The world is taking a different stand on China these days. Australia is at the pointy end.
What the economy wants and what the people want can often be too entirely different things.
That was on display this week when US Trade Advisor Peter Navarro said that the US-China trade deal was ‘over.’
The markets fell 4% and Trump threw Navarro under the bus and said, actually, the deal’s still on. It’s “fully intact” even.
Never mind that the deal looks increasingly fragile with every passing day. One of the key components of the deal was that China was going to buy more exports from America.
A lot more.
This chart looks at what was supposed to happen to US exports to China:
That always looked pretty unrealistic. But then Covid etc, and exports have actually gone in the wrong direction.
So the deal is under practical pressure, but it’s also under political pressure. In America, there has been a growing shift in sentiment towards China, a shift that Trump has been happy to exploit.
So far he hasn’t gone as hard on China as I thought he might have. I kinda expected him to just out and out blame China for Covid, in order to deflect criticism of his own handling.
That hasn’t happened so much, but perhaps the only reason for that is that he knows the markets are banking on the trade deal. If it collapses so do stock prices, and that’s bad news for a President who has staked his reputation on the performance of the stock market.
But this is a rift that developed nations across the world will have to reconcile. Our economic reliance on China is one thing, but the populace’s attitudes to China – and we should be specific here and say the Chinese government – they’re another.
That tension was on full display in Australia with the latest Lowy Institute Poll. It found that trust in China has all but evaporated since Covid started.
The 2020 Lowy Institute Poll records unprecedented shifts in public opinion. Only half the country reports feeling safe — a record low for Australians. Our concern about a global economic downturn has skyrocketed. Optimism about our economic prospects has sunk to an historic low.
Trust in our largest trading partner — China — has declined precipitously. Confidence in China’s leader Xi Jinping, has fallen even further. Almost all Australians would like to see diversification in order to reduce our economic dependence on China, and most would support imposing travel and financial sanctions on Chinese officials associated with human rights abuses.
Most Australians continue to believe that our alliance with the United States is important to our security. But trust in the United States has stagnated, and few Australians have confidence in President Trump.
Australians are right to wonder about Trump, but they have more faith in the US as a whole.
You can see that we’ve gone from over 50% of Australians having trust in China, down to just 23% – though its worth noting that trust in all global powers has fallen.
And in terms of picking sides in the fight between the US and China, not that long ago we were hedging our bets and going 50:50. Now, considerably more people think the relationship with the US is more important.
And a lot more Aussies see China as threat these days…
I know this data comes in the middle of a pandemic, so it’s going to be a bit “emotional”. However, I think it does point to a bit of a seismic shift in our assessment of our place in the world – a shift that has been pretty clearly signposted in Canberra as well.
This has big implications for the shape of the Australian recovery.
Remember, it was an export boom to China that help drive the rebound that followed the GFC. It was what turned the rebound into a boom.
Very different dynamics are in play this time around.
Watch this space.