In New York for a G20 meeting of finance ministers, Joe Hockey revealed in an interview that he was stunned by the failure of US economic leaders to understand the scale of opportunities in Asia and the region’s role as a driver of global growth.
Reprimanding America’s economic elites for their limited understanding of how Asia works, the Treasurer pledged to spend his time abroad helping to raise the economic IQ of Americans with respect to the so-called Asian Century.
Americans tend to be polite hosts, especially when it comes to listening to sermons by Australians. But they would be surprised or even annoyed with Hockey’s comments.
While Australians talk about opportunities in our region — the previous government even produced a white paper — Americans are making hay while the sun shines in Asia. Rather than reprimanding his hosts, the Treasurer is better off seeing what he can learn from them.
Australia may believe it is specially placed to speak about opportunities in the region given four of our five largest trading partners are Asian: China, Japan, South Korea and Singapore.
Even so, most of our trade with Asian partners is in commodities such as iron ore, coal, gold, crude petroleum and beef.
In selling such commodities one does not need anywhere near the same level of on-the-ground intelligence and connections with the destination economy as one might in selling manufactured goods. Even the major services we export to Asia, such as education and tourism, sees the buyer physically coming to us.
We may do a lot of trade with Asian countries but we do not need to have an enhanced understanding of how Asia works.
US firms are far more tapped into the dynamics of Asian prosperity and economic integration than are Australian counterparts.
Take Apple’s iPod or iPhone, which is designed in California but made up from parts and assembly lines that can traverse more than 20 countries, such as Thailand, Malaysia, South Korea, The Philippines, Singapore, Taiwan, Japan and China.
As this illustration suggests, East Asia is rising as a vast and integrated production chain producing products mainly for export to rich consumers in advanced economies.
Up to 80 per cent of all trade between East Asian countries is in so-called processing trade — parts and components entering into regional economies, assembled, modified or added to, then shipped out again to another neighbouring economy for further processing.
Importantly, most export-manufacturing firms in East Asia are foreign-owned or joint ventures between foreign and local entities.
If we examine the successful export-oriented economies in the region such as Japan, China, South Korea, Singapore, Malaysia and Thailand, we will find the US is one of the top three sources from which all-important capital for export-manufacturing ventures is sourced.
Japan and the major EU members are the other contenders.
In a region where export-manufacturing is the main driver of wealth creation, industrialisation and improvements in innovation and productivity, Australia remains a laggard compared to other advanced economies.
US firms such as Motorola, Dell, Walmart, Hewlett-Packard, IBM, Nike and Apple are deeply integrated into regional production chains, and have been for up to two decades.
These firms bring benefits to the East Asian economies in terms of technology and know-how transfers, in addition to creating the best jobs for local populations.
They, in turn, benefited by producing goods cheaper and more efficiently in East Asia than in other parts of the world for consumers in all parts of the world.
Indeed, if one wanted conclusive evidence of the extent to which US firms and consumers in its economy are inextricably tied to economic activity in East Asia, consider the double-digit growth in trade a year that occurred between China and Association of Southeast Asian Nations economies from 1998 to 2007.
When the 2008 global financial crisis plunged the US (and Europe) into recession, China-ASEAN trade immediately contracted almost 8 per cent.
Such trade recovered to “boom time” levels only when the US and European economies recovered. This proves the US has not already tied its economic health to our region but is a primary driver of prosperity and activity in East Asia.
Finally, when it comes to selling products directly to rich and emerging consumers in the region — and not just for export back to the US or Europe — it is not a coincidence that US brands such as Pepsi, Coca Cola, Campbell Soup, Nike, Starbucks, Gap and General Motors are counted among the largest foreign investing firms in Asia.
As evidence of US corporate and marketing savvy, HJ Heinz is now a leading seller of soy sauce to the Chinese. In contrast, there is barely a leading Australian firm or brand matching the commitment or success of hundreds of US firms supplying goods for East Asia’s middle class.
Australia has much catching up to do in our own back yard, not just in comparison with the US but other advanced economies in Asia and Europe. Learning from their successes, rather than admonishing perceived failings, may be a better way to begin.