Peer reviewed analysis from world leading experts

Australian opposition leader throws economic relationship with China into question

Reading Time: 6 mins

In Brief

Australia's opposition leader, Tony Abbott, who, if the polls are to be believed would win a handsome victory and become Australia's next prime minister if an election were held today, has advanced some views that have baffled and disturbed the Australian policy and business community (including senior members of his own front bench) over the past week or two.

Among them, on foreign economic policy, he appears to be backing away from Australia's key economic relationship with China in favour of ramping up the relationship with Japan.


  • A
  • A
  • A


  • A
  • A
  • A

There are so many inconsistencies in Abbott’s comments regarding Australia’s free trade agreements with China and Japan (as reported in the Sydney Morning Herald and The Australian) that it’s hard to know where to start.

But let’s start with the fundamental tenet of international trade theory: In a two-country world in which each country produces two goods (coal and cars, or iron ore and clothes, for example) in competitive markets, free trade is welfare improving for both countries, compared with the situation in which tariffs and other non-tariff barriers are imposed on trade. This follows from the fact that there will be winners in each country — namely, the producers of those goods in which each country has a comparative advantage and all consumers — and that the gains to these winners outweigh the losses to the losers — namely, the producers of those goods in which each country has a comparative disadvantage. It’s that simple.

Of course we don’t live in a two-country world and each country produces many more than just two goods, some in markets that are competitive and some that are less so. Yet this fundamental tenet is still very solid when there are qualifications to this model, and is one of the cornerstones of orthodox Liberal (and liberal) principles throughout time: free trade is welfare improving for nations on the whole. It is not clear whether this principle was in the back of Abbott’s mind when he stated that Barnaby Joyce (a figure with a reputation as coming from the ‘Tea Party’ side of Australian politics) is a ‘highly orthodox figure … [He] is conscious of the fact that other countries ruthlessly pursue their self interest, but he’s also conscious of the fact that without trade, we are dead’. This comment does seem to imply some understanding that free trade is a good thing, even if ‘ruthlessly pursued’ by others (while Australia presumably pursues it in more gentle ways). But Abbott undermines his economic credentials in his comment in The Australian — ‘I am all in favour of freer trade with Japan. I am all in favour of freer trade with China, provided it’s in Australia’s national interest’ — since the whole point of the free trade argument is that freer trade is in Australia’s national interest, no proviso required.

Give Abbott the benefit of the doubt that he does believe free trade to be in Australia’s national interests, but it remains very difficult to reconcile this with the simultaneous signal that he will favour Japan over China if the Liberal–National Coalition wins the next election. In particular, Abbott claims that Japan’s market economy and democratic system of government are ‘advantageous in any serious person’s view’, and this is one of the reasons why Australia’s free trade agreement with Japan would be given higher priority than the one with China.

Abbott did confirm, to be fair, that he was just making ‘the obvious point that it’s probably going to be easier to conclude a free trade agreement with a fellow market economy and a fellow liberal democracy’. The fact that the negotiations with China began back in April 2005, while those with Japan only commenced in July 2007 may lend some (weak) support to his point — but only if the deal with Japan is reached earlier or within 27 months of China’s. Yet if this turns out to be the case, it could just as easily imply greater political will (as Abbott himself has indicated), rather than any kind of ‘fellowship’ driving the outcome. The stalled progress on both negotiations, alongside decades of trying, and failing, to get Europeans to open up their agricultural markets, suggests that politicians world wide struggle to live up to their principles, no matter what kind of system they govern in.

More critically, there is a worrying lack of logic in favouring a free trade agreement with Japan over one with China — that is, freer trade with Japan over freer trade with China. According to the recent economic indicators for China and Japan provided by Department of Foreign Affairs and Trade, China recorded average annual real GDP growth of 10.9 per cent since 2006, compared with just 0.07 per cent for Japan, which unfortunately recorded negative growth in three of these years, if projections for 2011 are included. In 2010–11 Australia’s merchandise exports to China reached A$65 billion, compared with A$47 billion to Japan, while imports from the two countries were A$41 billion and A$17 billion respectively. Our major export to China (iron ore and concentrates) was valued at A$40 billion compared with coal, our major export to Japan, valued at A$15 billion. Our three major imports from China — clothing, telecom equipment and parts, and computers — were valued at A$12 billion, compared with A$8 billion worth of imports of passenger vehicles, refined petroleum and goods vehicles from Japan.

This combination of facts demonstrates clearly and simply that both trading relationships matter greatly, but one is bigger, stronger, and growing more rapidly. And it’s not the one with Japan. In the pursuit of national self-interest, ruthless or otherwise, why on earth would a believer in the benefits of free trade push first for a deal that is likely guaranteed to bring fewer aggregate benefits?

The answer, of course, lies in politics, not economics. The politics of trying to appease Australia’s waning manufacturing sector (a sector in which, in a broad sense, we lack comparative advantage and which has to transform itself dramatically to compete) by stalling on the trade agreement with China may make some sense to Abbott, despite the unnecessary tension it will undoubtedly cause between Canberra and Beijing. But for the rest of us, it should not be that surprising that The Australian newspaper ran the headline that ‘Abbott’s China policy ‘would baffle Howard”, Australia’s last conservative prime minister who initiated the negotiations with China. It should be baffling to just about anyone who takes Australia’s national interest more seriously.

Jane Golley is Associate Director at The Australian Centre on China in the World, the Australian National University.

This article first appeared here at The Conversation.

One response to “Australian opposition leader throws economic relationship with China into question”

Support Quality Analysis

The East Asia Forum office is based in Australia and EAF acknowledges the First Peoples of this land — in Canberra the Ngunnawal and Ngambri people — and recognises their continuous connection to culture, community and Country.

Article printed from East Asia Forum (

Copyright ©2024 East Asia Forum. All rights reserved.