Michael, thank you to Rand Corporation for hosting today’s event along with the US Studies Centre, Sydney and the Perth US Asia Centre, and I acknowledge the many Excellencies here today including Ambassador Hockey, thank you for your very kind introduction Joe, former Ambassadors Kim Beazley and Michael Thawley, Ambassador Bleich, our Consul General Chelsey Martin, our former Consul General John Olsen, the father of G’Day USA, and my former parliamentary colleague the Honorable Bruce Baird and the many friends of Australia and friends of the United States who are here today.
I’m so pleased to be here in Los Angeles for our 15th G’Day USA showcase, but also speaking again this year at the United States-Australia Dialogue on Cooperation in the Indo-Pacific.
In fact, I always feel at home on your West Coast. The eucalyptus trees in Los Angeles. Like my home town of Perth on our West Coast, the beautiful beaches – where the sun sets over the ocean! That’s how it should be.
Now, twelve months ago, we gathered here only days after the inauguration of President Trump and at the start of the new Administration.
I said at that time that the United States is the indispensable power for stability, peace and prosperity in the Indian Ocean- Asia Pacific region – Indo-Pacific, the phrase that we have coined and is now, as Joe Hockey said, in the vernacular. You see I come from Perth, we look north and west. Sydney looks north and east, it works for us.
But my point is – over the past year, my view has not changed.
In November last year, together with Prime Minister Turnbull and Trade Minister Ciobo, I released our Foreign Policy White Paper – the first comprehensive foreign affairs blueprint for Australia since 2003.
The White Paper states clearly that the effectiveness and liberal character of the international rules based order – that network of alliances, and partnerships, and treaties and institutions underpinned over the last 70 years by international law – that has secured the past seven decades of relative peace and prosperity – would decline from any diminution in leadership and support from the United States.
At times, such leadership can be immensely challenging and carries significant costs, not least financial and reputational.
That is particularly the case when the US and likeminded nations defend the order from those who believe their short-term interests can be advanced by undermining the rules based order.
It is my aim today to state why Australia continues to look to the United States for more global economic leadership, not less.
The Trump Administration has made a number of pronouncements and policy shifts that have caused concern, and has led to a global debate and discussion about the winners and losers under freer and more open economic systems within and between countries.
While I’m concerned about the emergence of protectionist sentiment across the globe, I do welcome this debate because it gives an opportunity to build greater understanding, particularly among younger generations of the benefits of that rules based order that has been built since World War II, and the consequential economic benefits that flow from trade liberalisation.
Those who have benefitted should be amongst the staunchest promoters and defenders.
Fact. The expansion in global prosperity that has been under way since 1945, has transformed lives particularly many hundreds of millions of people in our Indo-Pacific region.
The Indo-Pacific will continue to become more prosperous and be more likely to reach its full potential if the economies of its nations become freer and more open within the rules based order.
I am convinced that we must continue on this path in what remains largely a developing region in economic terms.
And without doubt, freer and more open economies under the existing rules based order will entrench gains and create more opportunities for advanced economies like Australia and the United States.
The rules based order was designed to avoid the zero-sum outcomes of past eras.
Nations weak and strong, economies large and small, can compete as we strive for an environment where the economic tide has the potential to lift all boats.
These arguments and principles are not based on hope or ideology but on actual observations and evidence.
Much has been said about the emergence of the Indo-Pacific as the most dynamic economic region in the world – and with good reason.
Over past decades, we have seen the rise of numerous regional economies out of the devastation of war and poverty:
- the Northeast Asian economies of Japan, South Korea, Taiwan in the three decades after the Second World War;
- the Chinese economic miracle since its reforms began in 1979;
- Asian ‘dragons’ and ‘tigers’ in the 1980s and 1990s including Hong Kong, Malaysia, Philippines, Thailand and Indonesia; and
- the emergence of countries over the past decade with large populations such as India and Bangladesh and Myanmar with rapidly growing economies.
A major pillar of the economic rise of the region has been its gradual embrace of increasing competition, freer trade and more open investment policies.
Economies have gone some way down the path of liberalisation consistent with international rules including those prescribed by the World Trade Organisation.
These are designed to ensure international trade and investment is fair and transparent – and not based on prejudicial arrangements and favouring larger and more powerful economies at the expense of smaller ones.
The economic rise of the Indo-Pacific has also led to regional economies becoming more, interdependent and entwined with advanced economies including the United States and Australia, and more exposed to the global economy.
It is this interaction with advanced economies that has helped developing economies throughout the Indo-Pacific achieve unprecedented growth lifting hundreds of millions of people out of poverty, and offering their citizens the prospect of a better and more fulfilling life.
So my point is that the economic advances throughout the Indo-Pacific would have been impossible without the capital, technology and know-how from more economically advanced countries.
It is important to note that interactions with the region have in turn created new and greater opportunities for the benefit of American and Australian businesses and our citizens, and the evidence for this is overwhelming.
For Australia, nine of our top ten export markets, nine of our top ten export markets, are in the Indo-Pacific,with eight in Asia – which receive about two-thirds of all our exports.
Our coal and gas continue to fuel the region. Australian iron ore and other minerals are being used to build the infrastructure and products required by Indo-Pacific countries to develop.
Australian companies are taking advantage of access to growing economies in all sectors including services, technology, niche manufacturing and more.
Let me give one example - Blackmores, a leading Australian health supplements firm.
A decade ago, it earned almost all of its revenues from the Australian market.
Blackmores identified a number of Asian markets with potential for its future growth and developed an expansion strategy which included embracing the opportunities offered by the free trade and other economic agreements Australia signed with the 10 ASEAN nations, and bilateral free trade agreements with Malaysia, Korea, Japan, China and Singapore.
Blackmores is now a leading provider of health products and vitamins in regional markets – in China, Japan, Indonesia, South Korea, Malaysia, Singapore, Taiwan, Vietnam, Cambodia, Thailand and Mongolia – and they have plans to expand into India.
So its sales revenue has increased from around US$172 million in 2010 to almost US$560 million by the middle of 2017, and this is largely, predominantly, as the result of this regional expansion.
Other emerging Australian companies have taken advantage of such opportunities and they have performed spectacularly.
Zero Latency began operations in Melbourne in 2015, and is now one of three Australian companies in the top ten of Deloitte’s 2017 Technology Fast 500 Ranking in Asia.
It develops ‘free-roam’ virtual reality systems – a virtual experience which allows users to move around in a virtual world without constraints like cables.
Achieving growth of over 3,600 per cent in 2017, Zero Latency has offices in key locations throughout the Indo-Pacific.
Such is the opportunity for the innovative Australian in our region.
There can be no doubt that the United States has also benefitted enormously from economic dynamism in our region.
Now of the top 50 most profitable companies from the Fortune Global 500 list for 2017, 28 are headquartered in the United States.
Apple is ranked number one with reported profits of around US$46 billion.
In the final quarter of 2017, almost US$20 billion of its sales revenue came from Asian markets.
JPMorgan Chase, the most profitable bank in the United States, earns about a quarter of its annual revenues in Asian markets.
Johnson & Johnson, the world’s most profitable healthcare and pharmaceutical company derives about half of its revenues from outside the US, with over one-fifth of its revenues from Asia.
The Honolulu-based East-West Centre has detailed the benefits to the United States of engagement with Asia in numerous reports.
Its research has found that United States exports to Asia have supported more than one million jobs, per year.
Every state in the United States has benefitted in terms of jobs that have been created as a result of exports into Asia. According to research this includes an estimated:
- 195,000 jobs in California;
- 110,000 jobs in Texas;
- 85,000 jobs in Washington State;
- 72,000 in Illinois;
- 65,000 in New York;
- 33,000 in Iowa;
- 27,000 in Pennsylvania;
- 21,000 in Utah;
- 20,000 jobs in Florida.
The East West Centre also reported that in 2015 almost 42,000 US companies exported goods and services to the 10 member countries of the Association of South East Asian Nations (ASEAN).
This export trade to ASEAN alone supported over half a million jobs in the United States.
Trade and investment liberalisation has been good for the United States and for Australia, for our experience has been similar. Continual liberalisation of our economy has been an overwhelming net gain for our citizens, and we’re a nation of just 24 million people, the 13th largest economy in the world and we’re in our 26th year of uninterrupted economic growth.
In the five years to June 2016, our open economic policies are credited with having contributed to the creation of 942,000 jobs.
The key for all advanced and higher cost economies is to create new jobs which produce, distribute or support goods and services, meeting the demands of our changing societies and those of our economic partners.
Asian economic development is seen in Australia as an opportunity, particularly in the high-value sectors of the economy such as health and education services.
For Australia, international trade is 40 per cent of our GDP.
One in every five jobs is related to trade.
In 2016, it was estimated the average Australian household was almost US$6,800 better off per year, following three decades of trade liberalisation and investment policies.
I believe there are important lessons and principles for our two countries to adopt arising from our economic experiences and interaction with the Indo-Pacific in particular.
Let me list four.
First, it has become increasingly difficult for advanced and fully industrialised economies to become more prosperous by making and selling goods and services only to domestic markets.
For a country like Australia with a relatively small population, it is almost impossible. We cannot get rich selling to ourselves.
The composition of the global economy is changing dramatically.
In the first five decades after the Second World War, middle class consumers in what we now refer to as the Group of Seven industrialised countries were the primary drivers of demand and therefore economic growth in the world.
Although the G7 and the United States in particular, remain leading centres of final consumption in the global economy, the major sources of growth in global consumption are coming from large developing countries predominantly in the Indo-Pacific.
Indeed, we are living through the most rapid expansion of the middle class in human history.
It took 150 years from the Industrial Revolution onward in Europe for the world to reach a middle class of some one billion people – achieving this milestone in the mid-1980s.
Current estimates are that about half of the global middle class, of some 3 billion people, live in the Indo-Pacific region and by 2030, it is forecast that two-thirds of the global-middle class will be living in Asia.
So our priority must be to ensure that we are in the best possible position to take advantage of these developments for the benefit of our people.
It is for this reason we have championed and will push ahead with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the CPTPP, concluded last week.
The 11 partner nations aim to formally sign on to the agreement in March.
The CPTPP sets a high standard with respect to the rules and principles guiding economic liberalisation between its partners.
It will help the member economies become more competitive and take advantage of opportunities that would be denied to us or otherwise not exist. It is a powerful case in point.
The agreement has an open architecture and we welcome additional members in the future if they are willing to abide by its principles and play by its rules.
Noting President Trump’s comment in Davos that he would reconsider the Trump, sorry, the Trans-Pacific Partnership, Australia will encourage the US along that path.
Second, our observations and experience have taught us it is vital we embrace technological progress, changes in the way economic value is created, and the reality that manufacturing, marketing and distribution has to be increasingly global.
Companies and countries that do so, become the major beneficiaries of change.
Now, the iconic example of how an Apple iPhone is produced continues to be pertinent and representative of multiple other examples of the benefit to the US of an open economy.
A smartphone is comprised of multiple parts: the battery, the circuit board, glass screen, casing and so on.
It is estimated that an iPhone contains about 75 natural elements – some two-thirds of the periodic table.
Many of the materials required are simply not commercially available in the United States.
So Apple has suppliers in around 30 countries.
The globalisation of production and the opening of world markets to their goods and services is how the world’s best companies thrive.
The Fortune Global 500 list is dominated by American firms making a virtue out of necessity.
For example, it is estimated that Apple captures at least half of the gross profit of every iPhone sold even though the product is not predominantly made or assembled in the United States.
The profits generated allow Apple as with other world leading firms to reinvest in American and foreign markets to fuel the next cycle of growth and job creation, and innovation.
Indeed, the United States remains the world’s leading and most innovative economy largely because it is one of the most open economies in the world when it comes to the flow of capital, goods and services, and people and ideas.
Third, there is much common ground between our geo-strategic objectives – articulated in Australia’s Foreign Policy White Paper and the Trump Administration’s National Security Strategy, which we welcome – and pursuing prosperity and creating opportunity for citizens in the Indo-Pacific region.
The Indo-Pacific has enjoyed the greatest and most rapid increase in prosperity in economic history.
It has occurred during the era referred to as the Long Peace – when the United States played the most important role in developing, supporting and protecting that international rules based order.
The durability and justness of the international rules based order is sustained by the fact that it does not provide unfair advantage nor does it prejudice any country – whether they be an ally of the United States or otherwise.
All countries rising and competing according to tried and prescribed rules and norms have benefitted enormously.
Indeed, the greatest beneficiaries over the past decade particularly China, as well as India, Myanmar, Bangladesh, are not traditional security allies or partners of the United States.
It is in the interests of Australia, in the interests of the United States and the nations of our region to prolong the Long Peace, and improve and strengthen the international rules based order that created the environment for sustained economic expansion.
Fourth and finally, I return to the indispensability of the United States and its leadership in ensuring a free and open Indo-Pacific.
The role of the power and influence of the United States in creating incentives for countries to abide by the rules cannot be overstated.
For example, economically, the CPTPP seeks to define the rules and principles for further economic liberalisation.
That’s why Australia and I’m sure many other members would warmly welcome the United States into the CPTPP – but not just for the economic benefits it would bring.
You see, this agreement brings together Australia, Japan, Canada, Mexico, New Zealand, Chile, Peru, Singapore, Malaysia, Brunei and Vietnam.
It has immense strategic value, I suggest, for the United States. Strategic value.
As the US National Security Strategy puts it, accurately and well:
“Allies and partners are a great strength of the United States. They add directly to US political, economic, military, intelligence and other capabilities. Together, the United States and our allies and partners represent well over half of the global GDP. None of our adversaries have comparable coalitions.”
The United States remains in prime position to exercise economic leadership – within its global strategic role.
The fact is:
- the United States consumer market remains the largest in the world by some margin and the United States economy will remain the major centre for final demand into the foreseeable future;
- the United States has the largest and deepest financial markets in the world, the greenback remains the world’s reserve currency;
- the US economy is the most creative and innovative in the world; US companies remain the benchmark in most important measures;
- the United States remains the largest recipient of foreign direct investment and largest source of foreign investment into other countries – by a dominant margin in both cases.
And Australia well knows the United States is its most economic partner, our second largest two-way trading partner, but by far our largest source of foreign direct investment.
This demonstrates the attractiveness of the US economy and the importance of US capital in the global economy.
Countries from the Indo-Pacific look to the United States for leadership in key institutions:
- in the United Nations Security Council;
- the G20;
- the East Asia Summit;
- the World Bank and International Monetary Fund.
And let’s face it, international politics abhors a vacuum.
Any absence of US and allied leadership within these and other institutions risks declining relevance and influence in global affairs – and others may fill the gap bringing with them a different set of values and principles, and without the necessary commitment to preserving the best of the international rules based order.
Australia’s Foreign Policy White Paper identifies the Indo-Pacific as our primary geo-strategic and geo-economic area of interest and responsibility.
The sub-title of the White Paper articulates our aim to provide ‘Opportunity, Security and Strength’ for Australians.
Our alliance with the United States is central to that purpose.
With our allies and partners, the ever deepening US-Australia relationship and cooperation gives us the opportunity to strengthen and preserve that international rules based order, and the liberal characteristics of a free and open Indo-Pacific for the benefit of us all.
I extend my very best wishes to you all on our national day – Australia Day.
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