ANALYSIS

Prime Minister Malcolm Turnbull’s lobbying at the G20 for a free trade agreement between the UK and Australia is easy to dismiss as posturing, but only if wider trade and security issues are ignored.

The PM discussed the FTA with British PM Theresa May on Monday, a move criticised by some as meaningless given the nations trade “less than 2 per cent of each country’s merchandise earnings”, according to a report from NAB Group Economics.

There are other benefits, however.

The London Stock Exchange is still at the heart of international capital raising, which is why the two biggest miners operating in Australia – BHP and Rio Tinto – ‘dual list’ their shares there as well as on the ASX.

As the NAB report states: “Bilateral services trade and foreign investment are of greater importance – at end 2015 the UK was the second biggest foreign investor in Australia and held the second largest stock of Australian overseas investment.”

More than direct trade

The real significance of the deal lies with the difficult juggling act Australia faces with China and the US.

Both want the upper hand in dealing with Australia – China for access to our mineral and agricultural resources and the US more for strategic military reasons.

China’s ‘one belt, one road’ policy is building a ‘new silk road’ across Asia.

China, it’s easy to forget, is still a one-party state that periodically clamps down hard on dissent within its own borders.

It is also doggedly pursuing a program of trade and security expansionism – through military projects in the South China Sea, and via its huge ‘one belt, one road’ plan.

The latter is essentially a network of infrastructure investments designed to open a ‘new silk road’, by both land and sea, connecting Asia and Europe.

But critics see it as a way of maintaining China’s great trade imbalance by selling huge volumes of products into Asian nations and helping truck raw materials back to China’s giant manufacturing base.

China is cutting corners

In the rush to win influence in up to 60 nations along the ‘new silk road’, China is treading on plenty of toes and flouting a number of international agreements in the process.

The US, by contrast, continues to push a ‘rules-based international order’ in which disputes are settled by bodies such as the International Court of Arbitration in the Hague and the Geneva-based World Trade Organisation.

Okay, so it’s easy to love ‘rules’ when you’re winning and the US is still the world’s dominant military and economic superpower.

Yet if it is to strengthen the ‘rules-based order’, the US needs its allies such as Australia to keep forging free trade deals, or to back its much more complex multi-lateral ‘Trans Pacific Partnership’.

Trade minister Steve Ciobo is working on a free trade deal with the EU.

This is the context in which Mr Turnbull is parleying with Ms May.

There might not be much ‘trade’ associated with a UK-Australia FTA, but signing it would send a clear message that Australia is bedding itself down even more deeply in the rules-based international order.

At the same time, trade minister Steve Ciobo has begun talks that should lead within a couple of years to a free trade deal between Australia and the EU itself.

Slowly but surely, the Rudd and Gillard governments, followed by the Abbott and Turnbull governments, have worked to orient Australia towards Washington while trying to keep Beijing onside.

It’s a difficult, and vitally important juggling act, because an angered China could inflict huge damage on the Australian economy.

But it’s one that must be pursued, regardless of the meagre economic gains apparent in some FTAs.

To invert the old Bill Clinton-era mantra: “It’s not about the economy stupid.”

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