Australia and the world are grappling with the worst economic crisis since the 1930s. The economic, political and foreign policy choices that are made now will determine security, prosperity and stability for decades to come.
As an integral part of the shift of global economic gravity to Asia, Australia supplies two-thirds of all Northeast Asia’s externally procured iron ore, a large proportion of its other raw materials imports and over a quarter of all Japan’s energy needs. For its part, Asia constitutes almost two-thirds of Australia’s trade, China more than half of that.
The Asian economic success story is no consequence of imperial conquest or political suzerainty, communist or otherwise. It derives from Asian countries’ commitment to international trade rules and arrangements for regional economic cooperation that underpin the confidence in Asian integration into the global economy. That’s where Australian and regional prosperity and security has been found over the past 70 years. And that’s where its future is embedded.
Both Australia and China show signs of retreat from the commitment to openness that delivered this prosperity, including avoiding the worst of the global financial crisis and resilience through the COVID-19 crisis. China intervenes in barley and beef markets and now threatens Australian wine imports. Australia flirts with diversifying trade away from China and tightens regulations against foreign investment — largely aimed at Chinese investors — impeding a vital source of capital, technology and links to growing markets.
Australia’s huge bilateral economic relationship with China cannot be separated from China’s integration with other key partners in Asia. The China relationship is deeply interdependent with those relationships too. The manufactured imports that Australia secures from China include many Japanese, Korean and, yes, US and European brands. At least a fifth of the value in all Chinese exports is added in other countries, mostly Asia. Australian resource exports to Asia are the foundation of regional supply chains. Japan’s biggest corporations are major exporters of Australian produce to China, not just to Japan.
China is thus central to Australia’s future in Asia. Retreating from economic engagement with China into a world of Anglospheric stagnation and inviting deep regional insecurity is unwise. The United States may be willing to pay the price of decoupling from China, and expect others to, but it has more swivel room. National security without economic security would severely weaken Australia’s defences and diminish its diplomatic influence.
To avoid that requires a cool and determined Australian strategy. But those who are now defining China as an ‘enemy’ have not yet considered, let alone defined, such a strategy.
Australia now has to stand its ground with both the United States and China. That means engaging intelligently with China, eschewing both appeasement and needless confrontation. It also means continued distancing from the more extreme of US policies. Second, it will require the forging of a cooperative multilateral effort within the region that includes China.
That will only be possible if Australia finds its role as an Asian power.
Beijing needs to see Australia as a close ally and partner of the United States and Japan, as well as South Korea, ASEAN and India, but also a reliable and secure supplier of raw materials, agricultural products and global services such as education. Australia has to play a regional lead in genuine support of the WTO and plurilateral arrangements that strengthen a rules-based global economic order.
Alas, domestic political objectives in both countries are contributing to ramping up nationalism and defining the other as an enemy. These tensions are two-way. Beijing, isolated already by misdoings mostly of its own, will be a less reliable partner if these trends continue. Australia can reaffirm its guarantees of supply and markets as it did with Japan in an earlier time, providing a bedrock of secure trade in an increasingly tense environment.
There is a huge difference between coalitions for openness that shape US and Chinese behaviour constructively, and coalitions whose primary objective is to try to force countries to pick sides to box China in without comprehension of the consequences for China and the world.
The opportunity remains (though perhaps not for long) for Australia to navigate the growing contest between the United States and China, in a way that secures economic prosperity and political stability in Asia. Some may think this is the present course: Australia ‘punching above its weight’ to push back against China’s more aggressive ambitions. But effective middle power diplomacy needs to create strategic policy space in Asia to allow engagement of both the United States with China and which also works for Japan, ASEAN, South Korea, and India as well.
Comparisons with the 1930s have some relevance but a big difference between the 1930s and now is Australia’s deep integration into Asia’s economy, reflected in strong commodity prices that are cushioning the downturn, and our geopolitical engagement with the region.
Over three-quarters of a century later, Australia’s location in the middle of Asia’s, and China’s, industrial transformation, has permanently changed our circumstances and interdependence with Asia.
Peter Drysdale is Emeritus Professor and Head and Dr Shiro Armstrong is Director of the East Asian Bureau of Economic Research in the Crawford School of Public Policy at ANU’s College of Asia and the Pacific.
This article first appeared here in the Australian Financial Review.