Ban on China Goods a Growing Trend

A ban on the purchase of Chinese goods, issued by an Australian state government, has raised trade concerns.
Ban on China Goods a Growing Trend
6/18/2009
Updated:
6/20/2009
A ban on the purchase of Chinese goods, issued by an Australian state government, has raised concerns it could threaten trade in the region.

The ban however reflects an international trend in protectionism which has surfaced most strongly in China itself.

The New South Wales (NSW) State Government announced in its budget yesterday that government departments must favor Australian-made products, stating that AU$4 billion of government expenditure should be sourced from local companies.

NSW has the largest economy in Australia, contributing close to 32 percent of GDP.

The ban on China-made products stems from the discovery by local media last year that NSW police and ambulance uniforms were being imported from China.

The new Local Jobs First plan requires that stationery, uniforms, cars, and even trains and building contracts are sourced from local companies. A 20 percent discount to Australian firms, with 500 or fewer workers, would also be given if they were in competition with foreign companies.

NSW Treasurer Eric Roozendaal said NSW Government agencies spend billions of dollars on products needed to service the people of NSW. “This plan tips the balance in favor of local businesses, providing them with greater opportunities to expand and sell to government, ”he said.
 
Australian trade unions have strongly supported the initiative saying the new policy will keep government money circulating in the local economy.

“It’s a win for jobs and a win for working people,”Unions NSW Secretary, Mark Lennon said.

The Chinese Embassy in Canberra has responded by telling The Australian newspaper that China was “firmly opposed to trade protectionism.”

“Experience has proven that trade protectionist measures only end up harming others and oneself,” a Chinese official said.

China Protectionism

The comments are ironic as the reality of China’s own protectionist policies have begun to surface.

Foreign businesses have been complaining for months that foreign companies are increasingly overlooked in China.

The American Chamber of Commerce in China issued a paper in April, warning that from regional to national levels, Chinese authorities were openly favoring local over foreign companies.

The protectionist measures have now been spelled out—although in a rather underhand way—with the announcement of a policy that will see the majority of China’s 4 trillion yuan ($738 billion) stimulus package spent on local industries.

According to News Limited, the policy, although dated May 26, was posted publicly, without fanfare, on June 4, the anniversary of the Tiananmen Square massacre.

The policy states that “For government-invested projects, unless the products or services are not obtainable in China, buyers should purchase Chinese products, and strengthen supervision on equipment importation.”

The Australian government, which has distanced itself from the NSW Government’s initiative, said that the Chinese policy was “a regrettable development which has the potential to undermine Australian jobs and Australian exports.”

“China is one of our top two trading partners. This reported move by the Chinese underscores the danger of retaliation and a tit-for-tat trade war,” a government spokesperson said.

Professor Martin Richardson a specialist in international trade at the Australian National University (ANU) said the NSW initiative will put pressure on the Australian Government in trade negotiations.

“Australia has a reputation to protect as it has been very pro free trade,” he said. “It does make it difficult when one branch of the government is doing that, at the same time the Federal Government is trying to negotiate a free trade agreement.”

Protectionism however is not seen as disappearing in the near future.

As part of the U.S. stimulus package, a ‘Buy America’ strategy was proposed in February this year, stipulating that billions of dollars for new infrastructure be spent on American-made iron and steel.

Included was a requirement that all “manufactured goods” bought by taxpayers for the stimulus be produced domestically.

The policy drew an outcry around the world not the least from the Canadians who immediately sent a delegation of diplomats and trade officials to Washington, threatening retaliation.

While President Obama was quick to respond, saying the stimulus bill should not “send a protectionist message” or convey to trading partners, “That somehow we’re just looking after ourselves and not concerned with world trade,” it does indicate a growing trend.

Professor Richardson says that while protectionism is seen to some extent in all countries, the economic situation will determine how much the trend increases.

“It is true that all policy makers have been warning against protectionism,” he said.
 
However if the economic situation does not improve globally it is a “reasonable conjecture” that protectionism will rise, he said.