This article is more than 1 year old

This article is more than 1 year old

The eminent economist Ross Garnaut has said Australia must come to terms with the looming reality that the global trading system is “breaking down”.

The US and China agreed to a ceasefire at the G20 summit in Japan at the weekend, after they slapped hundreds of billions in tariffs against each other in a trade war that Scott Morrison has warned risked “collateral damage” around the world.

But Donald Trump is a vocal critic of the existing global trading market and appears to view a more protectionist approach as vital to his electoral prospects in the industrial Mid-Western states which handed him the presidency in 2016.

“We have to come to grips with what I’m afraid is a looming reality, which is the trading system which has underpinned growth in the Asia-Pacific is breaking down,” said Garnaut, a former adviser to the Hawke government.

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“The breakdown is a result of political responses, especially in the United States, but also in Europe, to some concerns that are valid, some concerns that are spurious and some concerns that have valid elements.

“The valid concerns include some issues related to security and intellectual property rights.”

Amid that backdrop, Garnaut warned the “breakdown of the global system” would reinforce oligopoly in the Australian economy and give rise to a return of “rent-seeking”.

“A return to that world will be a return to the conditions that made Australian and New Zealand growth the lowest in the developed world in the 20th century, up until we changed all that with the reforms of the 1980s,” he told the Melbourne Economic Forum on Wednesday.

Offering a gloomy outlook, the former Australian trade minister Craig Emerson said the way nations were now approaching trade disputes was “almost without precedent” since the second world war and the establishment of the General Agreement of Tariffs and Trade.

He said the US and China had both been “flouting the rules” but expressed particular worry at the Trump administration’s attitude towards the World Trade Organisation (WTO).

The WTO’s dispute-settling body – essential a global trade court – looks likely to wind up its operations in December because the Trump administration has refused to appoint new members.

“The Obama administration wasn’t thrilled with this body but didn’t want to dismantle it, the Trump administration does,” Emerson said, citing the president’s frustration at China’s alleged dumping of steel.

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The former Labor cabinet minister said the absence of the WTO dispute-resolution body meant “we’ll have a rules-based global trading system in name only”. That would allow nations to adopt a more protectionist stance without the fear of legal repercussions.

“Because if there are complaints, shoulders get shrugged, there’s lots of tut-tutting, but that’s the end of it,” Emerson said.

The International Monetary Fund has previously warned tit-for-tat tariffs would cost $455bn in lost output next year.

Emerson said there was a global slowdown “coming in an environment where monetary policy is very easy and fiscal policy has been quite easy”, describing the situation as “a bit weird”.

“I think we’re going to be in a world, and I hope I’m wrong ... where both the Democrats and the Republicans say we want nothing to do with a global rules based trading system and that would usher in a very, very uncertain and potentially dangerous time,” he said.

Morrison has encouraged Trump to end the trade war and said he also raised the negative impact of the dispute with the Chinese president, Xi Jinping, at the G20.

Garnaut suggested diplomacy would be key to turning the tide. “My starting point would be … to begin the process of real analysis … We are not without influence once we have a very clear view of where we want to go.”