On the eve of more talks with the Indonesians about a promising free trade agreement (FTA), Australians are being warned to beware of a rising tide of anti-free trade sentiment.
Almost 100,000 jobs could vanish and households would likely suffer a $1500 cut in annual income if Australia gets caught in a global move towards trade protectionism, says the Productivity Commission.
It warned a protectionist “contagion”, recently revved up by US President Donald Trump's “America first” trade doctrine, could spark a global recession.
“It is unclear how different countries’ trade policies will change, however developments to date suggest maintenance of the status quo is unlikely,” a Productivity Commission (PC) report has concluded.
“President Trump was elected on the back of a protectionist trade policy stance and proponents of protectionism have been empowered in parts of Europe.
“Rising protectionist sentiment and actions overseas may lead some to suggest a rethink of Australia’s commitment to free trade is needed.
“They would be wrong.”
The PC’s warning about the risk of reversing the community-wide gains achieved after the lowering of trade barriers during the past three decades comes as the Australia’s free trade plans with agriculturally-rich India have slipped into a holding pattern, despite federal government hopes for an agreement last year.
However, farm sector lobby groups are heartened by the steady progress being made towards a deal with neighbouring, Indonesia, already a sizeable meat buyer and our biggest wheat market.
“We’d like to think we’ll see an agreement giving us greater opportunities for grain, meat, sugar, dairy and horticulture product exports in the next one to three years,” said National Farmers Federation chief executive officer, Tony Mahar.
A bilateral deal with Peru was also progressing, and Australia was also keen to stitch up a four-way Pacific Alliance with Mexico, Peru and Columbia.
“They’re not obvious agricultural trade hot spots for us, but we’re applauding any efforts to keep the momentum rolling,” he said.
The next round of talks with Indonesia commence in Canberra within weeks.
While Indonesia’s economy was not growing as fast as some in Asia, Mr Mahar noted it had a 260 million population and regardless of its food self sufficiency ambitions, would be a highly significant food and fibre market for Australia.
That FTA was also likely to emerge well before anticipated Australian deals with the UK or European Union even warmed up.
“We export 75 per cent of what we produce,” he said.
“We need to be doing a better job of articulating the need to free up trade around the globe, especially at a time when people are starting to question the value of free trade so loudly.”
The PC report had a similar message.
Better engagement with the community was required to clearly explain the gains so far delivered by removing barriers to international competition and remaining an open and prospering participant in the international trading system, the commission said.
Australian trade authorities had to prioritise regional trade agreements which “clearly and measurably persist with lowering barriers to all trading partners, and reinforce efforts to strengthen the rules-based trade system”.
“If a scenario akin to the experience of the 1930s were to be repeated with trade barriers rising significantly around the world the economic dislocation unleashed has capacity to cause a global recession and put the rules-based global trading system under much strain” the PC said.
Modelling based on the implications of US protectionist strategies showed about 80pc of Australian households would earn less and pay more for some goods and services, while up to 5pc of Australia's capital stock could be mothballed – equivalent to about half the money invested in the mining sector in the past decade.
Trade and economics manager with Grain Growers, Luke Mathews, said it was heartening for farmers to have the PC stressing the value of liberalised trade, and backing its argument with hard economic analysis.
Interestingly it also found the US itself would not be better off with a policy of protectionism.
“Current Australian FTA efforts with Indonesia, the Pacific Alliance, the Regional Comprehensive Economic Partnership (covering 16 Asian countries), and India should be widely supported by farmers and the broader trade community,” he said.
“About 60pc of Australia’s grain sells offshore, generating export returns of $11.8 billion a year.
“The wheat crop alone generates $6b a year, but there’s plenty of scope to significantly broaden our grain export base.”