Recent positive economic news about surging exports was blunted by last week’s jobs report from the Australian Bureau of Statistics (ABS). Australia’s jobless rate hit 6% in January, the highest in a decade. And it came in the same week that we learned Toyota would cease making cars in Australia by 2017.
Toyota joins Mitsubishi, Ford, and GM in packing its bags. You can blame the strong Aussie dollar if you like, or the unions, or the government. But the fact of the matter is, manufacturing is dying in Australia. In Scoops Lane last week, I speculated that the decline of manufacturing is also the decline of the middle class (and arguably the decline of an egalitarian society). When you can’t raise a family on the basis of lifelong skilled employment with rising real wages, the economy (and society) become more unstable.
Mind you, this is a local instance of a global phenomenon. Labour costs around the developed world have been pushed down by the emergence of Chinese and other low cost emerging Asian manufacturers in the last 30 years (Thailand, the Philippines, Vietnam). It’s not so much bad policy as reality.
It could be that my analysis of Australia’s economic future is clouded by my American background. Just because things have played out poorly for America doesn’t mean that Australia will automatically be the same. But in economic terms, the same forces that have led to a decline in American economic power also affect Australia.
In geopolitical terms, the Pacific is rapidly becoming a contest between America and China. This puts Australia in an awkward spot; having to choose between a security patron (America) and an economic patron (China). That’s a tough choice.
US President Barack Obama heads to the Pacific in April. He’ll visit Japan, South Korea, Malaysia, and the Philippines. He will probably bring up the issue of China’s ’9 dashes’ map. That’s China’s map which demarks what it considers to be its offshore territorial waters in the South China Sea. You can see below that the 9th dash, at the top right, encroaches on what is currently considered territorial waters belonging to the Philippines.
The territorial dispute in the East China Sea between Japan, China, and South Korea has captured everyone’s attention in recent months. It creates the possibility of increased conflict (economic, but also armed) between Asia’s two biggest powers. But in commercial terms, especially when it comes to shipping, oil and gas, and fishing, the South China Sea is much more important.
Incidentally, US Secretary of State John Kerry is in the region this week. This comes after one of his undersecretaries told the US Congress that China’s ’9th dash’ could be illegal. China’s Foreign Ministry promptly responded, saying, ‘Relevant comments made by the U.S. official in congressional testimony are not constructive. We urge the US to be rational and fair and play a constructive role for peace, stability, prosperity and development of the region, rather than the opposite.‘
Also incidentally, Chinese warships passed through the Sunda Strait earlier this month. They were on their way to the Indian Ocean, by way of the passage between the Indonesian islands of Java and Sumatra. Two Chinese destroyers were accompanied by new amphibious vessels that can carry helicopters, troops, and armoured vehicles. They returned to Chinese waters after passing through the Lombok strait near Bali.
The US promised a ‘Pacific Pivot’ in 2011 and followed up with the deployment of 2,500 US Marines in Darwin. But this is a much longer game. In the February issue of The Denning Report I’ll take a look at the military aspects of the power struggle between the US and China. And I’ll explore some ‘alternative scenarios’ for Australia.
Dan Denning,
Editor, The Denning Report
Ed note: The above article is an edited extract from The Denning Report.