Does the immanent global economic crisis affect international trading practices?

One does not feel that the global crisis is over. Despite the economic jitters and the journalistic gloom in most newspapers, a lot of international firms still feel nonetheless upbeat due to the phenomenon of "globalization" that allows capital to freely flow across borders where the growth remains reasonably strong.

China and India remain strong contenders to win the price for global growth engines, followed by others such as Brazil and some new emerging market stars as Indonesia, Turkey and Chile among others. And let us not forget that Australia is humming pretty well, attracting quite some attention from global investors and businesses.

However, Australia – still considered an ideologically "Western developed" country – may be wary of particular protectionist tendencies that may undermine its own faith in a globalized economy. Australian Foreign minister Kevin Rudd recently warned that any economy will need to maintain an open international trading system, avoiding the temptation of artificial tariffs to protect itself.

Indeed, there seems to be a consensus among most mainstream economists that a rise of protectionism may emerge if the global economy takes a turn for the worse. This is to be expected if the American budget cannot be orderly managed or controlled, and if the Euro cannot stave off growing expectation or speculation of a Greek national default that may undermine the economic unity in Europe itself. Such protective tariff walls may engender the collapse of global economic growth - so much is needed to keep the global engine functioning nicely.

It seems that each national economy has been more and more intensely interlinked with one another. What happens in the US or Europe, immediately affects what happens in Asia and Australia.

Australia's dependency on the export of raw materials like iron ore and coal to China could be endangered: A global crisis originated in the US and Europe would negatively affect China's own growth engine. Last year, according to Wall Street Journal, Australia exported AUD 64.8 billion to China, its biggest trading partner, followed by Japan (AUD 46,9 billion), South Korea (22.5 billion) and EU (17.8 billion).

The EU as a whole is Australia's 2^nd biggest trading partner, accounting for AUD 83 billion. Obviously, if European demand would weaken as result of a new euro crisis that may be immanent, it will most likely affect Australia as well.

Although a euro zone crisis may strengthen China in the short term, the global interdependency may well hurt China over a longer period as well. And one should not forget that trading is not based on altruistic reasoning but on strategic or tactic quid pro quo exchanges.

Beijing's recent friendly "support" to the EU has actually taken the form of asset buying in sectors likely to benefit future trade and Chinese particular interests such as terminals, industrial assembly bases, relevant technology, airports and the like.

And China's readiness to wield lending as a weapon, also is unfortunately hidden behind a veil of convenient opacity. Moreover, some sources claim that despite the media hype, China may not have bought PIGS's (Portugal, Ireland, Greece, Spain) bonds at all. We may be able to uncover the actual truth of facts soon.

Nonetheless, it is in everyone's interest that the euro zone holds together, supporting a bipolar or even tripolar currency order (yuan, dollar and euro), while avoiding a major recession that would affect not just the developed Western world in the USA, Europe and Australia, but also China and the other emerging markets.

It is therefore important for global trade that the leadership of the euro zone will be able to collectively decide on a reasonable deal on public European debt; if not the fundamental justification for the euro itself may be undermined and endanger its own existence. That would have a disastrous effect on the world economy, including Australia's.

Unfortunately, if Europe does not get its act together politically to stave off such a horrendous implosion of the economic crafted unity, one can expect nationalistic protective measures to reappear that won't serve anyone in the long term. One does hope though that some enlightened self-interest will "inspire" the current leaders to take their responsibility beyond short term nationalistic responses.

It is in China's interest to invest some of the trade surpluses and hot money inflows into the euro; it is America's national obligation to reduce its budget deficit in the medium term; as it is undoubtedly in Europe's own interest to get the euro crisis under control with sustainable policies and not with short term bandage-policies.

Moreover, it is important to rethink what kind of economic growth Australia would like to re-establish. Australia may take the opportunity to make some hard choices in terms of sustainable growth that is based on a global open market system. And some pure national interests like the coal industry will vehemently react to such suggestions.

That should not be a surprise. It is even reasonable from their perspective. However, it is the duty of Australian leadership – and of every country for that matter – to take this global crisis seriously, to address some of the hot issues as an opportunity not to "waste the crisis." That would be good policy, in the interest of the nation, but not based on mere nationalistic emotions of short term thinking. It will require enormous political courage. Crises make or break leadership.