Transcript of Question & Answer Session Open the Door and See the Mountain: Reflections from a Recent Trip to China

Thank you, Andrew, for very interesting remarks and very much on time as well for our schedule. That’s always quite an achievement. For our audience, we now of course are moving on to the panel discussion part of our event. Just a heads-up, after I ask a few questions of our panel I’ll be turning to the audience. If you can have some good questions for our panel that would be excellent.

Andrew, of course starting with you, I mean, fairly safe to say you gave a fairly positive take on the view at least coming out of China in terms of their ability to weather a trade war with the United States. Can I ask you to what extent do you yourself agree with the views that you heard, or alternatively, perhaps where are the biggest gaps or uncertainties between what you heard on the one hand and your own assessment?

You say my own, I’ll qualify that by the RBA’s. As I tried to set out, this is very much a read-out on what we heard, and obviously you can make many judgments about where those comments may have come from, how truthful they are, how much weight you should place on them. So, for example, and perhaps it’s the most important in some ways, the commitment to pivot from supply to demand, from external to internal demand has been around for a long while and hasn’t had a huge effect on the composition of Chinese growth. The question about whether the toolkit is suited to doing that, you know, even if you want to do it, do you have the right levers to pull to deliver it? And the question of headroom, as I said, are ones that people will raise.

I think, as I said, you can debate the numbers and you can debate the precise channels, but our view, and we only have to forecast luckily two years ahead, I think a very interesting question is what are we talking about five, 10, 20 years ahead. That’s, in some ways, a much more interesting question given the demographic trends involved, but in the short run, a couple of years, we do share a relatively upbeat view. I was saying to one of our colleagues earlier for much of your international outlook we take Consensus numbers from external forecasts, but we do our own China forecast, and our own China forecast, as I said, is a shade under five in ‘25 for growth, and a little bit weaker in ‘26 but still pretty strong. That plays its part in our overall projection for inflation.

I would love to hear from the panel where the weaknesses in the story are, I am sure there are many, but qualitatively speaking we are relatively upbeat about the prospects for China despite a number of these.

Let me say one final thing, and it was widely reported, we did a scenario in our - we did a number of scenarios actually in our Statement on Monetary Policy this week, and clearly this is under a baseline in which tariffs stay at the current levels or maybe moderate a little bit further. There are clearly any number of alternative scenarios in which the outcomes are far worse, and we showed one of those in the Statement on Monetary Policy. China would obviously play its part in that, whether it was because it was hit by strategic embargoes, whether its own economy collapsed, whether the attempts to stimulate failed, all of the if, if, ifs, that would be clearly much more serious for Australia for the global economy. We talked in the forecast about what that might look like. So who knows. This is a highly unpredictable situation. Our central case is a relatively optimistic one. You can easily tell a much more negative story.

That’s very good. I do want to come back to how you deal with and grapple with all of this uncertainty because I’m sure it does not make your job remotely easier than it already was. Richard, you’ve also just come back from a trip from China so I thought I’d bring you in. Did you pick up on similar vibes? Were there any particular points of distinction from what we’ve just heard from the Deputy Governor?

Yeah, look, I was stumbling around I think either in Andrew’s wake or just before or after him in Beijing and Shanghai with some colleagues from Lowy. As a non-economist on the panel speaking about economics, I’ve written myself some notes tonight so I make sure I don’t lose myself. I will elaborate on and qualify some of the point about competence. Now, when you talk about Chinese competence, it’s not just competence in economic numbers, it’s competence in their system, and this goes back - we’ve had waves of Chinese competence in 2008 with the global financial crisis, China came out quickly, when Trump was first elected in 2016 that was a boost in Chinese competence. Early days of COVID China did very well as well. Each of those moments turned into hubris and then China was brought back down to earth a little bit. This time might be different because of the nature of Trump and the nature of what he’s doing with the US economy. So there’s some - there’s other sound bases for the competence as well, I think, a couple of things. Andrew mentioned DeepSeek. That was a big deal. This week we had in Hong Kong the listing of CATL, by far the most preeminent, advanced battery company in the world. They raised more than $5 billion in Hong Kong. They wouldn’t bother going to the US to raise money. The Chinese also are much better prepared for Trump this time around than they were first time around. Some people were saying to me in Japan this week they mark China’s preparation for Trump to Xi Jinping going to France in early 2023. Even then they were starting to shape the battlefield, as The Pentagon says, in Europe and the like, readying for Trump. They’re also better prepared to handle Trump’s tariffs. I think a friend of mine said, you know, the US is doing a tariff war, China is doing a supply chain war. They just pick stuff out of the supply chain and put immediate pressure onto the US, as per your graph up there. They’ve got great leverage there.

But let me just now talk about the qualification side of that. First of all, it doesn’t matter how good Chinese tech is, it’s not going to make up for the gap caused by the collapse or slowdown in the property market which was 25, 30 percent of growth. Secondly, there’s a lot of very respected opinion that Chinese growth rates for the last three years, the official growth rates, I’m not saying they’re fake, but they’re genuinely exaggerated. China stopped publishing a lot of economic figures, it’s harder to measure, and you look by other measures, it’s not 5 per cent last year, it may be half of that, might not be 5 per cent this year, and you can tell the Chinese government is worried because local economists are under political instruction not to talk down the economy, not to talk about lower growth, not to talk about the problems. That’s a reflection of the post-COVID/end of COVID collapse in consumer confidence.

Going back to the other side of the ledger, these issues have played out politically, particularly in the short-term, all the pain points, genuine pain points experienced by the United States, they are immediately played out in the political system, in the markets, in the bond markets, in importers like the Port of Los Angeles talking about the collapse in traffic coming across the Pacific, in companies like Walmart talking about “we’re going to pass the cost of tariffs on to consumers”, which sends Trump crazy. So in China they don’t have to worry about any of that because they can control the narrative. All the pain points there are suppressed effectively, not completely. So they can control the politics of it a lot more than the United States, and look what happened with Trump before they had the truce in Geneva or Switzerland. Electronics, that’s the export which is most dependent on the US market. All that needs to happen is Tim Cooke rings Trump or the treasury secretary and says, “we’re going to double the price of iPhones next week”, immediately electronics is completely exempted.

A few more points. So they can win maybe the political war initially. That’s not the same thing as saying the Chinese economy won’t be really badly affected. You can see that by the talk about stimulus, and a sudden slowdown in the Chinese economy, I think you alluded to this, means that the stimulus is going to be focused on steel-intensive industries which, frankly, is the last thing they want to do or should be doing. And if you’re going to have a short-term impetus for the Chinese economy you’re not going to get it from consumption, particularly if factories are closing and people are being laid off.

I’ve got a few other points, but I’ll wait until the next question.

Very excellent points, Richard. Interesting distinction between their ability to, in a grand sort of sense, weather and maybe even win the trade war versus the idea that actually they - in that process they might be severely damaged, and if we’re talking about the Australian economy, of course, then there’s direct flow-on for us. You mentioned technology, and I want to shift across to that because a lot of the time we focus just on tariffs, but anyone following US/China economic relations and geo-strategic tensions know a lot of it, most of it even, is all about technology. There’s a technological competition around AI, semiconductors, robotics, clean energy, technology. Jenny, to bring you into this discussion, how do you see the dynamics there in terms of the tech war between the two countries, and then where does that leave Australia as a small open economy reliant on global technological advancement for our own productivity?

The models of technology are really different in the US and in China, and their model has actually worked remarkably well, and I think we need to understand that and the massive government investment is delivering. The US was trying to cut them off. Even Obama was - the Trans-Pacific Partnership partly was aimed at trying to isolate China out of certain things, and Biden’s policies were definitely aimed that, and what that did was put really China on to steroids in terms of developing its own tech. So the challenge is that it’s made this massive investment in R&D, engineering, robotics in ways that the US is yet to do, and then it’s also made an investment in a lot of the UN standard setting bodies, in WIPO and others. So it’s actually tried to really be there at that sort of tech edge, and so then promulgate it and say this is the trading partners, this is the options.

The challenge is the US wants to say partners, countries like Australia, you’re with us or you’re against us, so you’ve got to be in our camp and not in China’s camp, and China is pushing back against that, and where we live, you know, underneath bottom Asia, we need to be able to trade with all the countries in our region, so we need intra-operability. This is the big challenge, that what’s going to happen in actually the tech war, I think, is going to be ultimately the really big question of whether we end up with tech bubbles where you belong to the US tech bubble or you belong to China’s tech bubble, where Europe turns up in this, which bubble it belongs to, or whether we get actually get enough intra-operability between systems to allow both systems to actually develop, and I think what we need to be thinking about with the partners in the region is to say that’s the option we want. We can’t let the trade war turn into a tech war, and we really need to push very strongly back against that.

I think that US isn’t nearly as far ahead as they think they are in things like AI. The chips have proven that, you know, Nvidia is actually really terrified that China’s actually going to crowd it out, that it won’t dominate the chip market - high end chip market, if things keep going the way they’re going. So I think we need to actually see some real cooperative activity to try and say there is a third way, let’s try and make sure there’s that intra-operability, and don’t let countries be caught between it because Australia would be in a real pickle.

I want to come back you, Jenny, about this idea of how do we respond and how do we partner with other countries because of course we’re too small to do so on our own, but just coming back to you, Andrew, hearing from Richard and Jenny, we’re hearing about a lot of more messy geopolitics, in the short-term there are the shocks, in the long-term there’s the fragmentation and the crimping of sources of productivity growth. All of that has a bearing on how the RBA makes its decisions. I think in your speech you said you’re not an expert on geopolitics, but as they said the geopolitics is interested in you. Can you shed a bit of light, how do you grapple with these questions, the huge amounts of uncertainty, the potential for shocks, what it does to the ability to use models to look backwards in order to look forwards? How do you grapple with all of that, especially when monetary policy operates with a lag and you want to be ahead of the curve, not behind it?

When I was interested in the job over here I thought that one of the reasons I might be disqualified was because I came from a country that had just bounced from one crisis to another and was coming to a country that had, frankly, had decades of spectacular economic performance in Australia, and so in the UK you’ve got quite used, in the last few decades, to these enormous shocks, whether it is the global financial crisis that was an enormous event in the UK in a way I don’t think it really was here economically. Brexit, of course, whether that counts as geopolitics, I think it probably does, still working through, and the Ukraine event which was up close and personal for a country that had built its entire energy system around gas, the fact that the price of gas went through the roof was an enormous thing, and none of those were predictable events, I would say, and yet they determined fundamentally the economic outlook. Central bankers do struggle a little bit with the what-ifs in terms of geopolitics. We’re trying to do a bit better. If you just put shocks like actually what Trump’s just done through normal macroeconomic models, they often give you surprisingly small impacts. Now, part of that is the reason that the model is telling you something important which is that modern well-developed economies have more stabilisers and offsetting factors. We saw that with the trade dispute with China and Australia a few years ago when trade diverted quite effectively and there are a number of ways that meant that worse outcomes didn’t actually occur. Some of those more slightly more benign predictions turned out to be the case. My examples of Brexit and other things obviously disprove that. You can ask what-ifs in a policy context, and we’re getting better at that than we used to be in central banking. The question is, once you’ve done the what-ifs what do you do with them? Do you simply say that’s jolly interesting and if one of these things happens we’ll react, but until we do we’ll just keep on going? Do you lean into it to a certain degree, well, there’s an X per cent chance that 145 per cent tariffs might be put on the world economy? That could be a very hard thing to explain when the tariffs haven’t yet hit. It is interesting in Australia, as Michele Bullock was talking about earlier this week, whereas in many economies the forward-looking surveys and indicators are already turned down very sharply, businesses and households very uncertain and nervous about the global impact, so far the forward-looking indicators in Australia have not moved at all. That might be a great sign of resilience in the economy, it might be a sign of lags, I don’t know, but you need to ask yourself what is the probability that these things actually affect it, because if you run after every geopolitical story you’d be moving policy up and down very rapidly.

There’s a third recommendation that people sometimes suggest in the model, this so-called Knightian uncertainty, right, which is you should try and do - I can never remember whether it’s maxi-min or mini-max, someone will remember, maybe you do, but you should set policy to reduce the costs of the worst possible outcome. That’s actually a pretty hard principle to implement. There’s always a chance you might get run over on the road in the morning, maybe you should never get up. That’s obviously not a sensible strategy. But in certain circumstances, as we know in COVID, you have to go from being very tentative and slight to saying wham, this is an enormous unknown. You have to slash rates or inject liquidity into the economy very sharply in order to respond. We’re not at that situation yet. That’s why we talked about the scenarios in the monetary policy report this week, but we’re not in that situation yet. Hopefully by thinking through some of these scenarios we’re ready to act if we need to. That was the message we were trying to give.

Richard, to bring you in, you’re of course not a central banker so you can speculate all you like on the geopolitics, but what’s your advice for a room here thinking a lot about the economic implications and how economic policy can manage what’s going on in the world? What are your thoughts about how Australia needs to think about geopolitics, our relationships and how we manage them with China and the United States? China’s our biggest trading partner, it’s also our main security concern. America’s our biggest security ally, it’s also our biggest economic concern at the moment. It’s criss-crossing in every direction. What’s your thoughts on what we do?

Well, I wish I knew. All sorts of scary scenarios are bearing down on Australia, and indeed the world, but let me approach it by - I think one of the impacts - one of the worst impacts, or biggest impacts of Trump’s tariff approach, remember when Trump has put all these tariffs on in theory, Trump hasn’t even got to China yet. He hasn’t looked at the geopolitics of China, the military balance, all of that thing. He’s made it all about economics. But it plays into the worst instincts of the Chinese system which have always been there, which have always been strong, which is autarchy. They went self-reliance. They want to have the tech to do to America what they think America wants to do to them. That’s the truth of it, and they’re not doing too badly at that. That’s been their aim for many years, but in terms of the Chinese economy there’s a big contradiction there, and you can see this in the big debates inside China about this. Xi Jinping has empowered national security in the Chinese economy and that in turn has empowered the Ministry of State Security, which is the main intelligence agency. That’s one side of it. That’s the autarchic side of it, the anti-American side of it. The other side of it is a globalised China which has thrived on globalisation. That’s why with China you get all these contradictions in policy these days. One day we love foreigners, we love FDI, win/win cooperation, let’s make money together. The next day foreigners are spies, we’re raiding your company, and our policy is self-reliance. There’s two powerful streams grappling then. You’d have to say the national security side is winning, and Trump has played into that. He’s empowered that and then that leads us on to the sorts of issues that Australia faces. Total decoupling is not possible. If there were a conflict, a genuine military conflict, you’d have decoupling overnight. Let’s not say that’s about to happen or anything, but there could be large scale decoupling, total distrust in China of the United States. Is it too strong a step to then think, you know, if China wants to basically fortify itself against the US, does it then want to fortify itself against US allies?

Now, it can’t easily cut off Japan and South Korea because they’re part of the intricate supply chain. They certainly rely on Australia for certain minerals now, but will they really make a concerted effort to buy more expensive iron ore from West Africa or Brazil? When we were in China there was a delegation of 200 businesspeople from Brazil in China. The Brazil/China relationship is going gangbusters and they compete with us in a lot of areas. So, could we see - China wasn’t able to discipline Australia, teach us a lesson, whatever you want to say, two/three years ago when they put on the punitive trade measures, but if they really got serious about it could they really hurt us? Then what would we do? We’re not going to be selling the same amounts of iron ore and other good to India, I can tell you that. I don’t want to say we’re reliant on China, I like to think we’re interdependent, but China could change that and I’m not sure what we could do about that.

We’re getting a bit tight on time and I do want to go to the audience so maybe just a quick - we have some people ready for questions? We might go to the audience and maybe I’ll come back to Jenny if we have time interspersed within that. Please wait for the microphone to come to you and state your name and any relevant affiliation and please stick to a question. We have one question from the gentleman here.

It seems that strategically, when I lived in China under Hu Jintao and Jiang Zemin there was a lot of friendship between the west, US and China that really went beautifully. Now if you look at it, what’s really happening in the background strategically? Xi Jinping has fired I don’t how many generals in the army, he’s fired I don’t know how many people. There seems to be a lot of political real conflict and real issues in China right now, and many Chinese actually are worried - when I speak to many Chinese they’re actually worried about the political situation in China. To what extent - and Europe is not happy with China helping Russia in respect to Ukraine. I’m European, I can tell you they’re really pissed off. You can see with Xi Jinping in Moscow. So what’s happening in the background and what to what extent is that going to have an impact? Thank you.

That’s probably a question for Richard. Do we have another question we can collect now from the gentleman over there?

Thanks so much for sharing your insights to the panel. My question is to Andrew. Some international retailers like sandal brand Birkenstock and jeweller Pandora are considering to pass on the cost of US tariffs by raising prices globally. Could that impose a threat to Australian inflation?

Who would like to go first? What’s happening in the background?

Look, I’ll just be very brief, but I do think that Xi Jinping is much more a continuum than an aberration. He’s doing all the sorts of things that he’s doing around Taiwan, in the Sea of Japan, in the South China Sea, more assertive posture with the United States. Hu Jintao and Jiang Zemin would have loved to have done them, but they didn’t have the economic capability, economic weight or military capability that Xi Jinping has. I don’t think that things were going "beautifully" under previous Chinese leaders. What we have now is a much more powerful country and Xi Jinping is taking advantage of that. Yes, he is the great accelerator, but I don’t think Chinese policy has changed. They can just do everything they always wanted to do. That’s my rather grim reply.

Andrew?

That’s an interesting question. It’s not the normal one we think about because we normally think that US firms would raise prices in the US for US tariffs, and some question about whether Chinese firms might sell relatively cheap goods here because they can’t sell them in the US anymore. If I was thinking about advising Walmart - I can’t remember which examples you used - I’d advise them to think quite carefully before that strategy and here is why. Presumably the idea is you raise prices in other markets so that you don’t have to raise prices as much in the US and do a kind of profit-maximising strategy. That’s only likely to work if the price elasticity of demand for your product in the US is higher than it is outside the US. In other words, you’re worried that if you raise the price very much in the US, US demand will fall a lot and you’ll lose a lot of money, whereas if you raise the price elsewhere people will love your product and they won’t move away from you. In truth it’s likely to be the other way around. In truth you’re more likely to have customer loyalty in your home market than you are overseas. By all means firms can try and raise prices wherever they want, there’s no rule against it, but I would have thought that anyone looking carefully at the kind of demand curves they face in different countries would say, you know, trying to insulate your US demand by putting prices up in other markets might be self-defeating because you might just end up killing your demand everywhere. Now, there’s an interesting question about pharmaceuticals and other very bespoke products and the interaction with public subsidy schemes and so on which is much more complicated, I think, but for a firm like the one you describe I’d be interested to see it. Maybe we’ll get an experiment and see how that goes.

It also begs the question, doesn’t it, why wouldn’t they have put their prices up anyway if … you know, it’s sort of - - -

[inaudible].

Pushing inflation up? I wouldn’t say it’s the biggest risk that we face at the moment, no, to be quite honest. The biggest risk that we’ve identified in our most recent report is in a downside scenario that demand globally would fall and that would pull aggregate demand down in Australia. We’ve also talked about the possibility actually that some cheaper diverted Chinese goods could pull inflation down a little bit further. The more interesting - sorry, no disrespect, but the more interesting question I think on the upside for inflation is actually the potential impairment of supply chains. I don’t think it’s the result of an optimising strategy of the kind you describe, which kind of assumes continued free trade, but actually the possibility that when you look at some of these supply chains for products they’re stunningly sophisticated now, whether it’s products produced in Asia or produced in the US and things moving across borders multiple times and being produced just in time and so on and so forth, and we learnt in COVID, didn’t we, that when you jam a great big screwdriver into that supply chain all hell breaks loose and it’s inflationary. So there are possibilities if this goes far enough and it impairs global supply chains that could push inflation up here and everywhere else for a period. I don’t know that our thinking at the moment is that’s the most likely risk, but if it happened it could be very serious.

Next question, at the front.

You have to ask her what her China forecast is before she’s allowed to ask a question.

Ours is 4%, Andrew. We’re lower than you. Thanks to the panel for your insights. I actually wanted to follow up, Andrew, on your earlier comments. Appreciate your comments from being on the ground in China. It’s always a fascinating trip to do. But I’m also aware that you spent time meeting Australian businesses, and the economic data is quite dated at the moment and so it’s hard to really see the impact of the shock from Liberation Day. I wondered if you were happy to share some anecdotes of what you’re hearing around from Australian businesses in terms of their supply chains, tariffs and how they’re tackling that in plans going forward?

We published the liaison results, as you know, in the Statement of Monetary Policy earlier this week. The honest truth is any firm with any kind of international business has been spending a lot of time thinking about the what-ifs, very similar to the geopolitical modelling that central banks have to do, firms have to do it too. I guess if you’re an international … multi-national firm you may some have resources and McKinsey to throw at it. If you’re a small enterprise in Queensland or something you’re on your own, and that is difficult. Our sense is that whilst people are looking for the effects, they are nervous about the effects, that so far they haven’t seen them, and there are, as you well know better than anyone, there are a number of pre-existing economic challenges in the Australian economy that are still front of mind for many of those businesses and so, you know, so far so good. We are very, as I suspect you are too, carefully on the look-out for signs of this impacting them and so far we’re not seeing it as a macro trend. That doesn’t mean it’s not coming. As you say, even now we’re only a few weeks away from what’ going on.

Any other questions? Just down here in the middle?

Just to Richard’s point about whether China tries to decouple from us and the impact that could have on the iron ore market, is that something the RBA can factor in as a what-if, given - -

Say again? Decouple on the?

If it’s iron ore specifically - I mean, it’s a bit of a doomsday scenario - but is that something the RBA can factor into your medium/longer-term forecasts?

I hesitate to talk in detail about the iron ore market, I’m not an expert, but I think there’s a couple of interesting early developments. The first is the iron ore price. Globally it’s barely moved. I think that surprised quite a few people. Obviously the price is not set by Australian ore because we’re not the marginal producer, and that of course is - someone called it the river of gold. I can’t remember if it was someone here or somewhere else. That is the benefit of having a large stock of relatively cost-effective iron ore, that Australia is able to take the benefit between the world prices set by the marginal supplier that’s not us with higher costs and the lower production price that we have.

What that does mean is that assuming that there are not embargoes put in place, Australia is at the front of the queue for any iron ore that is sold in China for the time being. Big if there, of course, is the energy transition. We were hearing from a prominent figure only yesterday or today about that particular issue. That’s a medium-term issue to do with whether Australian ore can be used in electric furnaces. It can’t at the moment. Maybe it needs to be. So far the prognosis for the near term outlook for demand for iron ore is relatively stable.

As Richard said, if you start to do the what-ifs of what if there is an embargo, what if China goes completely down the drain and Australia has to look to somewhere else to sell it’s iron ore, there aren’t many other markets of the size or scale of demand needed to compensate for Chinese demand. India is one obvious thought but they have their own supply of iron ore and their steel industry is massively smaller than China. Over five to 10-year periods you build new factories, you shift production, but in the short-term China is the key market for that output. That goes to wider questions about whether Australian economy needs to be diversifying away from reliance on one or two commodities to a broader thing. That’s a broader debate, clearly.

We’ll go to the next question just here in the middle on the front.

You’re picking all the journalists.

Giving them a chance.

Give them a chance?

Andrew, Michele Bullock is travelling to China next week. I just wanted to understand how is her trip going to be different to yours?

I don’t know, if I’m honest with you, what her schedule is. Perhaps I should ask. She will be meeting official partners in Beijing in particular and will be talking about, you know, the economy several weeks on, clearly, from when I was there. It was good to be there in the heart of things, but also less good because you couldn’t see the impacts of things. And she’ll be interested in discussing payments and technology trends and other things that she’s also expert in. I don’t have the details. I’m sure you can get that from our press office.

Any other questions from the floor? Can we get a hard one?

He’s warned me in advance. It’s not for me. Ex-RBA.

Your predecessor.

… the chance to ask a question, this one. The focus of the debate in Australia has all been about Trump’s tariffs, but it might turn out that the tariffs are not a big deal at all for the reason that you mentioned, that modelling shows that you can’t get much effect from them, but JD Vance, in an interview this morning, or over the last day with the New York Times has really downplayed the tariffs. He basically said by the time it’s all settled there’s nothing much here. So the question is what the debate should be, and I want to argue that it’s all in the security side. It’s largely on the security side, but economists have a big input to that, but so far they can’t find a common language, common words to talk between the security people and the economists. So here’s the question at last. How can we change that and find some common dialogue between economists and the security people?

Jenny, that was your career for a while.

It was for a while. It’s not easy, is the answer. Again, it’s actually engaging in those conversations. That’s one of the challenges, is that the security people think they’ve got it nailed and the economists think they’ve got it nailed and you’ve really got to get both groups in the room and realise there are so many interactions. The points of leverage are often the economic ones. So we’ve got this whole economic weaponisation type of thing, but they’re also your points of leverage of engagement. Amy King has done a really nice research work looking at pre-World War I China and Japan at war. Trade went on. They kind of had a war and all the trade kept going, which was a bit the way things went. So in some ways we need to be thinking about whether everything is getting weaponised and everything becomes security, or whether we can actually start using the economic relationships to say what can we carve out that because it’s in mutual interests that we can actually keep and stable - this is where things like intra-operability of tech standards become really important. China agreeing not to go dump a whole bunch of cheap stuff on a bunch of markets and then play into Trump’s idea of everybody isolating China and putting tariffs on China, so restraint that actually then gives them soft power, or if you like some cred or some influence.

We need to be starting to think about security also from that dimension. It’s not just about the military power and whether you can bomb somebody, but whether you’ve actually got some soft power and some influence and where that comes in, and economic relationships are a really good way to kind of build that. That’s my take on it, but I think there’s always the danger that you get a Putin who just invades. That’s one of the challenges because nothing economic about that. There’s no economics in that decision-making. So the question is what’s a credible defence where, to take name redacted who is standing up the back’s echidna strategy, being very prickly so they don’t want to go down that line.

It’s really tricky because we’re really caught between the US and China on this. We need China economically, we need to be part of the region. It’s not just China, it’s Indonesia and Malaysia and Thailand and Vietnam. It’s those relationships, that’s what we need to be part of. And for them, they’re also balancing. They don’t want to be dominated by China either. There’s an awful lot that we can do in our region that’s of mutual interest economically and that also will sort of say, well, really China? You don’t want to go down that pathway strategically on a security front because that just upsets the apple cart, and we all know the most important thing is actually is your own domestic stability because there’s only so much you can do by social control and the like and ultimately, unless you’re actually making your people at least feel like there’s a future for them, they’re not going to cooperate. That’s my take on it. It’s probably a little hopeful, but I think that’s the only way I can bring the two together. But it is about having the conversations. We need to have those conversations.

I just want to say tangentially - - -

Thirty seconds.

Less than 30 seconds. Trade going on anyway, Andrew’s first graph, if you looked at it closely you see we had massive trade with China in the 50s under a US embargo. That was the Country Party and wheat, I think, name redacted, wasn’t it, and a huge amount of trade going on. The same happened when they were punishing us a few months ago. We sent a massive amount of wheat to China again because of Ukraine. So all these - it does go on anyway as well.

Okay. That’s a good place to end. That’s all we have time for. Please everyone join me in thanking the Deputy Governor and Jenny Gordon and Richard McGregor for an excellent discussion.