AUSTRALIAN ECONOMIC AND FOREIGN POLICY
IN A NEW WORLD OF UNCERTAINTY
ADDRESS TO THE
AUSTRALIAN INSTITUTE OF INTERNATIONAL AFFAIRS
TREASURER THE HON JIM CHALMERS MP
CANBERRA, 11 NOVEMBER 2024
Thanks, Heather, for the invitation and the very kind introduction.
It’s hard to imagine a more important time to meet, or a more welcome opportunity.
Just after the most consequential American election we’ve seen.
And just before our own Prime Minister joins his colleagues and counterparts at APEC in Peru and G20 meetings in Brazil.
We have plenty to discuss.
First we recognise that today is also a day of special and enduring significance for our country.
Remembrance Day shapes profound parts of our national memory.
It goes to our history of service and sacrifice – and also the beginnings of more of an independent voice on the world stage.
The Armistice of 1918 was one of those times when our foreign policy interests became a bit more distinct and defined.
The stories of Billy Hughes clashing with Lloyd George and Woodrow Wilson at the Paris Peace Conference are legendary.
Wilson famously questioned why Hughes was there – because he only represented five million people.
His response – that he stood for ‘sixty thousand dead’ – was an important, perhaps foundational, moment in our national story.
***
It was an important point in time for the Australian Institute of International Affairs too.
Quite remarkably, this organisation traces its roots back to the debates coming out of the Paris Peace Conference.
In its wake, organisations formed and eventually amalgamated in the 1930s to become what we know today as the AIIA.
A long time ago, yet still a tiny fraction of the millennia the Ngunnawal people have been gathering on this land.
Watching the sun set from the top of this beautiful Molonglo Valley where we meet tonight.
I acknowledge their elders, customs and culture.
The Ngunnawal speak of nengi bamir.
Nengi bamir roughly translates as ‘the long view’.
As I look around this room I see thinkers, diplomats, officials all accustomed to taking the long view, playing the long game.
Balancing the tactical and strategic, the near term pressures and longer term opportunities in relationships and economies.
I want to personally thank many of you who, for more than a decade now, have shared your time, your thinking, your writing and your reading with me.
Too many people to single out individually, with two exceptions.
Heather who co-led our Independent Intelligence Review, led key departments, led Australia’s Presidency of the G20 in 2014, and who is doing a remarkable job now leading the AIIA.
Being able to accept Heather’s invitation is one reason I’m very pleased to be here.
Another is the chance to spend time with my friend Paul Lucas, who I believe is speaking after me.
Thank you Heather, Paul, and everyone here.
***
I can think of at least three reasons why it’s been a long time since it would be considered strange for a Treasurer to address a gathering of foreign policy thinkers like this.
First, foreign policy, like economic policy, is a team effort and increasingly so.
Second, ever since Treasurer Keating opened our economy much more to global forces –
And Treasurer Swan brought fortitude and foresight to the G20’s emergency response to the Global Financial Crisis –
The role of Treasurer has internationalised in important and welcome ways.
And third, because so many of our most pressing economic challenges are global and that makes economic security a central question.
Think of it this way.
In the last 15 years Australians have experienced three major economic shocks with profound consequences, each of them global.
A financial crisis which began in the United States.
A pandemic which began in China.
The inflation spike that followed exacerbated by war – first in Ukraine and now in the Middle East.
***
Economic policy and foreign policy have always been interlinked but now they’re almost indistinguishable.
And in this uncertain world characterised by economic vulnerability and volatility –
Our foreign policy is a team effort which brings economic benefits.
Here I pay tribute to the leadership of Prime Minister Albanese, the extraordinary work of Ministers Wong, Marles and Farrell, Conroy, Watts and Ayres – and all the ministers and officials associated with the progress we’ve made in the world, in a short time, the economic dividends from which are obvious.
Stabilising our relationship with China has seen nearly $20 billion of trade restrictions lifted and the Strategic Economic Dialogue restarted.
A new trade agreement with India has opened doors for our exporters in the world’s most populous country, and fifth biggest economy.
New critical mineral partnerships with Japan and South Korea are strengthening our supply chains.
The Southeast Asia Economic Strategy will see more capital flow more effectively in our region, in the service of our national and collective, economic and strategic interests.
The Future Made in Australia agenda will help us engage not retreat, as an indispensable part of the supply chains critical to the global net zero transformation.
This means jobs and opportunities are created for our workers, businesses and investors here in Australia.
***
In each of these areas Treasurers now have important roles and responsibilities and I’ve embraced them.
To illustrate this point I asked the team to dig out how many international meetings I’ve participated in since we were elected in May of 2022.
I was a bit surprised to learn there have already been 143 meetings in a little over two years.
This includes 63 bilaterals with economic ministers.
That’s a remarkably big slice of time and effort.
It’s worth it, it matters, and there are patterns.
Of those 143 meetings, 92 or around two thirds of them have been with, or focused on, the Indo-Pacific.
And around 87 per cent or 55 of my meetings with Economic Ministers were from those representing our region.
8 of these were with Sri Mulyani of Indonesia.
As the world’s economic activity concentrates in the Indo-Pacific so do our diplomatic and economic efforts.
It’s where the action is, economically and strategically.
I’ve taken 19 meetings with Economic Ministers from our top two-way trading partners.
Six with US Treasury Secretary Janet Yellen alone.
We haven’t chosen between bilateral and multilateral efforts – we’ve engaged whenever and wherever we can.
Because we believe multilateral institutions are more important now than ever.
That’s why I’ve attended 23 multilateral meetings in two and a half years and had 11 direct discussions with the heads of our multilateral development banks, the IMF, and the OECD.
At the same time, I was the first Treasurer to meet with counterparts in China in seven years.
The first to convene joint meetings of Treasurers and climate ministers with New Zealand friends, on both sides of the ditch.
And the first in two decades to attend a Pacific Islands Forum Economic Ministers meeting, in Suva.
***
Let me dwell for a minute here on the Pacific, on some work Stephen Jones and I have been doing in the Treasury portfolio.
We knew, back when we were elected in May of 2022, that for too long Pacific ties had been taken for granted.
We’ve done our best to reverse that – to restore our status as a partner of choice in the Pacific.
A big part of that has been about banking.
At the Pacific Banking Forum we hosted in July, we made clear that one of Australia’s highest foreign and economic policy priorities is connecting the Pacific with global finance.
Ever since then, we’ve been in discussions with partners in the neighbourhood and around the world.
With businesses at home and overseas.
Taking the time, and doing the work, to guarantee the future of finance in the Pacific.
We’re grateful to the Australian banks for engaging with us as part of that team effort.
All have been co-operative and constructive, going out of their way to support our national interests here.
Tonight, I can confirm we’re in the final stages of negotiations with ANZ to secure its continuing banking presence in the Pacific.
This will ensure ANZ’s nine existing operations – from Fiji to the Cook Islands – maintain their services.
The deal we’re working on is another big part of our efforts to keep communities and economies connected, and finance flowing in our neighbourhood.
***
It’s as good an example as any of the contribution we can make in economic portfolios to our foreign policy efforts.
But regional and global conditions loom large right across all of our work, not just some of it.
We talk about our economic policy having three planks: relief; repair; and reform; but if there’s a fourth R it’s region.
Global conditions are soft, and this influences our policies and posture in our part of the world.
In the decade prior to the GFC, the world’s economy grew at an average of 4.1 per cent.
But over the last 15 years, it’s been just 3.1 per cent.
In the last year alone most of the OECD has had at least one negative quarter of growth, some more than one.
IMF economists are not expecting things to improve much over the next five years.
If their forecasts are realised, this would be the weakest period of growth since the 1990s.
An indication that the global economy is still full of volatility and vulnerability.
A soft landing is assumed, but not yet assured.
Global inflation has moderated from its peaks but is lingering longer than we would like – with inflation ticking up in the Euro area in October.
As price pressures recede, the impact of a couple of years of monetary policy tightening is also becoming more apparent – with unemployment higher and rising in many countries, including Canada and New Zealand.
And these broader challenges to growth could be exacerbated by developments in China.
Back in September, I was in Beijing for the resumption of the Strategic Economic Dialogue at the same time as the first raft of stimulus measures were announced by Chinese authorities.
These were followed up by another package, announced over the weekend, to ease financing constraints for local governments.
While it’s too early to tell the full impact of the latest measures – they are welcome and they have already boosted confidence.
For example, Chinese equity markets have risen by 30 per cent since September.
I share some of the cautious optimism that this positive sentiment could feed through to demand and support global growth.
But this is tempered by the structural pressures facing consumers in China which are likely to linger for longer.
These still weigh on the global economy, at the same time as conflict and political uncertainty threatens further disruption.
***
In this world of churn and change I still like Australia’s chances, now and into the future.
We’re confident but not complacent about a soft landing here, and we’re comfortable with the policy choices we’ve made.
We acknowledge Australians are doing it tough.
Just as any objective observer of the Australian economy should acknowledge the progress that has been made on our government’s watch:
Inflation has more than halved and it’s back in the Reserve Bank’s target band for the first time since 2021.
Real wages are growing again and the gender pay gap is closing.
A million jobs have been created for the first time in a single term and labour participation is at record highs.
Substantial, meaningful and responsible cost of living help is flowing including a tax cut for every taxpayer.
At the same time as we’ve delivered the first budget surpluses for almost two decades and shaved $150 billion in debt.
This is the biggest nominal turnaround in our budget, ever.
It’s one of the reasons why we’ve gone from the 14th strongest budget in the world in 2021 to top three now, according to the IMF rankings released at our G20 meetings last month.
***
Those meetings were a very timely and valuable opportunity to compare notes with an array of leaders – including Secretary Yellen, Fed Chair Powell, Canadian Deputy Prime Minister Freeland, UK Chancellor Reeves, Japanese Finance Minister Kato and South Korean Deputy Prime Minister Choi.
The formal focus of our meetings was economic resilience.
But meeting in DC less than a fortnight before the American elections meant there was a lot of discussion about that too.
Now with the result known we’ve seen markets respond in pretty dramatic ways.
Equities recorded their largest single day gain in two years the day after the election, up 4.3 per cent.
Markets pared back their expectations of future rate cuts, even as the Fed proceeded as expected with another one last Thursday – still leaving their policy rate higher than ours.
And all this led to a bond sell-off, which saw yields temporarily rise above 4.4 per cent – the highest since July.
The markets expect change, and so do we.
But our relationship with America under presidents and prime ministers from all sides is strong and enduring.
It’s built on shared values and interests and deep engagement not partisan or even ideological ties.
Our Prime Minister was among the first to talk to President Trump after his victory.
Of course we expect the incoming US administration to bring a different suite of policies.
And we are confident in our ability to navigate that change, as partners.
Nobody should underestimate our ability to make it work.
We are well placed and well prepared.
Like any diligent country, Australia was ready for either outcome.
I’ve said publicly before that I commissioned Treasury modelling on different trade and tariff policy scenarios so that I could brief colleagues.
Tonight, I want to give a sense of what it showed us.
In short, Treasury’s analysis demonstrated that we should expect a small reduction in our output and additional price pressures, particularly in the short term.
But specific features of our economy – like a flexible exchange rate and independent central bank, would help mitigate against some of this.
Globally – the impact was much more substantial.
The timing of this, and the responses and ramifications that might follow – what economists call second-round effects – are difficult to predict.
But we wouldn’t be immune from escalating trade tensions that might ensue.
This is consistent with the views expressed last week by the Prime Minister, Treasury Secretary, Reserve Bank Governor, and CEO of the National Australia Bank.
***
Modelling was one part of our preparation; another was the diligent work done in DC.
Here I pay tribute to Kevin Rudd.
As the Prime Minister and Penny Wong made clear last week,
Kevin is doing an excellent job as Australia’s Ambassador to the United States.
Helping to strengthen the alliance.
Finding new areas for us to deepen economic cooperation.
And building good relationships with Republicans and Democrats alike.
I’ve seen this for myself.
Prior to the US election, Ambassador Rudd helped many of us build and deepen our connections across the political aisle.
He introduced me to Lael Brainard, the Director of President Biden’s National Economic Council and a key figure in Vice President Harris’ orbit.
We met again in the West Wing, just before the election.
And he introduced me to Scott Bessent.
We had a long discussion after dinner, at the Ambassador’s Residence, two Thursdays ago.
Getting more than an hour with a key member of President Trump’s economic team 12 days before the election was a very valuable opportunity.
We spoke about monetary policy, inflation, and tariffs and trade.
***
Here I want to be very clear that an uptick in trade restrictions is a global trend not limited to any one country.
Around the world, they’ve doubled since 2019, with an average of 6,000 new barriers introduced annually.
After rebounding from the pandemic, global trade volumes grew by less than 1 per cent last year.
And a recent IMF report showed that while trade is deepening between countries aligned geopolitically, it is declining between those who are not.
We are more exposed than others to this kind of global fragmentation.
Consider it this way:
Traded goods and services are about a quarter of the US’s GDP.
For the Euro Area that number is a bit less than a third.
But for Australia trade is half of our economy.
Consider it another way:
Almost a quarter of US cross border trade is done with Mexico and Canada – and only 10 per cent with China.
Over 60 per cent per cent of the EU’s total trade in goods is within the EU – and only 15 per cent with China.
Here in Australia, our biggest trading relationships stretch right across the Pacific – but China accounts for more than a quarter of our total trade.
***
Here at this point, I want to draw a distinction between de-risking and de-coupling.
De-risking is legitimate, it can be warranted, it can be made necessary because of unreliable supply chains or other forms of economic or geopolitical tension.
Most countries are doing this in one way or another and we are no exception.
De-coupling is different and can be much more problematic.
Because of our combination of industrial, geographical, geological, meteorological, and geopolitical advantages, we stand to be among the biggest beneficiaries of de-risking.
We can make a bigger contribution to more resilient, diverse regional and global supply chains for energy, technology and critical minerals.
And we can develop new industries to respond to global demand for green metals and green hydrogen.
But because of our outward facing economy, decoupling could limit our markets and constrain our growth.
This point, that de-risking is good for us, de-coupling is problematic for us, is the main conclusion I want to leave you with tonight.
Nobody wins from a trade war, but we have more at stake than most.
As the PM pointed out, we need a global economy which is open and where everyone plays by the rules.
***
The world is already too volatile and vulnerable.
The pace of disruption and dislocation around us already considerable.
Our own Intergenerational Report identified the five biggest transformations in our societies and economies:
From younger to older; from IT to AI; from hydrocarbons to renewables; from an old industrial base to a new one; and from globalisation towards fragmentation.
But if we take the nengi bamir – the long view of what’s behind and what’s ahead – some things are clear.
Australians were among the biggest beneficiaries of three decades of relative calm, between the end of the Cold War and the start of the GFC.
Now we must position ourselves as the primary beneficiaries of churn and change –
By de-risking not de-coupling –
And by continuing to align our economic and foreign policy policies, objectives and interests –
In ways that have been central to the progress this government has made in the world and in our economy at home –
With the help and horsepower of so many of you here.
Thanks very much and enjoy the evening.
