Economic Nationalism Can Boost Trade Resilience—But it’s Risky

Jack McDermott | Indo-Pacific Fellow

Image credit: Chuttersnap

In February this year, China banned the import of pineapples from Taiwan, in a move interpreted as economic coercion. In response, Taiwanese businesses and consumers mobilised in support of domestic industry, buying up a full year’s harvest of local pineapples in just four days. Foreign Minister Joseph Wu jump-started the impressive public response by launching the ‘Freedom Pineapple’ campaign on social media—a reference to the ‘Freedom Wine’ movement that encouraged the public to buy Australian wine after a series of similar trade sanctions from Beijing in November last year. The ‘Freedom Wine’ movement was an encouraging display of support for Australian winemakers, but for decision-makers in Canberra, a public response as energetic as Taiwan’s is enviable. And it raises questions about how the domestic market can be leveraged to boost trade resilience.


Australia has never had a stronger incentive to make its export strategy more agile. In 2020, a slew of trade restrictions from China on consumer goods such as barley, wine, and seafood appeared to be targeted to maximise damage to Australian producers. The recent announcement of the AUKUS pact with the United Kingdom and the United States also signals a decisive commitment to Washington, placing already fractured trade links with China under greater pressure. Following a string of recent successes, it’s easy to see how a patriotic constituency can be a source of resilience, allowing trade-reliant economies to weather diplomatic spats with minimal damage to domestic industry.


But this strategy is risky. In many Indo-Pacific countries, these same nationalist sentiments incentivise leaders to weaponise their trade policy against other states—despite the costs at home. In August 2019, Japan removed South Korea from its list of countries that receive preferential treatment on the import of Japanese goods, including key inputs for South Korea’s critical technology sector, over a dispute regarding the legacy of Japan’s occupation of the peninsula.


And while consumer nationalism has helped Taiwan to endure economic pressure from mainland China, it has also hindered the development of stronger trade relations with the United States. An attempt earlier this year to signal stronger alignment with Washington by opening the market to American pork was met with significant public backlash. This set the stage for a successful scare campaign from the opposition party, encouraging consumers to boycott American pork in favour of local. If American pork is banned, Taiwan is likely to be read as an unreliable trading partner by its most important security partner. This would be detrimental to Taipei’s broader diplomatic ambitions, but the incumbent Democratic Progressive Party may be reluctant to risk its reputation at home by pushing harder for American imports.


All of this comes at a time when many countries in the Indo-Pacific region have become consumed by the politics of self-reliance and been forced to bear its costs. Following a larger push for economic self-reliance, the ‘vocal for local’ mantra became a crucial piece of Indian Prime Minister Narendra Modi’s COVID-19 strategy, which pivoted to accept supplies from the UK, the US, France, and Germany to strengthen the country’s response only when the situation became untenable. Measures to bring components of production back home have also been key in recent supply chain reviews in the US, Australia, and Japan. Behind each of these moves is mounting anxiety over the dependability of international trade.


With these risks in mind, a sober assessment of Australia’s supply chain resilience is timely. Contrary to prevailing rhetoric, the Productivity Commission recently concluded that high concentrations of exports to China do not make Australia especially vulnerable to trade shocks. 79 per cent of Australia’s exports go to its top ten destination markets, compared to a global average of 72 per cent. To quote the Commission directly, “it turns out that Australia could, if needed, export to other markets, reducing the economic cost of any disruption”. While there are certainly risks to vulnerable industries which should be mitigated, a dramatic push for greater self-reliance is premature.


It is clear that domestic politics is often a driving force in international trade policy. As such, public campaigns like ‘Freedom Wine’, and its regional contemporaries, can be surprisingly powerful measures to protect domestic industries against the short-term damages of economic coercion. But such strategies must be handled with care. The impulse to create space in the domestic market for restricted exports is often unwarranted and encouraging consumers to be ‘vocal for local’ can backfire quickly—especially as an effective international response to the COVID-19 pandemic increasingly demands that trade and diplomacy mingle.


Jack McDermott is the Indo-Pacific Fellow for Young Australians in International Affairs.