Interview on 2GB, Summer Afternoons, with Deborah Knight

  • Transcript, E&OE
Topics: US-China trade relations; Australian trade; Australia bushfire crisis.
16 January 2020

Deborah Knight: Now, no one likes a trade war, particularly when two of the biggest trading nations on our planet are involved. And now, after more than two years of tensions between the world’s largest economies — the US and China — the two nations have now, this morning, struck an initial trade deal. Now, we mentioned with business reporter Chris Kohler first up on the show that this deal has massive implications, and it’s having a big impact on global markets as well. Beijing has pledged to boost US imports, Washington is agreeing to halve some of the tariffs on Chinese products, and for Australia there are big implications as well.

Minister for Trade and Tourism, Simon Birmingham, is fresh out of a national security meeting in Canberra. He’s on the line for us now. Minister, good afternoon to you.

Simon Birmingham: Hello Deb, good to speak with you.

Deborah Knight: Thank you for coming on. Welcome news, no doubt, that this first phase has been signed.

Simon Birmingham: This is welcome news. Australia has long called for a reduction, a cessation of the trade war between the United States and China — it was hurting global economic growth, and so we welcome the fact that this agreement has been signed, it’s been released, it has perhaps more detail to it than some commentators had expected, and that appears to be getting global markets some extra confidence, and that is very welcome and we hope that that can really spur investment and economies around the world.

Deborah Knight: Yeah, record figures on the ASX for Australia, and record growth too in the trade markets in America. But in terms of the trade war itself, is it now over- does that mean? Can we breathe a sigh of relief on the international stage for the economy, or could it be derailed?

Simon Birmingham: I think this is a truce rather than a complete elimination of trade tensions between the US and China. What we’ve seen is that it’s a stage one deal, so obviously there are further stages that the US and China hope to be able to achieved. But it is to the testament of both parties that they have negotiated this in a way that has exceeded expectations, that does seek to — in an initial stage — deal with some issues, that many countries would share concerns, in terms of the protection of intellectual property, the need to make sure that piracy is handled appropriately, appropriate and transparent currency practices.

So these are all significant policy gains that don’t just affect the United States, but are good news for other economies around the world. And that’s why we’re pleased to see that, it’s the confidence boosts, it’s the fact that there are some tangible improvements and outcomes there. Now, of course it has impacts on relative competitiveness as well, but on the whole we continue to back the competitiveness, the quality of our exporters, and Australia will continue to enjoy, it would appear, some benefits under the China-Australia Free Trade Agreement that our government struck relative to what the US has negotiated under this agreement.

Deborah Knight: Well, we know that China is one of our largest trading partners, and one of the phase one agreement was that China would buy US$200 billion more of US goods over the next two years. Is that going to impact our economy?

Simon Birmingham: So, that is a big amount, but of course China is a huge economy. So to put that in some perspective in 2019, Chinese imports grew by some $260 billion, or thereabouts. So if you look then and see that the US has made a commitment- sorry, China has apparently made a commitment to purchase $200 billion more of US goods over the next two years, well, we could expect that China’s import levels on the whole will grow by more than twice that, comfortably more than twice that, based on previous projections.

And also the type of areas where the commitments have been made between the US and China, we’d expect to see significant space in manufacturing, in oil, cars, planes, and even in agriculture where commitments have been made; there’s more likely to be movement from the US side in areas such as pork, poultry, and soybeans that are much smaller commodities for Australia, compared with the ones that we’ve seen such huge growth in our Chinese exports in recent years.

Deborah Knight: So our farmers won’t be affected?

Simon Birmingham: Well, we can’t say won’t be completely, but certainly, you know, this is a deal where on the whole, it’s an improvement and we see more upside than downside because of the confidence that it provides in the detail — which we’re still working through and analyzing. But the bulk of those purchases we would expect to happen as part of China’s growth, rather than substituting existing purposes. We’d expect them to be in areas that Australia is not particularly exposed to. And where we are exposed, in areas such as our wine industry for example, we will still enjoy, as we understand it, a 14 per cent tariff differential relative to the United States; in relation to beef, a tariff differential of more than seven per cent. So these are, you know, real opportunities still for our exporters who’ve been kicking goals and growing markets in the US- in the Chinese market, to continue to do so even as they face, perhaps, a little bit more competition from the US.

Deborah Knight: And why is the wine industry in particular vulnerable?

Simon Birmingham: Well, I’d say the wine industry is in fact a good place there because they continue to enjoy that sort of tariff differential under the terms. So there have been additional tariffs that China wacked on the United States as part of this dispute, and that saw US wine face tariffs of up to 64 per cent. That will come down to 14 per cent, so it’s a big reduction, but Australian wine gets into China tariff-free as a result of the China Australia Free Trade Agreement that our Government negotiated. So we still have a real differential there that means that our wine producers effectively face lower taxes on their products sold on Chinese shelves that US producers do. So that, beef, infant food preparation — these are areas where we can still see clear tariff differentials that continue to last because of the ChAFTA agreement.

Deborah Knight: What about gas exports, though? Because it seems our trade surplus might not last for long. Is that an area of concern?

Simon Birmingham: In the case of gas exports, they are usually written as quite long term contracts between the companies. So, I think most of Australia’s LNG exporters would be feeling reasonably confident that, given the long term nature of their contractual arrangements, they are well-placed to be able to continue to service that market. But again, as China’s economy grows so too does their energy grow, and as part of this deal they may look to the US for a bit more oil or gas as they are seeking more oil or gas into the future. But that doesn’t necessarily mean it comes at a substitute to our existing export volumes.

Deborah Knight: And have you made any headway in securing trade deals into the UK in the wake of Brexit?

Simon Birmingham: The UK, and I’ve had discussions with the UK Trade Secretary since their election, and they are eager to get on with negotiations as soon as they get their cabinet mandate and in a position to do so at their end. From Australia’s perspective, we’re good to move as soon as the UK is ready to do so, and our ambition is to try to see those negotiations concluded as quickly as we can this year.

Deborah Knight: Now trade, tourism — they’re finally linked. And with the bushfire crisis, it’s caused so much damage. A billion-dollar hit to our tourism industry as well, making worldwide news. We’ve had that trade- the warning, the travel warning lifted out of the US, which is welcome, but lots of people are still worried about coming to Australia. How are we going to improve and boost our image?

Simon Birmingham: So we have some heavy lifting to do there. There is no doubt that the extent of the bushfires has not only hurt fire-affected communities but has damaged our tourism reputation, has led to cancelations across the country and a downturn in bookings across the country. And I’ll be sitting down this afternoon with the nation’s tourism industry leaders to get from them firsthand feedback on what’s happening on the ground, what they’re seeing in terms of booking volumes, and also their thoughts on how we can turn that around and how we make sure that our tourism operators, who are such big employers across Australia, don’t feel significant, unnecessary downturns when, for the vast majority of them, they are completely unaffected by fires and visitors could continue to have the same brilliant world-class experiences they always have.

Deborah Knight: There was a lot of hoopla when that UK ad with Kylie Minogue was released on Boxing Day, and the lead up to that. It was going on air in the UK just after Christmas. It was put on hold, obviously, because of the bushfire crisis. Has it started up again?

Simon Birmingham: So we changed some of the marketing approaches in the UK and in a number of other markets over recent weeks. We haven’t completely exited the market but it’s more about careful, tactical messages promoting of course some of the areas such as Queensland, such as WA, the Northern Territory, that are basically unaffected by fires and making sure we get those messages out there. So, we’re still in the UK market through Tourism Australia with carefully placed ads and messages in the right spots. Similarly, in terms of our campaign in India trying to make sure that we maximise the number of visitors here when the T20 cricket tournament World Cup is held in Australia. We’re making sure that we push on with that, but being very careful about the messaging to make sure that it gets the best possible impact in what are some trying times in terms of promoting the country to the world.

Deborah Knight: Yeah, you don’t want that message that the air quality in worse in Melbourne than it is in India or it is in Beijing. We want to ensure that the real qualities of our fine country are actually on show and we’re out there and proud with it too.

Simon Birmingham, we thank you for your time this afternoon.

Simon Birmingham: Thank you, Deb. My pleasure.

Deborah Knight: Minister for Trade there, and Tourism, Simon Birmingham.

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