For almost as long as I’ve been writing systematically about trade policy (since the start of the 1990s), I’ve been convinced that however valid the centuries-old economic theories supporting the desirabiity of the most open possible trade policies may be , they’re largely irrelevant to the United States.
The main reason? With its abundance of a huge percentage every kind of product imaginable, its huge scale, and its dynamic free market-dominated economic system, America can satisfactorily duplicate on its own the global conditions supposedly needed to promote the greatest degree of competition. As a result, it’s amply capable of maximizing the incentives for cost-reduction, quality, efficiency, and innovation and thus realize the benefits of what’s loosely termed free trade that most other national economies can realize only by opening wide to foreign competition. (See this recent article for the most complete statement of my thinking.)
The gist of Swati Pandey’s article was nicely summed up in the non-clickbait-y headline: “Shut off from the world, Australia fosters red-hot growth a home.”
As the author writes, the country has recovered from its own CCP Virus-induced recession faster than expected, its economy is already bigger than before the pandemic, and “the very constraints that were expected to hurt demand, such as closed international borders and limited domestic mobility, have serendipitously channelled new sources of growth.”
Fiscal and monetary stimulus have played a big role in Australia’s renewed expansion, but as Pandy observes, although “the country is in the midst of a worsening trade war with the world’s largest trading nation, China, Australia’s exports are miraculously booming, thanks to soaring prices of iron ore and newer markets in Asia and Middle East to sell to.”
Australia seems to be overturning the conventional wisdom on immigration, too, for it’s been prospering even though “tens of thousands of Australian citizens still stuck overseas” because due to virus-related fears, “Australia has pledged to keep borders shut well into next year, which also means skilled migration – which was propelling the economy until 2019 – is practically impossible.”
An entirely predictable result: Because of these tight external border controls, and continuing restrictions on internal movement, wages are rising healthily.
All of which raises the question: If Australia, whose economy is less than a fifteenth the size of America’s and much less diverse industrially and technologically, can thrive while combating China on the trade front and, more generally, while relying largely on its own devices, why can’t the United States – in spades?
The Reuters piece doesn’t say that Australia can rely on this growth formula forever. And similarly, I’ve never urged America to shut itself off from all trade or immigration, either. Moreover, exports remain a leading growth driver. But if Australia’s potential for autonomous prosperity is this impressive, imagine the possibilities for the United States (including without significant export dependence because of its gargantuan home market). And that’s even after decades of Washington seeming to prioritize fostering interdependence (i.e., link itself ever more tightly to the global economy), and inevitably creating the kinds of vulnerabilities whose full dangers finally attracted broad attention during a health catastrophe. Maybe Americans and especially their leaders could learn some lessons from Australia before the next pandemic strikes?