Australia and Asia: The power of proximity

Page 34 

Australia has established itself as a G20 force in Asia-Pacific, and is now embarking on a new wave of engagement in the Asian Century.

Nearly half a century ago, Geoffrey Blainey’s The Tyranny of Distance argued that Australia’s geographical position shaped our psychological attitudes. The long distance between Australians and our colonial forebears in Europe, and also the United States, made us unsure of our future economic prosperity.

At about the time Blainey was writing, Donald Horne’s The Lucky Country described a resource-rich Australia that lacked the intellectual confidence to make the most of its natural endowments. Singapore’s long-standing Prime Minister Lee Kuan Yew also famously warned that Australia risked becoming the “poor white trash of Asia”, and advised that vast natural mineral wealth was neither necessary nor sufficient for long-term prosperity.

By the 1960s, however, Japan had already replaced the UK as Australia’s major trading partner, and the long journey towards greater engagement with the Asia-Pacific had begun. In fact, Australia’s economic relationship with Asia over the past half-century can be seen in terms of four overlapping “waves”, culminating with the rise of trade in services. This latest wave is still in motion, and is part of a story that has seen Australia succeed in replacing the tyranny of distance with the power of proximity.

The first wave: Black Jack’s shore break in Japan, 1957-72
In 1957, just 12 years after the end of the Second World War, Australian Trade Minister John “Black Jack” McEwen signed a commercial agreement with Japan. This agreement gave Australia a head start in Asia, and launched the Australian tradition of bipartisan support for increased trade engagement with the region. There followed a flurry of trade and, later, investment between Japan and Australia, notably in iron ore, coal and natural gas. By 1966 Japan was a key trading partner and had transformed itself from a nation devastated by war into a huge and affluent global economy.

The second wave: Reaching out to China, 1972-82
As Japan re-entered the world economy, followed closely by Korea and a handful of other rapidly expanding Asian economies, China remained closed to the outside world with little economic engagement beyond its borders. However, Australian relations with China warmed considerably after Gough Whitlam visited Beijing as leader of the opposition in 1971 and formally established diplomatic relations as prime minister in 1972. It is in part thanks to this early wave, which complemented subsequent gestures, such as Australia’s support for China’s entry into the World Trade Organization (WTO) two decades later, that China now regards Australia as a key economic partner.

The third wave: Breaking down the tariff wall, 1983-2008
Lee Kuan Yew’s admonitions from Singapore came back to haunt Australia in the recession of 1982-83 when, despite a resource boom, the economy was stagnating beneath double-digit unemployment and inflation, a situation that was common throughout OECD countries at the time. In response, government reforms opened up the Australian economy and oriented it even more towards Asia. Moreover, it achieved this while maintaining social harmony through the so-called accord with the Australian Council of Trade Unions (ACTU). A mix of market and social policies was unleashed: the Australian dollar was floated, financial markets were reformed, and universal health care and a pension scheme were introduced alongside education reforms aimed at boosting productivity.

As for trade, the tariff wall that had kept Australia isolated for a century was dismantled. Australia supported the trade liberalisation espoused by the General Agreement on Tariffs and Trade (GATT) and its successor, the WTO, and helped launch the Asia-Pacific Economic Co-operation (APEC) group.

The fourth wave: Global engagement in the Asian Century
Now Australia is on its fourth wave of engagement with Asia. In terms of trading partners, China has overtaken Japan in a further realignment of the global economic order that will again alter Australia’s trade. The emergence of several Association of Southeast Asian Nations (ASEAN) states, in addition to China and India, will shape this new phase of engagement.

Click to enlarge

The fourth wave will be different for Australia. First, we have established platforms in ASEAN, China and India, from which we can approach the new frontier markets that are opening up in places like Laos, Cambodia and Myanmar in the Mekong Delta (an area that also forms part of the OECD’s Southeast Asia Regional Programme), and Mongolia and Kazakhstan in Central Asia.

Second, while our larger companies have already formed strong relationships in Asia, the nature of global supply chains and open regionalism means that Australian small and medium-sized enterprises (SMEs) will become increasingly enmeshed. Currently 7 out of 10 of our top SME exporter destinations are in Asia.

Third, services will now play a more important role in this new wave. Mining and agriculture–what Australians call “rocks and crops”–will continue to provide the lion’s share of our export revenue to Asia, but our points of engagement with Asia will expand as the services trade promotes broader and deeper people-to-people relationships. Second tier cities in China, like Chongqing and Chengdu, are full of Australian architects and engineers, as are parts of India, Mongolia, Kazakhstan and Southeast Asia. Australia is also well-placed to respond to higher food demand by increasing the export orientation of Australian crops. Modern agribusiness is also about services, and could help Australia move further up the value chain from the “mining boom” to the “dining boom”.

In short, goods exports build a platform that enables the services trade to grow throughout the region and bring with it opportunities for investment, niches for SMEs, and richer global and regional integration.

There will be challenges as Australia pursues the fourth wave of Asian engagement, not least its exposure to shocks and its greater reliance on the ups and downs of demand in China. After all, proximity brings its own pressures. But there are also opportunities. Take climate change, for instance: this poses a serious threat to all our economies, though it also represents an opportunity for Australian environmental services exporters, especially those engaged in sectors like green construction, transport and infrastructure in China, India and Indonesia.
Australia’s economic relationship with Asia has taken many twists and turns, as we have grappled with the changing economic landscape of the region. By taking on these challenges and actively engaging with our Asian neighbours, we have become one of the world’s most open and successful economies. And as Australia hosts the G20 summit in Brisbane, there are some early signs from this fourth wave that we are really starting to benefit more than ever from the power of proximity in the Asian Century.

*Tim Harcourt is the author of Trading Places: The Airport Economist’s Guide to International Business.  He is also former chief economist at Austrade, the Australian Government’s trade department. Visit


Blainey, Geoffrey (1966), The Tyranny of Distance: How Distance Shaped Australia’s History, Sun Books, Melbourne.

Harcourt, Tim (2014), Trading Places: The Airport Economist’s Guide to International Business, UNSW Press, Sydney.

Horne, Donald (1964), The Lucky Country: Australia in the Sixties, Penguin Books, Australia.

© OECD Observer No 300, Q3 2014

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