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Turnbull to Champion Free Markets in Asia

John Lee

Since entering politics just over a decade ago and before becoming Australia’s prime minister in September, Malcolm Turnbull has dealt almost exclusively with domestic issues. The Asia-Pacific region essentially has little idea of who Turnbull is and what his foreign policy might look like.

The reality is that Turnbull will focus on domestic issues because his priority is winning the endorsement of Australians in an election that must be held by next September. But much of what Turnbull wants for Australia, he wants for the rest of the region.

In the months before successfully challenging Tony Abbott for the leadership of the governing Liberal Party, Turnbull gave a number of speeches on the outlook for Australia and the region. It is highly significant that he emphasized economic rather than strategic challenges. A foreign policy based on these views would put economic issues before geo-strategic ones and push for multilateral efforts to deal with economic disruption.

Turnbull’s emphasis on economics is directly related to his career before politics. A co-founder of an investment-banking company in the 1980s, Turnbull invested in OzEmail, one of Australia’s early providers of dial-up Internet service and the country’s first technology company to list on Nasdaq. He later became a managing partner of the Australian arm of Goldman Sachs, before entering parliament.

That this background plays a dominant role in informing his worldview is evident in a speech he gave in June to an audience in Melbourne, in his then-capacity as communications minister. In that address, on the major challenges facing Australia and Asia, Turnbull warned that disruptive factors could leave the region economically vulnerable and exposed. Since becoming leader, Turnbull has frequently used the phrase “economic disruption” to characterize Australia’s future challenges and opportunities.

What are these disruptions? One is aging Asia-Pacific populations, including those of China, Japan, Singapore, South Korea, Thailand and Vietnam. Another is the proliferation of new technologies, such as automation and 3-D printing, that will revive manufacturing in advanced economies as the cost of labor becomes less important. A third is the end of ultra-cheap credit flooding the globe as major central banks normalize monetary policy.

These developments are not merely of academic interest. After all, the region has heavily relied on export-led manufacturing to propel growth for decades. East Asian countries over the past half century — first Japan, South Korea and Taiwan, and now China in particular — have had the advantage of a plentiful supply of cheap labor. This enhanced the competitiveness of their manufacturing sectors, attracting foreign capital into their economies.

Winners and losers

But as their populations age, and manufacturing technologies change, still developing countries such as China, Vietnam and Indonesia may struggle. Capital will be harder to come by, and advanced economy investors will demand better returns. Pursuing the East Asian model of export-led development will no longer offer the same rewards, and countries such as Malaysia and Thailand will have to find a new path out of the so-called “middle-income trap.”

In Turnbull’s view, these disruptions will reshuffle Asia’s winners and losers. The winners will be those able to adapt and find new pathways toward prosperity. As prime minister of an advanced and innovative economy, Turnbull’s role is to position Australia to benefit from rather than suffer as a result of these and other changes and challenges.

All of this is highly pertinent to the potential shape and tone of Turnbull’s foreign policy. Australia may have some advantages in dealing with the new realities, but the country remains deeply dependent on regional trade.

The emergence of a powerful Asian middle class is expected to drive global spending and consumption over the next two decades. If this does not take place, or if the pace of wealth-creation in Asia’s large developing economies stalls, then new opportunities for Australian exporters in a post-commodity-boom world will be limited.

Diplomacy under Turnbull is likely to emphasize freer markets as the most effective means to escape the middle-income trap. As one example, this might imply far more focus on ensuring that regional trade deals such as the Trans-Pacific Partnership are implemented in meaningful ways, since the TPP is designed to advance East Asian economic liberalization in addition to harmonizing standards across areas such as labor and environmental protection.

Rather than lecturing Beijing on the importance of political reform or its increased assertiveness in the South China Sea, Turnbull is more likely to be seen urging the Chinese Communist Party to resist intervening in the economy, or to open up more sectors and opportunities to the private sector. By the same token, the widespread cybertheft of intellectual property may be higher on his agenda than, say, the People’s Liberation Army’s double-digit annual spending growth.

In any event, the overriding tone will be positive. Australia will seek to help Asia-Pacific countries reach their economic potential, rather than trying to check or constrain their strategic ambitions.

This does not mean, however, that Australia’s leaders can avoid responding to present-day realities, including increased Chinese muscle-flexing. Australia needs to deepen its strategic and military cooperation with its American ally and advance the relatively recent strategic partnership with Japan, even if doing so causes much displeasure in China.

Meanwhile, Australia’s political relationship with Indonesia remains fraught, and disagreements between the two countries will periodically monopolize the prime minister’s attention. Then there is the issue of dealing with the problem of terrorism in the region.

It is rare for Australia to have a prime minister who has spent more time in business and the commercial world than in politics. A Turnbull government will offer the region some surprises — most of them pleasant and economically focused. But we live in a messy world. The region will also surely offer Turnbull surprises, and some of them may be less than pleasant.

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