Obamanomics

What will a new US president mean for Australian exporters? TIM HARCOURT

Hope is a much under-rated emotion in economics. I saw a demonstration of this on election day in the United States. Let me explain.

My 12 year-old niece Jasmine (the daughter of my wife’s sister Rachel), like Barack Obama, is an African-American (and just like Obama she has a black father and a white mother). After voting in Wisconsin, a relatively safe “blue” (Democratic) state, mother and daughter headed down to Chicago to Grant Park with some friends and family to watch the results.

As we all saw on television, the crowd was a mix – black and white, young an old, the odd celebrity mingled with college students – and it was a mild Chicago night (in a normally chilly November). After the historic election of Barack Obama and his wonderful address – following John McCain’s gracious and statesman-like concession speech – Jasmine looked up at Rachel and said “Mom, does this mean I can be President some day too?”

Just as hope inspired my niece, hope is important for Australian exporters at a time of global financial uncertainty – particularly in the United States. After all, the US is the world’s largest economy, and despite Australian’s strong export connections to the emerging economies, particularly in Asia, the US is always an important source of capital investment and confidence all around the world.

But there is a sign of hope in the exporter survey data. According to the DHL Export Barometer, North America will be the number one market for Australian exporters in five years time – signalling that there a perception that the US economy will exhibit its customary resilience.

While exporters see a rough 12 months ahead, with China, India, ASEAN and the Middle East generating most of their sales, they think the United States will re-bound strongly with the election of Obama, potentially helping to turnaround sentiment.

However, Obama’s election has generated some negative press in Australian business circles. The conventional wisdom has been that Democrats are always trade protectionists and the Republicans firm free traders.

For example, in his Boyer lectures, Rupert Murdoch claimed that the Democrats are always protectionist and Obama’s trade policies would hurt Australia. His views were echoed by Australian Industry Group’s Heather Ridout.

But this is a misreading of history. Both parties have moved on both sides of the trade issue depending on the times. In fact, the Republican party was traditionally the party of the northern states and had a large manufacturing base of support and supported protection, while the Democrats had a strong southern base too (the so-called “Dixiecrats”) and supported free trade. The American farmers and the labour movement has had its swings too.

The AFL-CIO (America’s union movement) and the auto workers were pro-free trade in the 1950s and 1960s and later became protectionist (just as in Australia too, at the time of federation, NSW unions were historically free trade with Victorian unions likely to be more protectionist).

There’s the political economy of the primaries too to consider. Barack Obama’s views on trade in the primaries are likely to be very different from the policies of his administration. Democratic administrations led by Roosevelt, Truman, Kennedy and more recently Bill Clinton were multi-lateralist and internationalist in outlook and the Obama administration is likely to be too.

In a road show I participated in with Chicago economist David Hale for the Commonwealth Bank and the Australian Export Awards, Hale said: “Obama was born to an African father and grew up partly in Indonesia and partly in the mid-Pacific in Hawaii. His background is internationalist in outlook and there’s no way that some one with that background is going to be isolationist or protectionist in economic policy.”

In addition, most of Obama’s likely economic advisers are free traders. For example, Jason Furman, a former World Bank economist and disciple of Nobel Prize winner Joseph Stiglitz, is a strong free trader, and another adviser, the University of Chicago’s Austan Goolsbee, holds similar views. Around 66% of American economists voted for Obama, compared to 28% for McCain, and the majority of economists in the US are free traders.

In fact, Obama’s programs to reduce economic inequality may strengthen not weaken support for free trade in the US electorate. Supporting a minimum wage, supporting workers’ rights to organise, could reduce the excesses of globalisation and build a progressive coalition for open trade.

Inequality and rocketing executive salaries with declining real wages for American workers have bred protectionist sentiments, while a fairer America may actually build a stronger constituency for free trade.

After all, you just have to look at Obama’s home base of Chicago, which over the years has diversified its economy and has risen to pre-eminence as a truly globalised city (which has just been voted the world’s eighth most global city by Foreign Policy magazine).

According to Ian Smith, Australia’s Trade Commissioner, Chicago and the Midwest, “Chicago is an international trading hub that has in many ways flown below the radar for Australian companies. Greater Chicago now boasts the third largest metro area in the US with a teeming 10 million people. It is also the number one global derivatives centre and the fifth largest intermodal port in the world. Whether you are talking planes, trains or automobiles, everyone and everything comes through Chicago.”

Chicago is also becoming an important trade and investment partner for Australia. According to Smith: “Many major Australian companies are basing operations here from Macquarie Group to Nufarm, Bovis Lend Lease and a number of emerging medium-sized exporters.”

Smith believes Chicago’s Olympic bid for 2016 has been bolstered by Obama’s win, and the new administration’s clean energy policies could be a good fit for Chicago’s own Clean Technology and Sustainability programs, including its push on green roofs, which now number more than 400 in the home of the skyscraper. There are also strong synergies between the Obama environmental program and Australia’s new clean energy export policies.

Barack Obama’s win will also help the Chicago “brand”. As Ian Smith says, “for ages, all Australians could think of when Chicago was mentioned was Al Capone, and maybe Michael Jordan of the Chicago Bulls. Now with the election of Barack Obama and a potentially successful Olympics bid, there’s a new hope to put the Windy City on the world stage, where it belongs.”

There’s that word again; hope. That sentiment saw the election of America’s first African-American president and now needs to play a role in reviving the US economy for the good of Australian exporters and the whole global community. But whatever, happens, we know it has made a difference to my niece Jasmine’s life on that balmy November night in Grant Park, Chicago.

Thanks to Ian Smith and David Hale for their comments and assistance with this article.

Tim Harcourt is chief economist of the Australian Trade Commission and author of The Airport Economist: www.theairporteconomist.com

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