Allies and customers
Dropping a demand for free trade negotiations on Japan just when Prime Minister Shinzo Abe is in the middle of an unexpectedly difficult early election campaign is hardly the way to treat an ally.
But that's what US Vice President Mike Pence did on Monday, no doubt generating some anxious talks in the Japanese government about what the trade deficit-obsessed President Donald Trump will do when he visits Tokyo next month.
The Abe government has little appetite to pay even lip service to the US demand to open its protected agricultural markets even more than it already did in the Trans-Pacific Partnership (TPP) negotiations, just when Abe needs all the farmers' votes he can get for Sunday's election.
Abe, to his credit, has stuck with the bigger picture of keeping the TPP on life support and could have benefited from a completed deal in this election, because it would have given some structural-reform substance to Abenomics. A modified TPP-11 agreement (with some US-backed provisions being excluded) may make progress at next month's APEC meeting in Vietnam, according to APEC Executive Director Alan Bollard.
This Politico analysis provides a nice insight into the Japanese bewilderment at Trump's inability to put the pieces of the Asian security and trade jigsaw puzzle together in the context of the North Korean crisis. But as I forecast here when Abe raced off to Florida for a quick round of golf with the new US President in February, the Japanese trade surplus was unlikely to escape Trump's attention for long.
It is also interesting how Japanese officials seem to be counting on a US farmer backlash against Trump for leaving them adrift without the TPP, as competitors such as Australia try to take advantage of better farm product access to Japan.
Confucius says
It is hard to think of a better-credentialed person in the federal government to deliver a sage-like missive on the role of universities in Australia's relationship with China than Frances Adamson, given her long career in practical Sinology. But the inconvenient truth about the Department of Foreign Affairs and Trade Secretary's carefully nuanced Confucius Institute Annual Lecture at Adelaide University last week was the adjustment to Australia's trade statistics just a few days before.
The Australian Bureau of Statistics' change in the way international visitor data is recorded has resulted in an increase of almost 20% in the value of education exports to $28 billion annually – and this will flow all the way through to the gross domestic product components later this month. See Tim Dodd's analysis here.
That's made the 200,000 Chinese students enrolled in Australia (28% of the overseas student total) that much more valuable, as Australia tries to make the shift from being too dependent on resource sales to, well, China.
In a tone that might have been drawn straight from the Analects, Adamson declared: 'We understand the high value placed by Chinese culture on the best possible education. And we are honoured that so many have chosen to come to Australia to pursue that goal.'
But the warning to China over interference in university student life was more Thatcher-esque: 'The silencing of anyone in our society – from students to lecturers to politicians – is an affront to our values. Enforced silence runs counter to academic freedom. It is only by discussion, and of course discussion which is courteous, that falsehoods can be corrected.'
The ABS changes mean that educating Chinese students is now about as valuable as selling coal to their home country, but much more complicated – though that is often the case in a shift from goods to services trade. This is a real tipping point in economic diplomacy, just when ASIO is raising concerns about campus espionage activities.
It might be diplomatically sensitive, but telling Beijing to butt out of campus life is likely to be easier than dealing with the longer-term consequences of a production line of Chinese students who return home feeling they led an enclave existence in Australia or, even worse, feeling they didn't get their money's worth. See Kirsty Needham's interviews with disgruntled former high fee-paying students.
And it was interesting to see the contrasting reactions from two of the country's most senior foreign affairs practitioners on this policy dilemma, which runs all the way from the classroom to the current account. Former Foreign Minister Gareth Evans, wearing his Australian National University management hat, says universities are 'increasingly conscious' of espionage activities on campus but the issue needs to be handled delicately as they are 'totally dependent' on Chinese student fees.
But former Defence Minister Kim Beazley (no soft-liner on China) took a more nuanced approach, saying universities have to do more to help foreign students fit in, just like they did under the old Colombo Plan. 'Now to some degree, they look as though they are going through a sausage machine,' Beazley says.
Having spent a bit of time in university libraries this year surrounded by Chinese students and then coming home to hear my own children's accounts of life on the front line of tutorials and group assignments, I think universities have some real national challenges making the best of that $28 billion revenue bonanza.
Stocktaking
This column is partly inspired by Foreign Minister Julie Bishop's 2014 initiative to leave a policy legacy that, among many other things, involves inserting the word 'economic' in front of diplomacy. So it was interesting to see her pick a few of her favourite outcomes from cracking the whip at DFAT and telling the overseas missions to put prosperity on the agenda as well as peace.
There was a 'Taste of Australia' barbecue in Cairo to promote Halal-certified produce, which Bishop says helped remove Egyptian trade barriers to beef and lamb, leading to higher exports.
The Hong Kong consulate helped China Resources Group join a $1.7 billion investment in GenesisCare, a leading Australian provider of radiation oncology, cardiology and sleep treatments.
Then there is an initiative to bring private sector innovators from Mexico, Indonesia, Korea, Turkey and Australia together to inject some start-up stardust into the otherwise somewhat nebulous MIKTA group.
It is certainly not market-moving stuff. But perhaps this is the new normal when traditional trade agreements are proving harder and harder to bed down – and Bishop says there will be more of this in the forthcoming Foreign Policy White Paper.
And in that context, the quest for a new India Economic Strategy that can go where the moribund Comprehensive Economic Cooperation (trade) Agreement couldn't will be a real test of what economic diplomacy is all about.
