Great Leap Forward Is Australia Leaving Asia Behind? Australia's Stronger Relations with the US, Coupled with a Major Free Trade Deal Being Negotiated between the Two Countries, Have Critics Asking Whether Australia Is Turning Its Back on Asia. but Is the "Miracle Economy" Really Leaping Away?

Business Asia, June 2003 | Go to article overview

Great Leap Forward Is Australia Leaving Asia Behind? Australia's Stronger Relations with the US, Coupled with a Major Free Trade Deal Being Negotiated between the Two Countries, Have Critics Asking Whether Australia Is Turning Its Back on Asia. but Is the "Miracle Economy" Really Leaping Away?


In a world dogged by economic downturn, deflation and catastrophic events, Australia stands out as an oasis.

Hailed by economists and observers around the world as being a "miracle economy", Australia has recorded growth rates over the past few years that other industrialized nations could only wish for.

But at this time of economic strength, questions have arisen about Australia's commitment to Asia. With its economy outpacing many others in the region, and a more intense focus on the USA as both trade and strategic partner, some commentators are asking whether Australia is focused now more than ever on the West rather than East. Is Australia leaving Asia behind?

Strength

In terms of economic robustness, Australia is certainly putting to shame some of the region's developed nations. While countries like Singapore and Hong Kong (not to mention the flatlining Japan) struggle to maintain growth amidst the impact of various crises, Australia has remained stable and healthy throughout.

While the dismal state of the global economy (and some parts of Asia) is clear, Australia is expected to expand three per cent this year and 3.25 per cent next year.

If Australia has shown the world anything in recent years, it's the ability to surpass economic expectations and withstand massive shocks. The country avoided the worst of the 1997-1998 Asian crisis and stood its ground during the dotcom bust that slammed the US and Europe. The global slowdown of the last couple of years also meant little for Australia's economy. Even the Organization for Economic Coordination and Development says Australia is "notably resilient to shocks, both internal and external".

Compare that to others in the region, or to other countries worldwide. Singapore and Hong Kong (and to a lesser extent, South Korea) have experienced economic roller coaster rides since the 1997 crisis. More recently, the SARS outbreak has dented prospects for 2003. Japan, Australia's largest export market, stagnated in the first quarter.

William Pesek Jr, a columnist for global news service Bloomberg, says Australia has become "a role model for the world's biggest economies".

"Take the tax-cut plan (Federal Treasurer) Peter Costello unveiled as part of his budget. It will lower taxes for nine million Australians by $10.7 billion over four years. That may not sound like much to politicians in Frankfurt, Tokyo or Washington, but it gets at a bigger point: Costello is in a position to trim taxes. He also has more ammunition to do so than his peers," he said.

"Compare that to what's happening in Washington. Australia's Government expects to produce a $2.2 billion surplus in the fiscal year starting 1 July, its sixth in eight years. In the US, despite the return of huge budget deficits, the White House wants to cut taxes by US$726 billion. Australia can afford its tax cuts, the US can't."

Strong ties

It is Australia's reinvigorated ties with the US, however, that are giving voice to the critics who say Australia is moving away from Asia.

Australia's Federal Government has made no secret about its desire for stronger relations with Washington (a desire most strongly reflected in Australia's strong pro-US stance during the recent war in Iraq, a war most others in Asia did not explicitly support).

The push for stronger relations was rewarded in November last year, when Washington gave the go ahead for talks on a free trade agreement (FTA) between the US and Australia.

It is this FTA that could potentially bring about the most changes in Australia's economic relationship with the region.

Two-way trade between the pair, two of the world's biggest agricultural exporters, stands at US$28 billion a year. The United States is Australia's second largest trading partner after Japan. According to a study by the Centre for International Economics, an FTA with the US could boost Australia's GDP by between 0. …

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