The world needs to update its ideas about free trade, not uproot them.
In 1985 worldwide international trade was just US$2 trillion. It’s now US$25 trillion. This has lifted well over a billion people out of extreme poverty, and it has been the backbone of prosperity in advanced economies like Australia.
When one country specialises in what it’s relatively better at and trades with another country that does the same, both benefit. Even if one country is better at both things, specialisation increases total output. It now seems almost inexplicable that Germany became dependent on Russia for 55 per cent of its natural gas. Equally inexplicable is how the United States became dependent on Taiwan for 95 per cent of its advanced semiconductors. Taiwan is a US friend and Russia a German foe – but the central point is that geopolitics can now wreak economic havoc.From 1990 the prevailing wisdom was that trade prevents war. The Clinton administration was explicit about this, and the idea has a long history.
We must recognise that Australia has world-class capability in some areas, but not others. For instance, there’s no good case for the creation of a domestic semiconductor fabrication capability in Australia.is so good at fabricating chips that Intel – the company that founded and long-dominated the industry – struggles to compete with it. If TSMC wants to build a facility in Australia then great, but otherwise we should focus on things at which we’re relatively better.
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