By Cameron Cooper
Collage art by Klawe Rzeczy

They are fierce opponents on many fronts, but Joe Biden and Donald Trump are arguably brothers in arms on one policy front – they have both been accused of backing away from free-trade agreements (FTAs). During his term, former president Trump raised taxes on imports of steel and aluminium from some countries under the guise of national security, while incumbent leader Biden has received both praise and criticism for taking a more protectionist approach through a new industrial policy designed to bring manufacturers back to the US and safeguard the jobs of American workers.

The US has been largely quiet on FTAs in recent years, with some analysts suggesting the first real shift in US policy away from support for multilateral trade systems stems back to 2016 when the US declined to reappoint a member of the World Trade Organization (WTO) appellate body (a standing body of seven persons that hears members’ appeals) under then president Barack Obama.

One recent trade highlight has been a renegotiated deal under Trump in 2020 to supersede the North American Free Trade Agreement (NAFTA) and ink the United States-Mexico-Canada Agreement (USMCA). The Trump administration also reworked an existing deal with South Korea in 2018, while the Biden government reached a commercial agreement with Taiwan under the US Taiwan Initiative on trade in 2023.

Nevertheless, the recent dearth of FTAs is a far cry from the past when American presidents embraced one free-trade pact after another, and it has led to a string of headlines accusing the US of killing the global free-trade consensus.

Professor Peter Draper, executive director of the Institute for International Trade in the School of Economics and Public Policy at The University of Adelaide, agrees that the recent actions of the US have “been a blow” to FTAs. “That’s taken substantial energy out of the system,” he says. However, Draper says reports of the death of FTAs have been exaggerated, noting that America still has 14 comprehensive FTAs in force with 20 countries.

Closer to home, Australia and India and some Asia-Pacific Economic Cooperation (APEC) and Indo-Pacific countries are “still keen to be in the game” and have been pursuing a variety of trade agreements. “That demonstrates that these agreements still have a value because countries want to join them.”

He adds that China is eager to fill part of any free-trade void that the US has created, including through its ambition to enter the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), an FTA between 11 countries which the US exited in 2017. “Japan and Australia essentially revived it and now China wants to join it,” Draper says.

Under pressure

From the days of the Silk Road trade route in 138 BC and the creation of the General Agreement on Tariffs and Trade (GATT) in 1947 to the launch of the WTO in 1995, free trade has played an important role in facilitating economic growth and fostering friendlier relationships between countries. However, recent Chinese trade, investment and industrial policies, along with some commercial and military aggression, have contributed to a decline in the use of trade agreements – both for WTO-driven multilateral deals and other regional and bilateral FTAs.

Canadian economist Jim Stanford, director of the Centre for Future Work, says free trade is now “less central” to many countries’ economic strategies, with the WTO becoming “effectively paralysed”. “Ever since Donald Trump came in [as president], the United States has been backing away from the WTO,” Stanford says. “Joe Biden has continued that trend. So, it’s a bipartisan thing in America and it’s not likely to change.”

Stanford cites the protracted and failed Doha Round of WTO trade negotiations and the recent Inflation Reduction Act measures under Biden – a controversial package that includes tax credits for electric cars made in North America and which supports US battery supply chains – as clear signs that FTAs are under duress.

“Of course, the free-trade agreements that have been signed are still there and, in theory, they’re still binding. But governments are more willing to think outside the free-trade box in their policy thinking and with responses to challenges such as climate change, deindustrialisation and the pandemic.”

With the benefits of FTAs possibly drying up for some exporters, they may see merit in switching to more marketing-led means of selling their goods and services.

Strong ties

For its part, Australia has FTAs with more than 20 countries, including the US, the UK, India, Japan, South Korea and Singapore. The CPTPP and the Regional Comprehensive Economic Partnership (RCEP), an FTA among Asia-Pacific nations, are also crucial elements of the regional trade picture.

For New Zealand, an FTA with China since 2008 has delivered significant benefits for the dairy industry, while it is also pursuing ongoing economic and trade opportunities with India and through the Indo-Pacific Economic Framework for Prosperity (IPEF).

Despite problems with some FTAs, including China’s recent decision to impose barriers against a range of Australian exports, the agreements have been important for Australian trade over an extended period. In particular, they provide transparency and certainty for business and they continue to direct and guide the vast majority of global trade.

Promisingly, Draper expects the rise of digital technology as part of the Fourth Industrial Revolution to lead to many countries exploring more open trade stances. He adds the caveat that some countries are tightening access to their markets for “dual-use” technology-related investments – for example, software and technology that can be used for both civilian and military applications – because of national security and geopolitical concerns.

“Each country will end up with its own balance on this spectrum. Every country wants the best possible access that it can get to digital technologies and data flows. So, the bottom line is that we haven’t seen the end of the globalisation wave that we saw in the 1980s and ’90s and the early parts of the 2000s, but we’re seeing a reformulation of it.”

If not free-trade agreements, then what?

Proponents of FTAs argue that they can stimulate economic growth by increasing trade and investment, create new business opportunities and lower tariffs and other trade barriers. On the flip side, critics contend that such deals can cause ‘trade diversion’, whereby a country that lowers tariffs for one nation, but not another, runs the risk of being locked in to buying products from a more expensive supplier. There are also significant administrative costs and the threat that increased competition could lead to job losses in sectors that are hard-pressed to compete on an international scale.

Stanford suggests that any diminution of FTAs may not be a significant negative for a country such as Australia, in so much as the deals have largely reinforced its reliance on exports of coal, iron ore and some agricultural products. “The era of free trade has also been the era of deindustrialisation for Australia, and our export profile has gone backwards, not forwards,” he says.

If WTO-driven FTAs decline in importance, what could take their place? Already, there has been a shift to more narrowly focused trade deals involving bilateral and regional agreements, and that is likely to continue.

Draper expects more cooperative agreements, along the lines of APEC, to come to the fore. The Biden administration, for instance, is pushing a ‘new-generation’ trade arrangement through IPEF.

“There’s very little traditional FTA content in the IPEF, and what it is, in essence, is a cooperative agreement and that has its uses. For a start, it keeps the US in the game.”

Stanford believes COVID-19 and supplychain disruption have been a wake-up call for countries such as Australia and New Zealand “to start thinking about manufacturing stuff again” and embracing an active industry policy that supports industries in transition and scales up those with a comparative advantage. For Australia, that could include becoming a leading producer of renewable energy products, pursuing innovations in areas such as food and medical devices, or targeting non-goods sectors such as education and healthcare services. “I don’t accept the argument that Australia is too small to do this.”

The way forward

Draper agrees that what nations do on the home front will be crucial, regardless of any FTA deals. “There’s still a pretty big reform agenda required,” he says, with requirements being the minimisation of state-based business differences and domestic barriers that reduce business productivity and curb trading prospects.

“Of course, FTAs can actually help because your trading partner will come and ask you to open access to a particular market that might be sensitive, and when you open that access it can have productivity-enhancing effects,” Draper says. “But at the end of the day, the key is to have a domestic reform agenda.”

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What are FTAs?

A free-trade agreement (FTA) is a deal between two or more countries that is designed to reduce barriers to imports and exports, allowing goods and services to be bought and sold with few or no government tariffs, quotas or subsidies. A key aim is to create a more predictable and transparent trading and investment environment.

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A reputation worth having

As Essence Group CFO Martin Liang CA eyes growth in international markets, he knows he can count on the Australian Made label to boost sales prospects.

The NSW business is a manufacturer and distributor of a wide range of industrial goods, nutraceuticals and protein-based nutritional products, and targets international markets such as the UK, Southeast Asia, the US and the Middle East.

As exporters seek an edge at a time when geopolitical tensions are affecting some free-trade agreements, the distinctive green and gold design of the Australian Made label is a strong selling point. Liang says it is a trusted certification that signifies to international buyers that products featuring the label comply with good manufacturing practice (GMP) standards and any Australian Consumer Law requirements. Likewise, the New Zealand Made trademark (which adorns brands such as the Sanitarium Health Food Company, Honey New Zealand and Whittaker’s chocolate) is well regarded.

“With made-in-Australia or New Zealand certifications, they are something that overseas customers really value, especially in Southeast Asia,” Liang says. “In Southeast Asia, for example, a lot of our products are sold out of pharmacy groups and to have that Australian Made certification really sets the standard over there.”

From its Nowra factory in NSW, Essence Group works with some of Australia’s biggest brands and provides private-label solutions for customers to create a wide variety of products, including tablets, capsules, powders and sachets. Its nutraceutical and protein blends target gut health and other conditions such as diabetes and obesity.

The Australian Made logo on such items tells consumers a product has been grown, produced or manufactured in Australia, including the fact that it has “undergone its last substantial transformation in Australia”. Companies must pay a fee to use the label, ranging from a minimum annual licence fee of A$300 plus GST for those with annual sales up to A$300,000, rising progressively to a maximum fee of A$25,000 plus GST for those with sales of more than A$45 million.

The New Zealand Made licence is equally stringent in terms of product and service eligibility, and even more affordable: charities and education providers can obtain a free licence to use the Kiwi trademark, and for businesses with more than 400 staff the price is NZ$5000 plus GST.

Liang acknowledges that the stringent manufacturing process of products made in Australia comes at a cost, but that it is worth it. He says the investment required to comply with Therapeutic Goods Administration, GMP, organic and Australian Made certifications is the biggest impost. Essence Group employs an internal quality-control team to ensure that all products are produced to the highest standards.

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Take away