The most important foreign policy speech by a minister so far this year was delivered last Monday. That Treasurer Josh Frydenberg was the speaker was a bit surprising. A little less surprising is that he identified a rising and muscular China as a major threat to the country’s security and prosperity.

The treasurer’s diagnosis of Australia’s predicament was refreshingly candid, calling China by name for its coercive diplomacy and manipulation of economic tools.

This is a modest but significant advance in Australian foreign policy rhetoric. While the Prime Minister, Foreign Minister and Minister of Trade have all identified “economic coercion” in broad terms as a threat to Australia, they have stopped pointing fingers as directly at Beijing – although the The implication is quite clear.

By pointing to China’s “coercive tactics” and its willingness to “use its economic weight as a source of political pressure”, the treasurer has done something often underestimated: be honest and frank with the Australian public about the threats incurred. .

While restraint is the hallmark of good diplomacy, often the urge to “maintain good relations” mistakenly trumps the primary duty of our leaders: to transparently explain the challenges of the nation and how the government manages them.

But beyond the principle of responsible government, why is it so important?

It is counterproductive to remain ideologically consistent on free trade in an increasingly geo-economic world,

To respond most effectively to China’s economic coercion, Australia needs business to be on the same page as government.

When dealing with China, companies look to the government for leadership. Their overriding desire is to have a way to go in the relationship so that they can plan and invest.

The second half of the Treasurer’s speech was an attempt to lead this way, emphasizing the importance of a resilient economy and a more diverse business profile.

It wasn’t that long ago that “diversify” was a dirty word in Australian foreign policy parlance. It featured an implicit criticism of China (and those who relied too much on this export market) and ran counter to the free trade orthodoxy of many Canberra residents for whom market forces alone should determine the direction of trade.

One of the benefits of Covid has been to blow up these conventions.

Beginning in the middle of last year, the Prime Minister and then trade and industry ministers began to label Australia’s support for free trade by throwing up ideas on questioning the supply chains and investment in domestic industries.

The measures that the treasurer explained on Monday are all positive steps in this direction.

Building a more competitive economy, based less on resource extraction, specific trade diversification measures, such as subsidies for the development of export markets, and enhanced protection of foreign investment and infrastructure – all necessary, all important.

A manufacturing plant in Brisbane, Australia, assembling charging stations for electric vehicles (Ian Waldie / Bloomberg via Getty Images)

While the government is to be commended for these measures, a more comprehensive set of policy changes is needed.

It is above all a question of state of mind. Australia needs to get comfortable with a targeted industrial policy where it is needed, even if it goes against the market instincts of the people. It is counterproductive to remain ideologically consistent about free trade in an increasingly geo-economic world.

Targeted industrial support and government investments, investment selection and stimulation of innovation in strategic industries are an undeniable reality. Open economies, free trade and investment must remain the default, but not to the point where Australia is unable to take steps to ensure security and resilience.

The foreign affairs and trade portfolio needs to focus more on the development of national economic policies. Australia should use its diplomacy to encourage trade and investment with more reliable markets and to monitor and manage key supply chains with like-minded nations.

Second, it is about continuing the outspokenness with the business that the treasurer has initiated. Ministers and officials must explain the political risks of operating in certain markets – and how trade in specific products fits into the larger geostrategic framework.

The core work of the Department of Foreign Affairs and Trade and Austrade will remain crucial: free trade agreements, removal of non-tariff barriers, strengthening of international trade rules and providing market information and access. to exporters.

But an additional dimension is needed. The two agencies need to work more closely together to provide timely political risk analysis to Australian small and medium-sized businesses.

For Austrade, this means taking a more strategic approach, integrating political and security risk advice into their market intelligence for companies. And for DFAT, that means being more willing to share candid assessments with people outside of government.

Finally, a more systematic review of vulnerabilities in Australian supply chains is needed: a set of tools to categorize and mitigate risks.

The Supply Chain Resilience Initiative, which provides companies with grants of up to $ 2 million to address vulnerabilities, is a good start.

And the nearly $ 100 million pledged to the Office of Supply Chain Resilience promises to coordinate a whole-of-government approach. However, we have not yet seen any specific policy thinking or initiative emerge.

If the challenge of economic coercion is as urgent as the treasurer describes it, then there is no time to wait.


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