Ag's China syndrome danger ahead unless trade cranks up to Japan, India, Indonesia

After four decades of global trade liberalisation and the rise of China as an economic behemoth, our "salad days are coming to an end" says Australia's former foreign affairs boss, now University of Queensland chancellor, Peter Varghese.

China's powerful position as our farmers' best friend in global markets may not end well in the complicated trade era ahead, where economic growth and stability were far from assured.

China was not only set to massively increase its farm purchases from the US, it was "a system experiencing a great deal of brittleness and economic challenges".

The all-controlling communist leadership was even winding back economic reforms which had previously made the middle kingdom a market mecca for exporters, significantly underpinning a generation of global trade growth.

"To expect China to continue its four decades of growth is a very heroic assumption," Dr Varghese said.

For a political system which was intent on maintaining its power and authority over Chinese society, the demands of a freed-up market-based economy were particularly awkward.

"We're now seeing reform in the Chinese economy walking backwards because of increasing state control."

The problem wasn't just with China or its leadership.

The US and many other countries were forsaking good economic policies for trade populism, including restrictive bilateral trade partnerships, because they made for good (short term) politics.

"For decades most of the world's developed economies were driven by open markets, deregulation and liberalisation," Dr Varghese said.

"So many of the factors which shaped our foreign policies and economic agendas are no longer the case."

Although America was a strong geopolitical ally and trade partner, it was experiencing a massive social and political restructure.

After an anxious two year US-China tariff war and heightened regional tensions, Washington has now nailed a new trade commitment from Beijing intended to lift Chinese imports of America farm products from a $29b baseline to $40b a year.

Dr Varghese said that deal, combined with the continuing political power tussle between China and the US in the Indo-Pacific region meant Australia must spread its trade risks, paying far more attention to Japan, Indonesia and India.

RELATED READING

"Australia faces a bonfire of certainties," he told last week's agricultural Outlook 2020 conference in Canberra.

"We will have to make our own way in the trade world in ways we've not had to think too hard about in the past few decades, paying attention to resilience, productivity and an investment agenda more tilted towards innovation, not just markets."

While Japan, India and Indonesia had different risk factors of their own, they were key drivers of market growth in the region.

"Japan has serious structural challenges after its remarkable post war success - it's not as nimble as it was and growth has been bouncing around at the bottom of global trends," he said.

"But Japan has a remarkable economic weight, depth and sophistication which we dismiss at our own peril."

Like Australia it also had an understanding of a strong rules-based system and was on good terms with the US.

India, where Dr Varghese was Australian High Commissioner prior to becoming Secretary of the Department of Foreign Affairs and Trade in 2012, was already the world's third largest market by buying power.

"There is no single market that offers more growth for Australia than India," he said.

"Although it has potential that's always just around the corner and never quite realised... agriculture is one of the top four sectors to benefit from India's growth.

"Even assuming just 6pc annual growth, over 20 years this market is something of real significance."

Frustratingly, however, the popular politics of the Hindu nationalist government risked disrupting India's secular economy which would be critical for good trade partnerships.

Delhi's interest in economic reforms had faded of late and growth had slipped to 4pc.

Nearby Indonesia was on track to be one of the world's top six economies within 15 years and should be considered as more than just a market.

All Australian exporters would be wise to take the lead from the red meat sector, which shared business interests, market strategies and training ties with Indonesian businesses.

"We need to speak the language of partnership rather than just markets with our Indonesian neighbours," he said.

At a diplomatic and economic policy level Australia should also think more about how it related to other members of the Association of South East Asian Nations and the ASEAN group as a whole to promote rules-based trading in the Asia-Pacific.

"So much of our nimbleness as a trading nation will depend on forging relationships," Dr Varghese said

"We have to invest in soft power diplomacy."

Far more innovative export products and production initiatives were also needed for success.

"It worries me we are second from the bottom on research and development investment."