AFR: US-China trade war choices for Chalmers’ green budgetJim...

AFR: US-China trade war choices for Chalmers’ green budget

Jim Chalmers’ budget announcement of new incentives for green energy, as simple as they sound, will inevitably get entangled with the much bigger news out of Washington this week.

On Tuesday, Joe Biden announced he would increase tariffs on Chinese electric vehicles to just over 100 per cent, a decision that will doubtless be seen through the prism of the presidential election.

That’s true, up to a point. The traditional industrial centres like Michigan and Pennsylvania are the kinds of states that will be in play in what looms as a tight contest between Biden and Donald Trump.

But anyone visiting Washington will quickly realise that the US president’s draconian measures are about more much than one election and a single industrial product.

The US is in a state of near panic about the green-industry tidal wave coming out of China – not just electric vehicles, but batteries and solar panels, and all the components and intellectual property embedded in them.

These are all industries that China now dominates, and that the US wants to stop at the border, lest China overwhelms its efforts to build its own green economy.

The same goes for Europe, and a usually squeamish Brussels will now have to decide whether to follow Washington and use its own big trade stick against Chinese imports.

In recent years, successive US administrations have justified measures to cut China’s access to advanced semiconductors on national security grounds because of their potential military applications.

That doesn’t apply yet with electric vehicles, as the US imports few such cars from China. Likewise with Chinese steel, for which Biden has also announced tariff rises.

Increasingly, though, protectionism is the new national security in the US. The two are becoming indistinguishable.

The first China shock to the global economy from the 1990s onwards was in older industries, like steel, aluminium, tyres and furniture.

The unfolding, second China shock portends to be more consequential, as it will give Chinese companies dominance over the industrial revolution of the future.

On top of the mania over China’s green wave, there is a second panic sweeping Washington, that Trump is firming fast to win in November.

When Biden’s tariff plans leaked, Trump wasn’t impressed. Quadrupling tariffs over time to 100 per cent? Trump said he would double them to 200 per cent, immediately.

One way or another, the old-fashioned trade war between the US and China triggered by Trump in his first term has now morphed into a cold war, with an industrial and high-tech war inside of it.

Where does this leave Australia and the Chalmers’ budget?

On the one hand, Canberra has long supported the rules administered by the World Trade Organisation.

The US, however, continues to undermine them at every turn, saying the WTO is incapable of regulating an economy like China, riddled with state subsidies and barriers to foreigners.

Conversely, Australia is happy to import cheap EVs, which nearly all come from China.

But will we sell our critical minerals and green hydrogen into the dominant Chinese market, or reserve them for our security ally, the US, to help it compete against Beijing?

In other words, the budget announcement is about much more than industry policy. It will be played out in a global contest over rival political systems that is not going away.

Australia will have to make many choices, and none of them will be easy.