Why a global trade war hits hardest

Source: The Age | Original Published At: 2025-08-01 19:00:00 UTC

Key Points

• Australia's economy ranked 105th in complexity by Harvard's Atlas, lowest among OECD countries
• Over-reliance on mining and FIRE sectors (finance, insurance, real estate) weakens resilience
• Financialization since 1970s shifted investment from manufacturing to speculative assets
• 15 of Australia's 20 largest companies majority-owned by American investors
• Critical minerals processing recommended to reduce dependence on Chinese supply chains

Dr Stuart Rollo is a regular contributor to the opinion pages of The Sydney Morning Herald and The Age, and is author of Terminus: Westward Expansion, China, and the End of American Empire. Rollo, 38, is a researcher at the Centre for International Security Studies at the University of Sydney.

The prime minister of Singapore, Lawrence Wong, has said that the American-led era of free trade is rapidly drawing to a close and there’s a growing likelihood of a global trade war. Is Australia more exposed than most other countries?

A global trade war would be particularly severe for Australia. An over-concentration on mining and the FIRE sectors [finance, insurance and real estate] and decades of financial deregulation that have gutted our manufacturing base have left us with a shockingly simple economy. Harvard’s Atlas of Economic Complexity ranks Australia as the 105th most complex economy out of 145, right between Botswana and the Ivory Coast. That is dead last of all OECD countries.

Our regional neighbours who would be put under similar pressure by a trade war, like Japan, South Korea and Singapore, have considerably more complex and resilient economies than ours, and are in stronger positions to adapt to shifting global conditions.

By some estimates, the average 70-year-old in the US is 72 per cent wealthier than 40 years ago, but the average person under 40 is 24 per cent less wealthy. This trend is happening across the Western world. Is this a further sign of the West’s decline?

Absolutely. This is the first generation in modern history with declining standards of living and life expectations relative to their parents. There are many causes and symptoms here, but one structural reason is the financialisation and assetisation of Western economies. Since the 1970s we have been shifting from industrial to financial capitalism, where a much higher portion of income is spent on rents and debt repayments rather than reinvested into productive enterprises or spent on consumption.

What happened to the time when Australians actually made things? Our manufacturing base has been shamefully left to wither away over many decades. How have we allowed this to happen, and is there anything we can do about it?

Successive governments from the Hawke-Keating years implemented a slew of policies that opened the Australian economy to global market forces, removed protections for manufacturing and deregulated financial markets, which shifted investment from long-term industrial production and research and development to the high-return FIRE sector and privatised major state-owned enterprises like the Commonwealth Bank, Commonwealth Serums Laboratories, Qantas, Telstra and many others.

This left us with reduced national capacity, produced privatised monopolies and got us to the point we are at today, where 15 of our 20 largest companies are majority owned by American investors. Americans have triple the ownership stake in these businesses than Australians do.

These policies certainly shaped a period of astonishing economic growth for Australia, but they also caused broad industrial devastation, reduced economic complexity, and heightened socioeconomic inequality. There are several major policy initiatives and strategies underway now to attempt to address some of these issues, but it will be extremely difficult and costly.

China dominates the rare earth market, mineral supplies that are critical for the technologies of the 21st century such as digital communications, renewable energy, and electric vehicles. Australia has significant deposits of rare earth minerals: is it vital for us to begin processing these, rather than just ship them overseas?

I don’t know if it is ‘vital’ but it is certainly good policy. Developing a domestic critical minerals processing industry would be good for Australia both for the sensible hedging against Chinese dominance of the sector internationally, and for the technological, industrial, and commercial benefits that would come with it and flow on elsewhere.