Trade between Australia and our ASEAN neighbours in the Southeast Asian region has been a growing sector of the Australian economy for some time, as well as a region of focus for diplomatic and strategic partnership building. Emphasis has increasingly been on strengthening Australian bilateral relations with those nations in the ASEAN region, as reflected in the 2017 Foreign Policy White Paper. ASEAN emerged as Australia’s second-largest trading bloc in 2019, with Thailand, Singapore, Malaysia and Indonesia all with a place in the top 20 trading partners. Big opportunities lie in expanding into other ASEAN economies that are experiencing rapid economic growth, rising urbanisation and growing middle-class populations.
However, when talking about trade, international relations and economic development, there remains an elephant in the room that cannot be ignored. How will Covid-19 change things?
Projections for the pandemic’s effect on international trade are fairly dismal. The situation at large is characterised by a sense of uncertainty and increased disillusionment with the highly connected international trade network that we rely on for much of our imported goods. There is increased scepticism of the ‘rules-based international order’ (from which Australia strongly benefits, as well as advocates for), as protectionist sentiment grows. The pandemic has brought into question Australia’s national resilience, as critical industries including our oil supplies and ability to produce medical and technological supplies have been left to ‘market forces’- characterised by precarious supply chains and just in time delivery, rather than careful planning. In times of international crisis, trade slows, which quickly makes for a precarious situation.
The pandemic has highlighted how Australia may be too reliant on trade, in both import and export terms, with our biggest trading partner, China. 25% of our total trade is with China, which makes it by far our most significant trading partner. But we may be missing out on opportunities to trade elsewhere. Even before the Covid-19 crisis, China’s economic growth was slowing, with a 30-year low in 2019. At the time of writing this article, the Australia-China trade relationship has come under strain as the result of diplomatic tensions between the two nations over the Australian government’s call for an independent investigation into the pandemic outbreak. The trade tensions have highlighted how dependent our economy is on exporting primary industry goods (mining and agricultural goods) and, indeed, how replaceable we are as a trading partner to China, who can happily procure goods like iron ore from Kazakhstan or one of its many other trading partners.
Instead of addressing Australia’s trade weaknesses with increased protectionism, we should be looking towards trade diversification, in particular with emerging regional powerhouse economies with which we are already geographic neighbours. Diversification gives us economic flexibility and resilience to create stronger partnerships and recover better in a crisis. Covid-19 may have been a big shock to the economy, but it has taught us a lot about what we need to consider in creating an economy that is more resilient to crises.
ASEAN economies are some of the most rapidly growing in the world, with rising urban populations, increasing middle-class growth and large working-age youth populations. These factors make a strong case for increased trade and goods investment opportunities – in addition to its regional proximity to Australia and the added geo-strategic benefit of intra-regional trade. The opportunity for trade with ASEAN remains largely untapped.
Perhaps one reason trade between ASEAN and Australia has not reached its full potential is due to a misplaced perception that Southeast Asian nations trade capacities do not match Australia’s. This is simply not the case. ASEAN economies increasingly favour Australian exports, particularly given that educated middle-class demographics are rapidly growing, resulting in a growing appetite for Australian agricultural and mining commodities. Australia’s education is also increasingly attractive for ASEAN. One of the hardest-hit sectors of the Australian economy in the wake of Covid-19 is the university sector, which relies heavily on international students. New markets are needed to bolster the student population of universities, and the emerging middle classes in ASEAN may be part of the answer. With Monash University already having a campus in Malaysia and opening a new campus in Indonesia, and RMIT with a campus in Vietnam, there is only room for growth.
In the wake of Covid-19, trade diversification is important for mutual cooperation and support intra-regionally. ASEAN economies will also be looking to diversify their trading partners and will need support through the ensuing periods of poor economic growth that will predictably hit developing ASEAN economies hard. Australia has a role to play in supporting them by promoting intra-regional cooperation.
During this time of crisis, banding together with our regional partners is mutually beneficial.