‘The worst thing we could do is pick one over the other’: an Australian economist on why US-China competition is ‘a gift’
A former top economic adviser to Paul Keating in the early 1990s, Edwards has been a major figure in the private and public sectors over the past three decades.
Now a non-resident fellow at the Lowy Institute, Edwards has published a new paper titled Overhaul: How Australia can adapt to a changing world economy.
In the paper, Edwards writes that the “vigorous competition and intermittent antagonism” between China, our major economic partner, and the US, our traditional ally and security partner, has long been “mostly a source of anxiety” for Australians.
Yet, Australians should see US-China competition as “a gift”, and we are well placed to become a more prosperous nation over the next 25 years – as long as we play our cards right.
You called your essay Overhaul, so what do we need to overhaul to make the most of our opportunities?
One is that we need to recognise that the US and China will still be the major economies in 25 years. They’re not going to go away. It’s not a race between the two that either can win.
So Australia is in a peculiar position of having a very strong cultural and security relationship with the US, and a very strong economic relationship with China, and we ought to regard that as a great advantage to have such strong links with the two major global economies.
And rather than being anxious about this, we should celebrate it – bearing in mind that the worst possible outcome for Australia is for China and the US to become more adversarial.
It’s better for smaller countries to have two big players than one, and that’s the circumstance in which we find ourselves. So the worst thing we could do is pick one over the other.
So another one is to re-energise our economic statecraft; this is an area where we used to be very good.
In recent years – recent decades – we’ve become dominated by national security considerations, almost to the exclusion of economic statecraft.
[We need] more openness to foreign investment.
So are we too paranoid about China and its ambitions as a nation?
On some levels we are. You do see headlines [about how] we’re preparing ourselves for a conflict with China.
I mean, Europe’s not preparing itself for a conflict with China. Canada’s not preparing itself for a conflict with China, and Indonesia’s not, and Malaysia’s not. I’m not sure Japan is, although it says it is. India’s not.
Why would we be preparing for a conflict with China? I think it’s a relatively superficial understanding of our actual position in the world.
How do you square this with, for example, China’s attempts at economic coercion over recent years?
Well, I think we do need to be careful to maintain the balance of our relationship with China.
We certainly should not meekly accept China’s sanctions on us, but we should also be very careful not to go out of our way to provoke them.
In the paper, you say AI could play a big role providing us with this manufacturing revival that we seem to want. How?
We have a tiny manufacturing sector. We can almost start from scratch.
We have certain advantages that would become more apparent if we overcome the problem of our labour costs, which are quite high.
[High labour costs] is a good thing – it’s a reflection of the fact that we’ve got high living standards, but they’re an impediment to global manufacturing competitiveness.
And what AI offers us, for the first time in our history, is a way around it. It says we can recommence manufacturing with AI-enabled robots.
But we have to recognise that if we’re going to restore a manufacturing sector in Australia, it’s highly likely to be part of a supply chain that, one way or another, touches on China.
If there’s going to be foreign investment in Australian manufacturing, then it’s highly likely they’ll either be Chinese or influenced by China, and we have to recognise that fact.
So there won’t be many jobs in this manufacturing renaissance?
No, it’s not a jobs-rich industry, and there’s no way manufacturing is going to be jobs-rich in the future.
There is a lot of short-termism in our comprehension of what’s happening in the global economy, and it’s useful every now and then to step back and say, ‘Well, actually, what has been going on?’
And as I say, if you look at the last 25 years, calamitous though they were in many respects, the economic outcomes were pretty good and replicated those of the previous 50 years.
But people are still so upset and angry. There are riots and protests in Europe. The Americans voted in Trump again, and populist politics is riding high here. How do we square that with your view?
I think there are several things going on. In the case of the US, it’s the awareness that China now matches it in economic weight.
The other thing in the US is just unchecked growth of inequality, and particularly the outstanding growth in the wealth, power and prestige of the top 1% of the population. It’s unprecedented.
In Europe, it’s slow growth in living standards compared to a lot of other places, including Australia. A discordant migration story.
But a generally gloomy view is not true of India, and not true of China or of many other countries which have done extremely well.
So why are Australians so angry?
I just can’t account for it, because we’ve done well.
We’ve got problems now. We’ve got high inflation, which we need to restrain. And we’ve got very low growth in productivity – it’ll be a very good thing when that revives.
But in terms of our long-term outlook, it’s pretty good.
Housing affordability is a major thorn in our collective paw.
I guess it is. But it’s basically a supply-side issue which we’re beginning, I think, to address.
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