Home' InDaily : May 20th 2010 Contents Vol21No4May2010|7
The boom-bust cycle of Australia's trade
relationship with countries like China
could be mitigated with a more
sophisticated dialogue involving the
Federal Government and the private
sector, according to Mr Richard Leaver.
To do otherwise is to risk an 'iron ore
war' with China which, given its
major contribution to Australia's
balance of payments and broader
economic fortunes, could have
Mr Leaver, Reader in International
Relations, said the volatility of iron ore
prices and the resulting stresses in China's
relationship with major producers like
BHP Billiton and Rio Tinto means that it is
time for the Federal Government to
rethink its "hands off" stance.
"Three large producers dominate the
international iron ore trade -- BHP Billiton,
Rio Tinto and the Brazilian group Vale
-- and the Chinese are very worried that
they are facing an 'OPEC in iron ore'," Mr
Leaver told Flinders Journal.
China has stockpiled two to three
months of iron ore which could be
brought into play in the event of an
outbreak of trade hostilities. Mr Leaver
maintained the current moves by the big
producers towards three month supply
contracts plays into the hands of China.
"Australia has a lot riding on iron ore
exports and prices can bounce around all
over the place, particularly on a quarterly
Rethinking our trading relationship with China
Clues for global economy in Greece
doubt we're depleting the
natural capital stock,
which constitutes the
point of all economic
activity," Dr Lawn said.
"With a constant
population and cap-and-
trade systems to regulate
those who pollute and
deplete resources, it is
entirely feasible for governments to bring
the rate of resource use in line with the
planet's sustainable carrying capacity.
"They can then use their unique spending
and taxing powers to provide public
'goods' and critical infrastructure, reward
penalise undesirable ones, and achieve
full employment." Vincent Ciccarello
The Greek financial crisis ultimately may
spell the end of the euro, the centrepiece of
the European Union, with members likely
to revert to national currencies, according
to a Flinders University economist.
Senior Lecturer in Flinders Business
School, Dr Philip Lawn said the crisis
highlights how the power central
governments have as monopoly owner of
their own currency is often overlooked.
"Currency-issuing central governments
have unlimited spending power, as well
as the ability to curb private sector
spending through taxation as a way of
controlling the inflationary effect of their
own spending," Dr Lawn said.
"All EU-member countries have effectively
surrendered monopoly ownership of
their own currency to become part of a
jointly owned regional currency - the
euro," he said.
basis. If the Chinese were to bring some of
its weapons into play, like using its
stockpile to reduce prices, you would have
to anticipate that Australia would not win
"And when things go down, you will be
bringing down the whole balance of
payments and the national economy
"In that sort of market what you really
need is some sort of mechanism for a
strategic economic dialogue and
information sharing -- a forum similar
"In doing so, each nation still has taxing
powers but they lose control over the
total spending of the regional currency.
"Once you have a rogue nation spending
far more than it is taxing, it destabilises
the currency. Greece has done this - now it
is in the position where it is destabilising
the currency it uses as well as not being
able to finance its own spending.
"Greece is suffering the effects but other
nations may follow suit and it's why the
EU is funding a 500 billion euro rescue
deal that's more about rescuing the euro
than rescuing Greece."
In a series of articles in the journal
Ecological Economics and a forthcoming
book, Dr Lawn argues for all central
governments to use their unique
spending and taxation powers to move
toward a "steady-state economy".
"Currently, the rate at which we use
resources is unsustainable; there's no
to that used by the Americans over the
past four years to discuss such issues as
currency manipulation and trade
protection with China.
"It's time that the Federal Government
adopted a more sophisticated position
and got rid of the old view we will leave
these trading relationships to normal
Mr Leaver has, with Dr Carl Ungerer, just
co-authored A Natural Power: Challenges
for Australia's Resources Diplomacy in Asia
for the Australian Strategic Policy Institute.
Dr Philip Lawn
Dr Philip Lawn
Iron ore heading for China, (inset) Mr Richard Leaver Photo: BHP Billiton
e heading fo China (inset) M Richa d Leave
Photo B H P Billiton
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