URSABLOG: Trading Choices

In the heat of electoral madness, world trade is hardly on the minds of most voters in the world’s democracies when they decide who to vote for. This is something largely left for the government they vote for to decide, but in deciding their course of action the next election is always on their minds. This strange backdrop perhaps informs, and distorts, much of the ineffectiveness of trade policy when it comes down to making decisions, and striking deals.

The most recent striking example of national self-harm – I mean Brexit of course – was on the face of it about confirming or otherwise Britain’s place in the world, including trade within or outside the bloc, but it was rally an attempt of the sitting prime minister to put a group of his own party – the Euro Sceptics – out of action for a parliament or two. Fresh from (narrowly) winning a referendum that denied the Scots their independence, and fresh too from winning a parliamentary election, he decided – with little consultation – to hold a referendum on whether to remain in the EU. Having unleashed various furies, prominent amongst them English nationalism, but also a few other long held grudges in the British psyche, the UK is now decidedly out of the EU, and won’t be coming back any time soon, despite the majority now thinking it was all a dreadful mistake.

The trade deals that were supposed to arrive after Britain found itself free from the  shackles of the EU and able to negotiate on their own terms failed to materialise in any meaningful shape or form. The British soon found that once you leave a large trading bloc to go it alone, the strength of your hand is diminished, and your bargaining power is not as powerful as it was. One significant trade deal they did sign up to – with Australia – had British farmers angrily denouncing the government because Australian beef, amongst other things, could undercut the price of home-grown beef, despite being imported from the other side of the world.

But the Australians seem to be good at the art of trade, especially when you consider that the biggest bust up they have had is with China, which is by no means insignificant in global trading terms. They could teach the many countries that seem to mix up trade with domestic politics a thing or two.

It is only a few years ago that diplomatic tensions between China and Australia were at an all-time high, when in 2020 the then prime minister, Scott Morrison, called for a public enquiry in to the origins of Covid-19 at almost the same time that they became the first country in the world to ban Chinese vendors, including Huawei, from their 5G telecoms network.

China was infuriated, and introduced a range of punitive tariffs, sanctions and informal bans on about A$ 20 bill worth of Australian goods including coal, barley and wine, at the same time detaining Australian citizens on dubious grounds. But it did not touch the elephant in the room: iron ore. The Chinese continued to buy iron ore in large amounts, and the Australians continued to sell it.

Things changed in 2022 when Anthony Albanese became prime minister and, together with foreign minister Penny Wong, sought to patch things up with China. And it seems to be working: Chinese premier Li Keqiang’s recent four day visit to Australia is cementing trade relations as the total trade – in money terms – between the two countries is now higher than ever. But this is despite the noise – some of it considerable – that surrounds other parts of the relationship that divides them.

China has not stopped Australia getting closer with the US and the UK in the shape of the Aukus security alliance, dramatically increasing spending on defence in response to China’s increasingly assertive actions in the region. Recent claims and counter claims of espionage between the two countries have not abated. It just seems that – all things considered – as long as China wants Australian iron ore and wine, and Australia wants to sell it to them, there are many things that they can agree to disagree on without stopping the trade itself. Indeed stopping buying and selling goods turned out not to be such a great idea after all: it changed little in the behaviour of either country.

One of the reasons that it didn’t really work was that although China banned the import of Australian coal – but kept buying iron ore – new markets were found for the coal anyway. China may have stopped drinking Australian wine, but this also led to a change in how Australian winemakers thought about their production and what changes they needed to make to their products in order to sell it to other countries. The Chinese may be enjoying Australian lobster again soon, as the ban on that is expected to be lifted, but other countries have been enjoying it in the meantime.

Australia’s experience should serve as a salutary lesson to others who use sanctions, tariffs and even informal bans to influence behaviour, whether domestically or internationally. Once a policy has been enacted, it is done: it is up to the targeted country or company to find solutions to the problem. It should not be surprising that Russia, Iran, China or Australia will start doing other things to ameliorate their position. It sometimes feels that the nations who impose trade restrictions seem to expect the offending nations to go and sit on the naughty step for a while to reflect on their bad behaviour, and then come back to the table, admonished and humble, and ready to accept terms. This rarely happens, and didn’t happen in the case of Australia and China.

In the end, trade will find a way as long as there are willing buyers and willing sellers for the product or service in question. The market will decide on the price and the actors. Trade restrictions rarely result in the way that the imposers imagine or foresee. It rarely changes behaviour, and in many cases – as we have seen – it reinforces and doubles down on the belligerence of the offending nation, and allows other grudges and complaints that were long forgotten to bubble up and resurface.

John Boyd, a fighter pilot in the US Air Force, and later a military strategist developed a decision-making concept called the OODA loop: Observe, Orient, Decide, Act. The basis is: observe where you are, orient yourself in a direction where you want to go, decide what you want to do, and then act. But that is not the end of it; it is the loop that is important. You then observe the results of your actions, what your opponents have decided to do in response to your actions, and then you reorient yourself, and decide and act again. And repeat. Success is accomplished by “tightening” friendly OODA loops and/or “loosening” enemy OODA loops, by paralyzing opponents’ decision-making processes through swift repetition.

This of course means changing tactics, and not sticking doggedly to the original plan if it’s not working. In trade, and in other forms of non-mortal combat – like negotiation – reacting quickly to another’s tactics with a new action more relevant to the situation in hand is far more likely to result in success than stumbling around blindly spouting outdated theories that have no relevance to the concerns at hand.

The UK general election on Thursday is the end-game of the disastrous political experiment of Brexit. The inability to react to the challenges that Brexit unleashed – multiplied by other unforeseen events like the pandemic and the invasion of Ukraine – is the root cause of the imminent annihilation of the Conservative Party, if the polls are to be believed in any case. The sad thing is that the incoming UK government will probably not have a meaningful opposition to test its own actions against, a necessary element in a parliamentary government as the Tories fight amongst themselves as to what the next course of action should be.

But it is not just in the UK that this is taking place: France votes today, the US votes in November, and many of the policies offered to voters resonate with the same themes globally. International trade will be influenced by the campaigns and the results, and the world will change accordingly. But it is not all hopeless: by recognising that using trade as a weapon makes it very unwieldly and unpredictable may convince some countries to concentrate on what trade does well: improving the lives of the sellers and the buyers, and adding to understanding between cultures rather than demonising them.

Trade is the buying and selling of goods and services over time and space, not a moral stick to beat your opponents with. Big slogans and big ideals may sound great, but they are easy and lazy solutions to complex problems. The positive effects of trade are beneficial as long as the rules are obeyed and the terms of trade are constantly updated. Any manipulation or distortion of trade needs to be countered, and quickly, and new agreements made, and updated, continually. And then the whole process needs to be repeated as the new problems and imbalances of new agreements come to light. It’s hard work, and it’s not perfect, but surely it’s better than the trade wars that threaten to escalate beyond trade, and beyond anyone’s control.

Simon Ward