Eureka Report: Australia-China relations

20 MAY 2020

ALAN KOHLER (AK): And now here’s Kevin Rudd, former Prime Minister, Foreign Minister and now President of the Asia Society Policy Institute. Kevin, relations between Australia and China do seem to be deteriorating and we’ve had the Australian’s call China’s language as cheap politicking and the Chinese Ambassador to Australia said it was a complete joke that Australia’s claiming victory over the inquiry. This is not diplomatic language. Do you think that the relationship between Australia and China is what you’d call a crisis?

KEVIN RUDD (KR): Having looked at this Australia-China relationship in its evolution over the last 35 years that I’ve been associated with it since I first went to Beijing to work in our embassy there, it’s been through ups and downs before. Let’s not underestimate the impact which the Tiananmen crisis had back in 1989, but that’s 30 years ago. I think it’s fair to say in the last 30 years, this is the lowest point that it’s reached and in part, that’s for structural reasons, no particular responsibility owing to the Morrison Government. That is, China becoming more nationalist and more assertive, not just in relation to Australia, but around the world and around the region.

But I think secondly, there have been compounding factors in terms of less than adroit management of the diplomatic relationship with China as well. I don’t exonerate the Morrison Government, but nor do I universally blame them for the current state of the relationship either.

AK: If we could just focus for a moment on the barley thing, the 80 per cent tariffs that China has now said it’s going to impose, I’ve read this morning that they seem to be admitting that barley wasn’t being dumped, which does seem to indicate that it’s a punitive measure. Do you think that’s right? I mean, should we see the barley tariff as being the beginning of concrete punishment by China of Australia?

KR: At the end of the day, Alan, it’s very difficult to get to the precise details of the intrinsics of these decisions in Beijing. But what we do know from China’s previous behaviours with other countries with whom it’s had problems in the past, whether it’s Canada at various stages or whether it’s been Norway at various stages, is that China does recourse to economic leverage in order to extract a political price. And secondly, when it’s doing so it is often masked by various, let’s call it, trade policy technicalities. In other words, the underlying purpose is to deliver a robust political and foreign policy message. It may be, as it were, dressed up in technical trade policy dispute terms.

On the barley question, it’s difficult to disentangle it, but what I do know for a fact is that there is a mood alive across the Chinese leadership and has been there since 2017, since the Turnbull Prime Ministership to, as it were, apply economic leverage against Australia because of his disapproved of various aspects of Australian Government foreign policy.

AK: And a lot of the analysis of this sort of thing has focused on the question of whether the thing that Australia sells to China is needed by them or not. I’m wondering whether you think that over the longer-term, as opposed to short-term punitive measures and messages, as you put, over the longer-term we’re likely to see declines in things that China can do without, such as tourism or education, possibly even barley. Whereas, say, iron ore exports to China might remain relatively untouched.

KR: China, in its entire recent economic history, Alan, has never done anything which is contrary to its own national economic interests. Therefore, when you look at the range of policy tools available to Beijing at the moment, any rational analysis if you’re an Australian government would be along these lines. What are those areas which are most vulnerable, that is those areas where there are plenty of Chinese alternatives? That’s why I’ve always seen Australia’s international tourism industry, for example, as the most vulnerable for the simple reason that the Chinese can direct their travel agencies to take Chinese tourists elsewhere once global markets open up again.

Chinese education sales to Australia, it’s a more complex question because Chinese mums and dads from the middle class actually like Australia as a venue to send their kids because it’s close, similar time zone, not as expensive as The United States, etcetera… I think that may be, shall I say, a little more protected than the tourism sector. And then you get into these discretionary areas within agriculture where alternatives come in and one thing we shouldn’t let pass in this conversation, Alan, is the overarching impact of the US-China trade deal of January this year and the mandatory purchasing orders that are agreed to within that agreement by China of American agricultural and energy products and therefore, the substation effect which may come into effect, which damages Australia.

AK: Yes, and I was just going to say that the relationship between China and Australia, it can’t be seen in isolation of course. There’s sort of a global thing going on and in particular the relationship between the US and China. I know you’ve been spending a lot of time focusing on that and commenting and thinking about that. To what extent do you think the problem between China and Australia is a function of the real issue, outspoken, on the table issue between the US and China?

KR: Well, when you’re looking at the Australia-China relationship, Alan, many things have remained constant over the decades and a few things have changed. What’s constant here? Certainly my period in office as Foreign Minister and Prime Minister of the country, in my dealings with the Chinese it was always along the lines of – here are four, as it were, cardinal principles. Number one, Australia’s an ally of The United States, comrades – that’s not going to change for a whole bunch of geopolitical reasons near and dear to Australian hearts and minds.

Number two, we’re a liberal democracy that believes in universal human rights. That’s not going to change much as our Chinese friends may wish that it went away. Number three, however, there’s a bunch of mutual bilateral economic interests which we can prosecute and trade and investment in capital markets too. Number four, in the institutions of global governance like the G20, global climate change, etcetera, where we have huge interests, both countries in collaborating together. I’ve always argued that our relationship is transparently based in those four principles which I have described as the balanced foundation for the relationship.

There’s a way of moving forward. But one of those continuing complications is our strategic relationship with The United States. I don’t believe we should take a backward step on that. But there is a way in which Australia communicates its political and policy differences with Beijing, which doesn’t need to resort to the megaphone every Tuesday morning in order to satisfy the requirements of the Liberal National Party joint party room. There’s a way in which diplomacy can be done in a more effective manner than is currently being executed by the Morrison Government.

AK: I mean, the bigger picture perhaps, is the question of what’s happening to globalisation. One of the more striking quotes that I’ve seen recently by Donald Trump, which was an interview on Fox last week, he said, if I can just quote it, “These stupid supply chains that are all over the world – we have supply chains where everything’s made in different parts of the world. If one little piece of the world goes bad, the whole thing is messed up. We shouldn’t have supply chains. We should have them all in The United States, we have the companies to do that.” I mean, he’s not specifically talking about China there, but clearly the supply chain between America and China is central to globalisation. Do you think that that is now undergoing some change and possibly, threat?

KR: There’s a fundamental reappraisal of verbal supply chains for a range of reasons which kind of pre-date the COVID crisis, have been accelerated by the COVID-19 crisis. You would have seen in the whole technology trade domain, Alan, whether it’s semiconductors, computer chips and the rest, that under the Trump Administration there’s been a fundamental revision as to whether the United States should: a) be supplying critical inputs into China; or b) for elements of the American industry to be dependent on inputs either from China or even from Taiwan in the supply of critical elements in terms of that particular tech supply chain. That pre-existed the current crisis.

With the current crisis, you then have the huge overlay of, let’s call it, biomedical self-sufficiency and this come to Jesus moment in America where they’ve released that most of their pharmaceuticals frankly are relying upon critical Chinese inputs or direct suppliers. There is a deep reappraisal for, let’s call them, genuine national security reasons in America and in various other countries about adequate levels of national self-sufficiency. My concern, and I think yours too, is does this, therefore, bleed into a much broader protectionist assault on the institutions of free trade and a much more mercantilist approach to the arteries of global commerce in the future, and I fear that that is very much the alchemy of the Trump Whitehouse and Trump Administration so I think we’re in for a very bumpy ride for the future trajectory of globalisation.

AK: The COVID-19 thing has in a sense put the World Health Organisation at the centre of this in some ways, I mean he’s now threatening to quit the WHO over China’s links, which is really quite sharp, isn’t it?

KR: Well the problem which we all face as members of the multilateral system, is that whether the current Australian Government, for example, chooses to recognise it or not, Australia for three-quarters of a century has been a beneficiary of these global public institutions that we’ve created, whether it’s the WHO, the WTO, prior to that, the GAT, etcetera… And underpinning all that has been a foundational and leadership role and funding role for the United States of America as the architect of the post-45 global order. Telescope all that into the last couple of years, what’s happened is The United States and the Trump Administration being “America first”, nationalist and as we’ve just discussed, protectionist, is bit by bit walking back from the system which it over three-quarters of a century has created.

The World Health Organisation and the politicisation of it in both directions if you like out of Washington and Beijing has, in fact, become the most recent manifestation of that. I think it, therefore, behoves the rest of us in the international community. Middle powers like Australia but also in Europe, Canada, Japan, elsewhere, to team together to triage these critical institutions of global governance into the future because without them, let me tell you, our national interests in Australia suffer as a result.

AK: If I can just move away from China for a minute, you had the misfortune to be Prime Minister during the GFC and worked with The Reserve Bank to help Australia not have a recession, in a technical sense, at the time. What do you think of the Morrison Government’s response to the coronavirus recession?

KR: I think what we had a decade ago and learning frankly on the run, because no one expected the GFC either, was a good and effective three-way partnership between the bank, The Reserve Bank of Australia under Glenn Stevens, the Treasury under Ken Henry and we, the political arm of Government under myself. And frankly, it was a continued tag-team operation between monetary policy, interventions of a radical nature, fiscal stimulus strategies cascading over time to keep the real economy functioning and us providing the, frankly, decision-making processes to make sure that that happened in a timely fashion. Telescope that on again a decade or so, I think my one core critique so far, Alan, of the Morrison Government’s response has simply been the sequencing of its fiscal policy measures. Most particularly, let’s call it the wage subsidy. What is called, I think, JobKeeper…

A simple piece of chronology here – if you’re going to lock down the economy and society, which was necessary for public health reasons, you must simultaneously or just prior to that, announce JobKeeper, your wage subsidy program, to send a clear carrying message to employers not to unilaterally sack staff, but to retain them relying upon the good offices of JobKeeper. It’s the sequencing of these measures which I think has been defective and if I can make a second constructive critique based on experience, it’s, I think, been problematic for the Morrison Government to sign, as it were, a six month finite, as it were, financial guarantee for its stimulatory measures or its support measures.

I think it would have been wiser to have a rolling three month regime, calibrated against the incoming health policy advice in terms of when the lockdown would be eased over time. At present, I think we’re in an uncertain environment as a consequence of how they’re approached that future timetabling as well.

AK: Well, there’s a fair chance they’re going to have to have another think about it in six months’ time I suppose.

KR: Well, exit, as you know, from stimulus is problematic. As you know, we were critiqued for staying too long with stimulus, I think that’s stuff and nonsense really when you look at the fact that our own stimulatory measures, about 5.8 per cent of GDP staggered over about a two-year period just got us through the global financial crisis, supported by demand from the Chinese economy. Most of the macroeconomic analyses since then have validated that without one measure or the other we would have ended up in recession. Exiting stimulus is a tricky business because you never know the shape or the nature of the external economic recovery that you’re dealing with as well. But my two critiques remain.

One, the initial sequencing which I think has contributed to hundreds of thousands of people unnecessarily joining the unemployment queues and it’s always difficult to get them back into the workforce once they go into unemployment. And secondly, the future rolling nature of the wage subsidy and other measures I would have done on a rolling three month basis, looking at the international economic data as it came in the door.

AK: It’s been great talking to you, Kevin. I appreciate it, thank you.

KR: Good to be with you.

This transcript was prepared by Eureka Report.