Australia gains, but will Tony Abbott?

But it is very doubtful that Tony Abbott, or the present coalition government, will get much in the way of political benefits from what they have done. Certainly not in the medium term.

The world, and world trade, are in the doldrums. All would benefit if there was an upturn in world demand and growth, the oil again flowing through the economic arteries, unused capacity and inventories became exhausted, and economies began to grow. It is only, moreover, when this is happening that nations can realise their hopes for reducing pools of youth unemployment and bring more women into the workforce. Freer trade, with less red tape and regulation will, when the upturn comes, benefit everyone.

No one stands to benefit more than Australia. This is not only because an unusual proportion of our gross domestic product goes overseas, in rough proportion to the rate of growth of our trading partners, but because our economic mix of agricultural, mining and a service economy, makes it tend to pick up rather more quickly than economies based on manufacturing.

But no one knows when an upturn will come. Or whether it will, or could, come from the sort of medicine on which the world leaders agreed. One way or another, Abbott will be very lucky if relief comes on an Australian political cycle. His immediate economic problems are local and political, not international and systemic.

There's a world of difference between willing an upturn, even having the leading economies agreeing about the need for an upturn, and making it happen. If it was easy, one might have expected that it would have been done by now. Or, if it merely depended on some consensus about the sort of measures needed – say a massive increase in infrastructure spending– or some concerted action by groups of nations, one might have expected either that the magic answers would have been discovered and tried already, or that the bodies supposed to invigilate governments, such as the World Bank and the OECD, would already have come upon it.

According to Abbott and some of the G20 leaders after the G20 conference, the package of measures agreed would, if everyone did as they promised, increase world growth over the next three years by an extra 2.1 percent of world GDP, presumably fairly equally divided among the constituent nations. Moreover, Abbott said, this time the promises were on the open record, specific, with dollar figures after their names, and this time the OECD and the World Bank would be closely monitoring the performance of each nation in doing what they had said.

But there was no particular sign that the international financial markets recognised and respected this, by ratcheting up their estimates of local and international production and trade.

This does not necessarily mean that they regarded this particular set of fine words from politicians, even Abbott whose promises can be absolutely relied upon, as the usual hyperbole, with feel-good words, phrases and spin, and only the vaguest good intentions.

It may be, simply, that their experience, particularly of the past decade, suggests that governments can do very little to pump or restrain their economies even when they want to. It may be that they think that the sorts of numbers contained in a published economic strategy – say a federal budget – are hardly scientific, depend on many things outside the capacity of politicians to affect, and that they are, in any event, subject to the usual constraints of political rationing, hostile houses of parliament, and the propensity of politicians, including our Abbott, to get bored and move on to something else, to change course, or to discover some emergency, preferably external, which can serve as a colossal distraction from the government's incapacity to get its budget under control.

One does not have to witness our errant, and presently somewhat chaotic Senate, to see the point. The Australian Senate is deeply rational and deliberate compared with either of the two houses of congress with which Barak Obama has to deal in Washington. Obama, now a lame duck seeing out the last two years of his second term, has threatened to use his formidable reserves of executive power to keep as many of his commitments as he can. His big problem, however, is that it is congress which must approve his budgets, and he has, in any event, reached pretty much the end of the line with monetary policy and fiscal stimulus.

Japan's economy has been in the doldrums for years, and its governments have tried virtually everything to get the machine running again. Nothing, not even" Abenomics", seems to be making much difference. In any event Abe has just voted himself a holiday from economic action by announcing an election, probably in a couple of months.

China and India are still growing in terms that would be very healthy anywhere else, but which, locally, represents a considerable downturn. Neither the governments nor the markets are confident that they are pulling the levers properly, that they can achieve "smooth landings" without widespread bubble bursting, unemployment and, possibly, political and economic disruption.

Things are also pretty crook among most of the constituent nations of the European Community. Germany, the leader, has its head above water, but most of the other economies are contracting, not expanding. Nor is it clear just how the common plan settled at G20 is going to be funded, implemented, or how, exactly, it will turn each, or most, of the European economies around. Nor has the modelling, whether done here or abroad, shown just how each national piece fits into the jigsaw.

Abbott has rather more that his frustrations with the Senate on his plate. Much as he made of the fact that all of the G20 nations were promising extra spending, particularised and auditable, and extra economic activity, it is by no means clear just what Australia itself has promised to do. Or how and whether what Australia does fits into his overarching political narrative about the need to cut government spending and deal with the "debt and deficit disaster" he says was bequeathed upon him by the Gillard Government. He has previously declared himself opposed to spending his way out of recession – he seems to think this a fundamental heresy, or at least, something for which both political friends and enemies will condemn him as a hypocrite.

As it happens, Hockey's incapacity to get Senate assent for large parts of his budget suggests that the practical working of government fiscal programs is more stimulatory than the government intended or planned. But it is far from clear that this is making repair of the economy more difficult for the government.

Hockey, indeed, is talking gloomily about nursing the economy through the Christmas break – in terms that suggest he would like to be doing a good deal of pump priming. And he has been publicly pessimistic about the capacity of free trade treaties, least of all with China, to make much difference to his budget in the medium term. Indeed the only way it could, would be by firing business and investment confidence, but it is pretty clear that the market expects that Chinese demand for Australian goods, for some time to come, will echo China's general economic conditions rather more than any sudden best mate or most favoured nation status.

It will be similar with India, if and when we can get a similar arrangement off the ground. It will resemble the preferential trade agreements made with the United States, New Zealand, Thailand and Korea, and the more multilateral version being canvassed with APEC. There is no doubt that such treaties, particularly ones negotiated with some skill, liberalise rules, increase access to each other's markets, reduce discrimination against suppliers and, probably, increase net trade flows, although the Productivity Commission has warned that some of the increased trade will be a result of diversion of imports and exports from and to other countries.

I am grateful to Crikey.com.au for pointing to the commission report, on pc.gov.au. It says that barriers reductions from such agreements, clearly had practical benefits for some businesses, including agriculture.

"However, while the commission has obtained insufficient evidence to be definitive, it appears that businesses generally have made limited use of the opportunities... This may be because the main factors that influence decisions to trade or invest abroad are not directly affected by PTAs. In this context, some agricultural bodies noted that notional improvements from negotiated reductions in tariff and quota barriers could remain largely unrealisable without reform to quarantine requirements in partner countries.

"In the services area, some industry groups pointed out that businesses intent on supplying services to foreign countries typically already "work around' many formal barriers ... The commission was also told that even where the mutual recognition of qualifications or testing procedures are agreed in a [PTA], additional requirements in the partner countries can sometimes hamper use.

"More generally, the commission has received little evidence from business that would demonstrate that the viability of exports and investments in a particular market is significantly influenced by whether or not Australia has a [PTA] with the particular country."

But the commission had a much bigger and more important point. Australia usually gains, and, has over recent decades, even from unilateral reforms. We have lowered our own trade barriers, including tariffs, without asking for or expecting anything in return from countries with which we trade. The commission believes that the main benefits attributed to PTAs and trade liberalisation "result from a country purchasing its inputs and final goods and services from the lowest-cost sources of supply, and exposing its industries to greater import competition by reducing its own trade barriers.

"This creates a competitive environment that drives productivity and a more efficient utilisation of resources within the economy. While Australia's previously unilateral reform efforts have reduced tariffs substantially, even at current (low) tariff levels, the modelling conducted as part of this study suggests that much of the future economic gains available to Australia could be achieved by unilateral reform."

Indeed, the commission says, sometimes PTA negotiations delay reform because countries "hold back" on concessions, or play tit for tat.

This does not suggest that bilateral, or multilateral, reform is not worth having, or striving for. But it does suggest two things.

First, changes in the pattern of our trade with other countries, including our closest partners, will owe more to overall world market conditions than mutual regard or recognition. And, second, that in trade, as in foreign affairs and defence, Australia should stop seeing everything in two-dimensions – whether, for example, this is pro US or China, or Japan or India or whoever.

We should be open for business with everyone, generally on identical terms. And if things get a little tense with one particular customer, we then have other customers who maintain an interest in a good supplier, rather than themselves judging quarrels by how they fit in with great power formulations.