The Comprehensive Strategic Partnership between the two countries should serve as an active agent for navigating this change.
Both Australia and China have an overriding strategic interest in the rules-based international economic order through their commitments to the WTO system, support for the IMF and the multilateral financial institutions, their active participation in APEC and East Asian forums to support open trade and investment, and the development of a market-based international economy.
This system has made it possible for the two countries to develop a huge economic partnership. Australia supplies one-quarter of China’s key externally procured industrial raw materials. The international policy regime has made it practical for them to achieve these gains, absorbing large change through the efficiency of global markets.
Global trade and financial institutions thus have a vital and enduring role in providing economic and political security for countries like Australia and China in the global community. Through its accession to the WTO and its comprehensive step-by-step economic reform, China has committed to being a part of this system and Australia’s partnership with China has been important to building China’s confidence in increasing reliance upon it — not least through its massive resource trade dependence. And the forward-looking China–Australia Free Trade Agreement, the most advanced such agreement China has ever undertaken, helps to embed China more deeply into international market integration.
Global institutions and the rules and norms that underpin them are now surrounded by extreme uncertainty because of the headwinds against globalisation in industrial countries. The new Trump administration threatens actions that would fundamentally undermine them. Trump has already walked away from the TPP. His new trade policy suggests that the US would exempt itself from abiding by WTO law. Threats of punitive tariffs against China and Mexico, the renegotiation of NAFTA, and a ‘border adjustment tax’ are all in play. However the detail plays out, these developments have turned the order that has governed the world over the past 70 years on its head. That is the new reality.
As He Fan of Peking University says in this week’s lead: ‘The best option now for Australia is to further develop its economic relationship with China while at the same time maintaining its traditional political and economic ties with the United States. … China has no interest in changing the US–Australia political and defence alliance, since it sees no potential threats from Australia. Neither Australia nor China wants drastic change’.
He warns that ‘the trees want to be still, but the wind is blowing’ and that ‘Australia and China need to change their domestic and international policies to be prepared for whatever contingency’.
This is a particularly important time for Australia’s prime minister and the premier of its largest trading partner and the largest trading nation in the world to engage on how to respond these developments.
There is much at stake. China will be under immense pressure to settle on a deal with the Trump administration that helps normalise its treatment by the United States and avoids China being cast outside the treatment applied to other countries. There will be temptation to settle on bilateral trade controls and restrictions with America that take a step backwards from global market rules and principles. That could be the start of the two large powers carving up their interests in the global system regardless of its current rules, and in ways that could undermine the interests of other states in the system.
Australia needs to declare firmly its interest against these outcomes and define an alternative way forward. Australia’s overriding priority is to weld coalitions in Asia and in global fora that stand firm for an open international economic system.
Commitment to an open international economic system won’t be delivered simply through the facile rhetoric of leadership meetings. It requires the clear demonstration of collective leadership through working together with our partners in the region, including China, to buttress global openness and advance regional liberalisation and reform. The obvious way to do this right now is through urgently advancing the conclusion of the Regional Comprehensive Economic Partnership; working together with our Asian partners while incentivising the participation of the United States.
China’s Belt and Road Initiative (B&RI) provides an important opportunity for innovative cooperation that will strengthen open economic arrangements and promote investment in the infrastructure to support them. Through developing an understanding on the B&RI, the two countries could work to strengthen bilateral investment arrangements, improve bilateral air transport connectivity, jointly study bilateral opportunities for cooperation on infrastructure, and promote economic cooperation and regional infrastructure investment through the Asian Infrastructure Investment Bank (AIIB) and other regional financial institutions.
Over one hundred countries, regions and international organisations have signed up with China to explore the opportunities for cooperation under the B&RI. And yet Australia remains shy about its capacity to define its own interests in this new geoeconomic and geostrategic circumstance and join like-minded countries in shaping an open and inclusive approach to the initiative — repeating its ill-judged equivocation on the AIIB three years ago.
Australia clearly has its problems in responding to the changes in Washington, caught in diplomatic freeze, grasping at the flotsam of the TPP while the whole house looks like being swept away in a wild and unpredictable torrent of change. But the confusion in China at how US trade policy and the US-China relationship is to be regarded and protected is surely of another order altogether.
Australia has a record of successful engagement with China at critical moments of strategic choice in China’s modern reform. Australia embraced China’s openness and reform as a critical factor in regional prosperity and stability. And China embraced the partnership with Australia as a crucial part of its opening policy, with Australia assuming a key role in China’s foreign economic strategy.
There has never been a more critical time for China and Australia to engage and use the considerable assets in their relationship as a vector in navigating the drastic changes they face in the world today.
The EAF Editorial Group is comprised of Peter Drysdale, Shiro Armstrong, Ben Ascione, Ryan Manuel, Amy King and Jillian Mowbray-Tsutsumi and is located in the Crawford School of Public Policy in the ANU College of Asia and the Pacific.