G'day, and welcome to the sixteenth edition of Mundo.
This week I discuss the different domestic factors that influence the United States and Australia's attitudes to China. In the U.S., trade competition from China has driven substantial political polarisation, favouring Republicans at the ballot box. I also analyse the Australian political landscape following the recent Eden-Monaro by-election. With new virus outbreaks in Melbourne as Australians endure their first recession in 29 years, this could signal the peak of the Morrison government's popularity.
Approximate reading time: 4 minutes.
Photo credit: Luke Sharrett/Bloomberg
The polarised trade
The Covid Crisis has catalysed strategic competition between the United States and China across an array of fronts recently - technology, military, and diplomatic. U.S. Secretary of State Mike Pompeo hinted at banning TikTok, the popular China-based online platform after India banned the app. The Commerce Department escalated opposition to Huawei in May, banning U.S. supply to the company in a significant setback to Huawei's supply chain. Following this, Boris Johnson announced a reversal of his government's 5G policy, banning Huawei hardware from the country's future 5G network. And this week, the State Department formally opposed most of China's maritime claims in the South China Sea as unlawful.
When thinking about the devolving U.S.-China relationship, it's essential to assess the international drivers - the action and re-action between both powers at the country level - and the domestic drivers that shape the interests and attitudes of voters and their elected leaders.
Recent research by David Autor highlights the role that China's U.S.-bound exports have had in driving domestic political polarisation and hostility towards China. Using data from 2000 to 2016, traditional manufacturing regions throughout the country with majority white populations grew more likely to elect Republicans into Congress, while more mixed populations with a greater minority population tended to elect liberal (ie. further to the left) Democrats. These shifts to the polarised edges of the political spectrum are at the expense of moderate Democrats, as more Republicans are elected to Congress.
While technological changes have hurt the U.S. manufacturing industry more in absolute terms than trade competition from China, technology has impacted the entire labour market, while trade competition hurt U.S. manufacturers more exclusively. Competition from China isn't the dominant factor impacting adjustments to the American economy, but it has a disproportionately negative effect in areas particularly reliant on trade. These voters have stronger views, and they express them more vehemently at the ballot box, to the detriment of moderate political candidates.
As discussed in editions nine and ten of Mundo, Trump has leveraged the Chinese origins of the coronavirus and Beijing's early mismanagement to further stir the feelings of voters who have long felt the cost of China's economic competition. Joe Biden is also eager to capture votes from marginalised manufacturing communities, launching an economic strategy in rural Pennsylvania to "buy American". Although Biden currently leads national polls by a double digit margin, he polls weakest on economic issues. The Trump campaign is using this to attack Biden's economic record, especially on China, highlighting his historical support for deeper trade ties with China.
Laid back Australians
In Australia, political polarisation is less intense. Australia's trading relationship with China differs. Australia has a large trade surplus (exports > imports). Over 75% of Australia's China-bound exports are natural resources. According to David Uren who summarised the above U.S. and Australian cases, Australia's manufacturing sector avoided direct competition with Chinese imports, and as a consequence China hasn't historically been a sour economic issue at the ballot box.
Australian manufacturing suffered from international competition as the economy opened through the 1980s and 90s. Yet as China entered the World Trade Organisation and rapidly expanded its exports in the 2000s, Australian manufacturers were highly specialised or naturally protected. As the resources export boom soared from 2011, China was viewed as a buyer of Australian goods, not as a competitor to Australian industry.
The China strategy of Australian governments always sought to balance the interests of Australian resource exporters against China's growing assertiveness in the region and in Australia's own politics. They've also had to manage their relationship with the United States, Australia's chief military ally, as their posture hardened.
It's counter-intuitive for Beijing to levy trade restrictions Australian beef and barley, while periodically halting delivery of Australian coal. These sectors - particularly natural resources - have been some of China's greatest cheerleaders in the past decade. Yet Beijing's insistence on doing so underscores the substantial hardening of China's foreign policy in recent months.
Published in Oxford Analytica: "Australian government’s popularity could fall soon"
I was very happy to be published again by Oxford Analytica this week on their "Daily Brief" client platform. Reflecting on the Covid Crisis and the outcome of the Eden-Monaro by-election, I caution that Prime Minister Scott Morrison was unable to convert his high personal popularity into an upset victory, showing the limits of his appeal in an electorate hit by the twin traumas of January bushfires and the pandemic. The electorate has been under strain for longer than most of the country, and it’s a subtle warning to the Morrison government of the lagging political risks as they navigate Australia’s first recession in 29 years amidst ongoing uncertainty.
The win by the Australian Labor Party's Kristy McBain consolidates Labor leader Anthony Albanese’s position in his first campaign as party leader.
The Nationals suffered a loss of support as voters in rural communities continued their turn to minor parties. This will remain a source of tension within the Coalition leading into the next federal election.
Australia remains well positioned relative to other advanced economies due to its low government debt and its early success managing the pandemic, however the Morrison government’s political fortunes ride not with international comparisons, but with a workforce unaccustomed to economic pain.
The full article is behind a paywall here.
A podcast for you
Against the headlines of Huawei and TikTok bans, there's another layer to the U.S.-China tech rivalry, and it's beneath us, literally. This podcast gives an excellent background on the scramble for rare earth elements.
Please feel free to send through your own thoughts and articles to me. Forward this along to others who might find this an interesting read. Stay calm, think of others, stay healthy. Mitch