck into your lobster and wine. The far more important question with China is not how smoothly you are travelling, but where exactly you are heading…

What should our trade relationship be like with the world’s second-biggest economy?

In recent times Australia’s approach has diverged significantly from that of America, and increasingly many of our peers, who have imposed tariffs on Chinese imports.

Our trading arrangements with Beijing continue to be largely governed by the China-Australia Free Trade Agreement (ChAFTA) signed in 2015. Under this agreement, we allow practically 100 per cent of Chinese goods to be imported into Australia duty free. If this remains in place Australia will never have a substantial manufacturing sector.

Some of our former leaders belatedly seem to understand this approach is neither wise nor sustainable. Former Prime Minister Scott Morrison recently said in relation to the US tariffs on China that it is ‘entirely reasonable that a country, which is operating in what I call our sphere, takes that response’. Another former Prime Minister, Tony Abbott, has also from time-to-time expressed deep misgivings about the trade agreement his government signed.

In Washington, serious people like Robert Lighthizer, Trump’s former (and likely future) trade representative, has stressed that ‘it is no exaggeration to say that the future of this country hinges on a continued shift in our trade policy’. But Canberra remains on autopilot. There is precious little sign anyone has accepted there is a problem, let alone given real thought as to how things should be restructured.

Various excuses continue to be made as to why we should not impose our own tariffs on Chinese goods.

The political right tends to argue that we should focus on things like developing nuclear power, cutting regulations and taxes, and implementing a more flexible labour market. No doubt that some of that would help, but America already has all these things – including atomic energy and a more favourable business environment stretching back decades. Without tariffs, over the last 30 years American factories and jobs were shipped out to China at great economic and social cost. Ask the author of Hillbilly Elegy how that worked out in Ohio.

The political left also wants no real change to their new celebrated ‘stabilised’ trade arrangements with China. Instead, they imagine the solution to rebooting manufacturing lies in an expanded industrial policy such as the Treasurer’s flagship Future Made in Australia program. The problem is that without a tariff wall, any taxpayer funds used to subsidise politically favoured ‘green’ projects (e.g. solar panels, batteries, and the like) will almost inevitably be undercut by cheaper Chinese imports.

Non-partisan national security types often talk tough on China. However, they too tend to be against meaningful changes to trade policy. Instead, they believe we can address problems through restrictions on a small number of technologies or industries with significant military potential (semiconductors, electric vehicles, etc) while maintaining normal economic exchange in other areas.

But this so-called ‘high walls, small yard’ is insufficient. Real defence capabilities require an industrial sector that is deep and broad-based. It is impractical to think you can rely on limited whiz-bang tech to protect your nation’s security and sovereignty if at the same time you remain dependent on China for essential things like lightbulbs, boots, pharmaceuticals, and all sorts of other nuts and bolts. Attempting to select and ring-fence defence-related technologies of the future is not only difficult, but also fails to appreciate that genuine innovation almost always comes out of larger civilian industrial ecosystems.

In Australia today there is a tendency to talk in very Churchillian terms about a possible future war with China. We are certainly spending a lot of submarines and other big-ticket items to prepare for that eventuality. At the same time the bipartisan consensus insists that there should be no limit to the importation of Chinese manufactured goods.

‘The dumbest of all possible foreign policy solutions for our country,’ said JD Vance recently, ‘is that we should let China make all of our stuff and we should fight a war with China.’

In other words, exactly the type of policy framework that Australia has adopted.

Dan Ryan is executive director of The National Conservative Institute of Australia and a lawyer with over 20 years’ experience working in Greater China.

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