Oh what a knight: British and Australian trade interests in the Asian century

We have often hear about how Britain sold Australia short in war such as in Gallipoli in World War One or in the Pacific in World War Two but we don’t hear much about how Britain opposes us commercially in the trade wars.

This fact occurred to me as the Prince Andrew was back in the news again. This followed on from  the farce of an Australian Day knighthood being granted by the Australian Prime Minister Tony Abbott to the Queen’s husband, Prince Phillip that landed the Abbott in hot water and a resulting leadership spill (and a twitter hashtag #knightmare). Then it was Prince Andrew’s turn as he named a new round of sex scandals. This hasn’t happened for a while although Andrew did have an incident with model-actress named Koo Stark (in fact I once interviewed the famous Tokyo based Taiwanese economist Richard Koo, and wanted to lead my article with “Koo’s stark warning on the prospects of Japanese deflation.”)

But whilst he may be ‘Randy Andy’ in the tabloid press t he has also been the UK’s special trade representative  on Asia, the Middle East and emerging markets and often bats against Australian in contests for commercial contracts in China. As Andy Scott, the Confederation of British Industry (CBI)’s director of international and UK operations, told the Guardian: "He is a good ambassador representing the UK. The royal family connection is very helpful. In a market such as China the presence of someone of his stature really counts."

But the main issue at stake is not the Royal family’s antics nor the ridiculous symbolism of an Australian Prime Minister in 2015 knighting the husband of our head of state who happens to live over 17000 kilometres away. The issue is that when it comes to trade the British state particularly the Royal family works against Australia’s commercial interests and has always done so particularly in Asia.

You just have to look at Australia’s trading history. And Dr Sandra Tweedie’s excellent book Trading Partners provides some excellent early historic material.

Firstly, in the early days of the convict colony of New South Wales, the need of the British East India Company’s trade monopoly restricted what NSW exporters could do. Attempts to trade with Canton (now Guangzhou were banned and even after 1813, only minor trade could only be done through Bengal in East India and the Dutch East Indies (Now Indonesia). Illegal trade did take place in silk, tea and sandalwood, but trade couldn’t take place until the East India Company’s monopoly was lifted in 1834.

Secondly, in the 19^th century, Britain often worked against the commercial interests of the Australian colonies. For example in the 1870s Britain discouraged the growth of the China-Australian tea trade in favour of tea from Ceylon (now Sri Lanka) and East India. In the 1890s, as Britain was negotiating the Anglo-Japanese Trade Treaty of 1894, Australian wool exports were ridiculed in the Japanese market by British consul and business representatives for fear they would replace British wool in the emerging Japanese market.

Thirdly, after Federation attempts by the Australian to establish an independent foreign policy and commercial voice particularly in Asia was stymied by the Foreign Office. Australia did eventually establish a Trade Commissioner in Shanghai in 1921, for short time and later again in China and in Batavia (now Jakarta) and Japan in 1935. But difficulties with state and business rivalries, splits between External Affairs and the Commonwealth Department of Commerce (the former being more formally ties to British Consular traditions and activities) and tensions over diplomacy and the White Australian policy harmed the efficacy of the first Australian trade offices. Also harming the Australian trade offices was the Ottawa agreement of 1932 that imposed tariffs on non-Commonwealth countries which hurt Australian-Japan trade in particular. In fact, in 1936, as Australian Japan trade was blossoming, particularly in wool exports (as in the 1890s), Australia was forced to “choose Manchester over Tokyo” and divert trade from Japan to Britain. Of course, Japan retaliated; there was a trade conflict with much worse to follow.

Fourthly, in 1957, 12 years after the war, Australia finally signed the commercial agreement with Japan but only after the easing of British imperial preference in 1956. The Japanese Australian commercial agreement has been described by distinguished Australian economist and public servant Michael Keating: “the most significant economic policy innovation during the Menzies era.”

Indeed, the commercial agreement with Japan, symbolised the ‘first wave’ of Australia engagement in the Asian century, followed by Gough Whitlam’s recognition of China in 1972, and the Hawke-Keating economic reforms of the 1980s and 1990s before we entered the ‘Asian century’ and the new millennium itself.

However, Australia’s economic engagement with the Asian century has probably occurred despite British trade activities, not because of them. And it’s lucky we engaged with Asia, as Britain dropped us (and New Zealand) as a hot potato once it could join the European Common Market. Britain, like an independent nation, will put its own economic interests first.

Don’t get me wrong this is not an anti-British tract (we economists never engage in something as low and prejudiced as Pommy bashing) as we have a lot to be grateful for from Britain in terms of our economic and democratic institutions. We inherited fine institutions from the British especially free speech, democratic Parliamentary processes, rule of law and cricket. And as the books Why Australian Prospered and Why Nations Fail demonstrate these institutions that we inherited from Britain can explain why Australian has performed well as an economy, a democracy and a society.

But Australia has always improved on our inheritance and in the 21^st century it’s time to Australianise our fine institutions starting from the top. And as the Prince Phillip “knightmare” incident showed Australia’s constitutional arrangements are an anachronism, and need updating. Not only would it be great to have ‘one of us’ as our head of state it would be beneficial  to have a head of state who fully acted in Australia’s economic interests and not those of a direct competitor.