Why ‘free trade’ is key to economic recovery
COVID-19 led Governments around the globe to take a range of unprecedented measures and while these measures helped control the health crisis they have
inflicted unavoidable damage in the economy.
Measures such as border closures, disruption of global supply chains, reduction of international migration are widespread. In addition, the creation of new barriers to trade and export bans have made international cooperation and trade increasingly difficult.
While some international institutions are on life support, a growing sentiment challenging globalisation and the fundamentals of free trade has emerged. The COVID-19 crisis will certainly open avenues to rethink how and what globalisation will look like moving forward. It will also make a new and stronger case to support ‘free’ trade. Thought leaders worldwide agree that despite the challenges, an open and connected world will benefit all nations (Australia included) in the long run.
Why free trade is key for Australia’s economic recoveryHealth outcomes have been critical to Australia’s stronger than expected economic performance, yet Australia is now officially in a recession for the first time in nearly three decades. Fiscal and monetary policies including stimulus packages which account for nearly 13.3% of GDP have played a significant role in economic resilience, yet the road to recovery seems rocky.
As an open trading nation, Australia is more exposed than most to the global economic downturn sparked by this pandemic. Trade represents nearly 21% of Australia’s GDP, which means that around a fifth of all goods and services (by value) produced in Australia are traded internationally.
Current trade tensions with key trade partners also create uncertainty for Australian businesses and exporters, who have relied on markets like China for both trade and investment in the past. Moreover escalating trade and political tensions between the USA and China and President Trump’s war on multilateralism can have an unintended impact in our economy.
Despite this grim outlook, an open multilateral trading system remains in Australia’s national interest and is critical to the recovery of our open and trading-based economy. With trade creating 1 in 5 jobs and foreign investment 1 in 10, we need Australian leadership in rebuilding the global trading system and in restoring faith in the WTO and the international rules-based order that has benefited this country for nearly eight decades.
The way forward – not an easy answerThe ‘how-to’ of restoring and instilling new life in the multilateral trade system that supports free trade will require leadership, political will and engagement of the private sector.
There is bipartisan political support to keep promoting access to global markets and enhance existing and new trade relations, as Treasurer Josh Frydenberg told the National Press on Tuesday 5th June “Open markets must be essential to the recovery.”
A key recovery strategy is based on a fundamental principle of economics - we trade our way out. This requires the removal of barriers to trade in goods and services that are not affected by the health restrictions. Additionally supporting freer trade in unrestricted activities and goods at local, regional and international levels is essential. This can be balanced with the strengthening of domestic industries to enhance their capabilities and support skills development that can support international trade.
The positive news (even if it doesn’t feel that way) is that as predicted by the WTO and OECD, a strong recovery is possible. Although shaken, the fundamentals of the Australian economy remain solid. What we need to do is make good policy decisions, and give businesses, households and would-be entrepreneurs reasons to be confident about the future.