Rethinking our trading relationship

richard-leaverThe boom-bust cycle of Australia’s trade relationship with countries like China could be mitigated with a more sophisticated dialogue involving the Federal Government and the private sector, according to Mr Richard Leaver.

To do otherwise is to risk an ‘iron ore war’ with China which, given its major contribution to Australia’s balance of payments and broader economic fortunes, could have disastrous consequences.

Mr Leaver, Reader in International Relations, said the volatility of iron ore prices and the resulting stresses in China’s relationship with major producers like BHP Billiton and Rio Tinto means that it is time for the Federal Government to rethink its “hands off” stance.

“Three large producers dominate the international iron ore trade – BHP Billiton, Rio Tinto and the Brazilian group Vale – and the Chinese are very worried that they are facing an ‘OPEC in iron ore’,” Mr Leaver said.

China has stockpiled two to three months of iron ore which could be brought into play in the event of an outbreak of trade hostilities. Mr Leaver maintained the current moves by the big producers towards three month supply contracts plays into the hands of China.

“Australia has a lot riding on iron ore exports and prices can bounce around all over the place, particularly on a quarterly basis. If the Chinese were to bring some of its weapons into play, like using its stockpile to reduce prices, you would have to anticipate that Australia would not win every battle.

“And when things go down, you will be bringing down the whole balance of payments and the national economy with it.

“In that sort of market what you really need is some sort of mechanism for a strategic economic dialogue and information sharing – a forum similar to that used by the Americans over the past four years to discuss such issues as currency manipulation and trade protection with China.

“It’s time that the Federal Government adopted a more sophisticated position and got rid of the old view we will leave these trading relationships to normal commercial forces.”

Mr Leaver has, with Dr Carl Ungerer, just co-authored A Natural Power: Challenges for Australia’s Resources Diplomacy in Asia for the Australian Strategic Policy Institute.

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