GLASS PYRAMID ‘EXCLUSIVE’ SEALED SECTION CONTENT
Update: Unfortunately, last night QandA managed to spend well over an hour on everything (including railway crossings in Melbourne) other than the top secret proposed TPP agreement. The QandA producers apparently thought it not worth the time to allow a single question to the Minister responsible for keeping it a secret.
On Monday 20 April 2015, Mr Andrew Robb, the Minister for Trade and Investment will appear on ABC TVs QandA program. This special post is designed to give the QandA audience and viewers food for thought (and perhaps ideas for questions) whatever political tribal scarf they prefer to wear.
If anything, traditional conservative viewers should be the most concerned by Mr Robb’s efforts.
The focus of this post is the proposed but top secret Trans Pacific Partnership deal and the various “FTA” agreements that Mr Robb has been signing with unseemly haste on our behalf since the LNP took government in 2013.
The 6 key points about “Free Trade Agreements”.
1. Free Trade Agreements are not about trade.
Free trade agreements are not really about trade in goods and services. Or to put it another way, improving trade in goods and services (especially Australian goods and services) is not the reason that our trading partners want to sign FTAs with Australia.
Over the last few decades Australia has UNILATERALLY reduced the majority of its tariff and other trade barriers on imported goods and services. That is why our shops are simply packed to the rafters with cheap overseas goods from the four corners of the globe. Even our few industries with some remaining ‘trade protection’ – like cars – have very low levels of protection compared to most of our trading partners.
About the only remaining barrier to goods and services landing on our shop shelves are quarantine barriers and even those are under ongoing attack by our trade competitors who would prefer that our industries suffer from the same diseases as theirs.
Australians already have great freedom to buy goods at the lowest possible cost from whoever they want so if someone (say Mr Robb) tries to tell you the TPP and the FTAs about improving the flow of cheap toasters, T-Shirts and TV’s you can politely yawn as we have “been there done that” and we didn’t need a FTA to do it either.
2. Free Trade Agreements are about capital flows.
Because our trade competitors do not need easy access to our markets for their goods and services – we have already given them that without asking – the reason they are keen to sign FTA’s with Australia is because they want an easier path to pursue their preferred business model which is to manipulate their exchange rates by exporting capital.
When a mercantilist country (i.e. a country that manipulates exchange rates to protect their domestic industries) or its banking system buys Australian Government bonds, Australian banking sector IOUs or acquires the ownership of Australian assets, it is driving up the $AUS and driving down their own currency.
As you might expect this makes their domestically produced goods and services cheaper than those produced in Australia.
Australian industry finds its output cannot compete on the international market and against imports because our trade competitors are effectively placing a tariff ON our domestic producers by manipulating their exchange rates. So when Mr Robb applauds large new inflows of unproductive capital from our trade competitors – keep in mind that it makes OUR industries LESS competitive. Loony stuff.
At this point it is important to distinguish between productive and unproductive capital imports as in theory some capital imports are productive and useful. The problem is that Australia is drowning in unproductive capital imports that are more about exchange rate manipulation and the “currency wars” than anything else. See this Glass Pyramid discussion and this recent note on the sale of Toll Holdings to Japan Post for more details and discussion of the differences between productive and unproductive capital inflows and how to pick the difference.
Be ready to note the way Mr Robb will blur the distinction to make it sounds as though we have to accept a mountain of unproductive capital from our trade competitors to get the limited forms of productive capital that we need.
3. When it comes to Mercantilism – It takes two to Tango
A mercantilist country cannot export capital and manipulate its exchange rate without a willing partner (boofhead is a more accurate word) Continue reading