US attacks may result in world trade slump

26 Sep, 2001 10:00 PM

FEDERAL Trade Minister Mark Vaile has admitted terrorist attacks in the US will cause some slowdown in world trade, which could affect Australia's exports.

But Mr Vaile said Australia had proven it could cope in tough times before, suggesting it could ride out any slump created by the crisis.

"There is going to be an impact on the global economy but it's going to take time to see exactly the extent of that, and I think that cool heads need to prevail in the commercial sector," Mr Vaile said last week.

"We're probably as well-placed as anybody to withstand this as we were the Asian economic downturn as we were withstanding the economic slowing in the American economy because of the broad diverse base of our economic activity across the world."

Already Australia's floating exchange rate appears to be helping insulate farmers from any US-induced slowdown in world demand.

Fears that a global recession would cut commodity prices prompted a sell-off of the Australian dollar early last week, pushing it back below the US50c mark to US48c. It was trading in the US51c range prior to the collapse.

The currency's devaluation caused an almost immediate response in the wool market, as traders use the competitiveness of the Australian dollar to increase their buying rates.

Last week's drop in the local currency is in direct contrast to initial fears that it would appreciate too much following the attacks, as a result of a weakened American dollar.

The US administration has indicated it would move to prop up the economy should it begin to slump, and its Federal Reserve on Tuesday lopped 0.5 per cent from interest rates to stabilise consumer confidence.

Those sort of interventions prompted Australian Bureau of Agriculture and Resource Economics executive director Brian Fisher to predict agricultural exports would not be harmed by the fallout from the attacks.

"It is unlikely there will by any sustained, longer term disruptions to commodities trading," Dr Fisher predicted.

National Farmers' Federation trade director Lyall Howard also rejected suggestions that the US would become more introspective, and less likely to engage the world on trade negotiations.

"The US will be shaken into taking a strong leadership position to promote openness in the (world trade) system," Mr Howard said.

Free trade promoted not just economic benefits, he said, through higher standards of living, but also defence benefits with the closer relations between countries.

A statement issued by United States Trade Representative Robert Zoellick promised the US would not back away from WTO trade negotiations scheduled for November in Doha, Qatar.

³America has been attacked by those who want us to retreat from world leadership," he said.

"Let there be no misunderstanding: the United States will continue to advance the values that define this nation ‹ openness, opportunity, democracy and compassion. Trade reinforces these values."



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