Workers at CSL loading the first batch of Australian-produced AstraZeneca Covid-19 vaccine for distribution, Melbourne, 24 March 2021 (Luis Ascui/Getty Images)

Economic diplomacy: Deploying soft power and the future of trade

Not-so-negative globalism, the not-so-predictable future of supply chains, and maybe not much change on China.

Greg Earl

25 March 20216 min read

Power vacuum

Prime Minister Scott Morrison was swift to claim former finance minister Mathias Cormann’s selection as Organisation of Economic Cooperation and Development (OECD) secretary-general as a tribute to Australia’s global influence.

“The appointment is recognition of Australia’s global agency and standing amongst fellow liberal democracies and our practical commitment and contribution to multilateral cooperation,” Morrison declared as he noted Cormann was the most senior Australian appointment to an international body for decades.

It is hard to decry Cormann’s success. However, this is the same prime minister who coined the idea of “negative globalism” not so long ago when appearing to align with then–US president Donald Trump’s populist assault on global institutions.

Meanwhile, his own government has managed to both fumble the development of a new national logo after an elaborate design process and dump a long-running, detailed review of a soft-power strategy.

Sporting prowess aside, it is hard to identify a better example of Australian soft power than education in Southeast Asia over three generations, starting with the original Colombo Plan.

“Global agency and standing” sounds like a practical definition for the soft power Australia was recently judged to have in the Brand Finance Soft Power Index, where it rose from 13th place to 10th place. However, there is a good argument that soft power is best identified and then demonstrated with outcomes, rather than shouted from the rooftop after a long bureaucratic review.

So, the Department of Foreign Affairs and Trade decision to dump its soft-power strategy development last year amid the more pressing challenges of the pandemic doesn’t necessarily mean the effort has been wasted.

And Cormann’s OECD success might well be put down to a well-funded and executed diplomatic election campaign amid European divisions than a testament to warm feelings towards Australia.

But Australia appears to be facing a much more serious and under-recognised challenge to its soft power in Southeast Asia – arguably a more important sphere of influence than the OECD.

The latest annual survey of regional opinion leaders by the ISEAS-Yusof Ishak Institute suggests that both Australia’s education and tourism attractiveness have been sliding over the past three years. Australia’s rank as the preferred country for tertiary education has fallen from third behind the US and Europe in 2019 to fifth in this year’s survey, now also behind Japan. The proportion of people choosing it has fallen from 21.2% to 12.3%.

Meanwhile, the proportion of people choosing Australia as their preferred holiday destination has fallen from 10.7% to 5.6% over the three years, with New Zealand doing better in the past two years. More remarkably, New Zealand got more credit than Australia for its pandemic response in Southeast Asia.

The Morrison government has certainly stepped up in Southeast Asia in the past year, with significant increases in general development assistance and pandemic spending. But whether that should be seen as soft power or hard (financial) power is debateable. A published review might have cast some light on such definitional issues.

Nevertheless, sporting prowess aside, it is hard to identify a better example of Australian soft power than education in Southeast Asia over three generations, starting with the original Colombo Plan.

So, for a prime minister now more interested in national agency and standing, helping smooth the flow of students from that region back to Australia after the pandemic might be more valuable in the long term than getting a former colleague a high-profile international job.

Unchained

From ships stuck in the Suez Canal to empty car yards due to semi-conductor shortages, supply-chain disruptions are all the rage these days. And the federal government has given the Productivity Commission its own tight four-month supply-chain time frame for unravelling a subject that most people hadn’t thought about until the supermarket shelves emptied a year ago.

But inquiry commissioner Jonathan Coppel has provided a sneak preview into his broad thinking in a speech to the US Studies Centre, where he noted: “International supply chains are consciously being disrupted. Trade barriers have risen. And the rules-based trading order is under greater strain than at any time since the 1930s.”

Some of the key points he makes are:

Don’t read too much into US-China trade conflict, because tensions had been brewing below the surface for many years around the operation of the rules-based trading order at the World Trade Organisation.
The lack of any process for graduating developing countries to developed status is one of the toughest unresolved issues as the developing country share of trade rises.
The federal government uses anti-dumping actions too often, and this is increasing.
Australia’s extensive use of mutual recognition arrangements for different regulatory regimes could be a model for unlocking global trade blockages.
Australia’s experience with competitive neutrality mechanisms could be used globally to deal with disputes over state-owned enterprises and industrial subsidies.

Australia avoided the biggest supply-chain constraint in the world this week when CSL’s Melbourne factory started producing the AstraZeneca vaccine. But the Commission’s future solutions may not be so straightforward.

Plus ça change

Australia stepped up its efforts to get the Biden administration to back away from Donald Trump’s kneecapping of the World Trade Organisation’s appeals system this week at a meeting of the so-called Ottawa Group of WTO supporters.

The mostly middle-sized, trade-dependent economies that rely on the Appellate Body met new WTO Director-General Ngozi Okonjo-Iweala ahead of efforts to get the US to chart a path to reviving the system.

But with the new US Trade Representative Katherine Tai now in office after winning Senate approval last week, it is still hard to find big shifts from the sentiment that applied under Trump.

It says a lot about the apparent alignment of interests on trade that Tai became the first of the Biden top nominees to secure unanimous support from the Senators who voted on her appointment. Tai is a highly credentialled appointee and the new administration is promising a much more coherent approach to thinking about trade.

But when asked during the hearings about whether the goal of a trade agreement between two modern, developed economies should be the elimination of tariffs and trade barriers, Tai notably declined to agree, saying that issue needed to be considered on a case-by-case basis. Five years ago, maybe yes, she said, but after the trade turmoil of the past few years:

I think that our trade policies need to be nuanced, and need to take into account all the lessons that we have learned, many of them very painful, from our most recent history.

And that comes after Secretary of State Antony Blinken had made it even clearer in his first major speech how much the thinking had changed – or perhaps not changed – from Trump’s recalibration.

Some of us previously argued for free trade agreements because we believed Americans would broadly share in the economic gains. But we didn’t do enough to understand who would be negatively affected and what would be needed to adequately offset their pain … our trade policies will need to answer very clearly how they will grow the American middle class.

Prosperity and the rules-based order received predictable attention in the recent Quad summit statements, but trade quite strikingly did not. So, it will be interesting to watch how this uncertainty squares up with the promise from Blinken’s colleague Kurt Campbell that Australia won’t have to deal with Chinese trade coercion alone.

Greg Earl

About the author

Greg Earl

Greg Earl was the deputy editor, opinion editor, national affairs editor and Asia Pacific editor of The Australian Financial Review.

Topics

World Trade Organisation Australia Economy Diplomacy