The meta challenge of Australian foreign policy over the medium term is how to maximise economic opportunity and minimise strategic risk as this larger rearrangement of economic and strategic weight works its way through our region.
This involves a number of complicated judgements about how change will unfold and just what the strategic settling point of the Indo Pacific will be. How should Australia position itself within this complicated and shifting dynamic?
The last several decades have been decades of growth in Asia. But now virtually all the major Asian economies face deep structural economic challenges. In most cases their political systems are struggling to embark on the reforms needed to address these challenges. It is here, at the intersection of economics and politics, that the biggest risks to the Asian growth story lies. And while Asia will undoubtedly continue to play a big role in Australia’s economic future the rising political economy risk in the region suggests that we should also be alert to the need better to spread our economic risk.
We also need to recognise that the Indo Pacific strategic environment is in the midst of a profound transition as it moves towards a multipolar strategic system. The Asian growth story has been underpinned by a strategic stability underwritten by US strategic dominance. Now we are seeing other major powers rising in strategic weight.
A more multipolar Asia means that Australia’s security will depend even more on how the US, China, India, Japan, Russia and others manage the complexity of their relationships. The character of those relationships, especially the US-China relationship, will be the single biggest determinant of strategic stability in Asia.
At the heart of these relationships is the tension between economic interdependence and strategic competition.
Asia will be a test bed of whether this tension can be effectively managed.
Economic space is infinitely flexible. Strategic space tends to be much less so. The challenge of state craft and leadership is to ensure that one does not derail the other.
Discussion of the major power relationships is too often shaped around a narrative of US decline and China’s rise. This underestimates both the capacity of the US to regenerate and the magnitude of the challenges facing China. It also tends to crowd out the contribution of the other major powers to the balance sheet of power in the region.
With multipolarity inevitably comes a reduced margin of influence for the United States. But for the foreseeable future America’s power will stay more multidimensional and more global than China’s. The US will remain in a league of its own in global military reach and readiness to use force.
Our alliance with the US is the bedrock of our strategic policy. The alliance is a deterrent to potential aggressors, an irreplaceable source of intelligence and defence technology and a communion of values. The last is important because the convergence of interests and values is a powerful combination in foreign policy.
China’s influence will grow as its economic importance to other countries in the region continues to rise. We are today seeing a more confident China with higher expectations that the region will naturally take China’s interests into account when formulating national strategies.
China is a country and a civilisation which understands power and its sense of place has been shaped by the many centuries in which it was the Middle Kingdom.
That pull of history is likely to play an important role in the way in which China relates to regional states.
China’s leaders are acutely conscious of the many challenges they face. They are currently at the start of a profound transition in their economic model towards more market based and consumption driven growth with less emphasis on exports and fixed investment.
The challenges posed by this transition are huge and we underestimate them at our peril. It is a high wire act which seeks both to preserve the monopoly of power of the Chinese communist party while simultaneously allowing the market to determine the allocation of resources. There is no certainty about how this will end.
We all however have a stake in the success of that transition. Abrupt shifts in China’s strategic policies, especially flowing from an economic crisis, would be highly destabilising. No one gains if China fails.
China will ultimately define its own strategic settling point. It will not be forced into someone else’s view of what it should do or become. Nor is it realistic to expect that the US and China can negotiate some grand bargain to share power in Asia. The process of adjusting to shifting power balances in a multipolar Asia will be incremental and organic.
China’s behaviour is likely to be a mix of many elements. It will be a responsible stakeholder where its interests are served. It will not be a classic revisionist power because China has been too much a beneficiary of the existing system to want to completely overturn it. But it will also look to play a greater role in existing institutions and to craft new institutions and arrangements which place it at the centre in a pattern perhaps reminiscent of the Middle Kingdom.
China has every right to seek greater strategic influence to match its economic weight. The extent to which this can be peacefully accommodated will turn ultimately on both the pattern of China’s international behaviour and the extent to which the existing international and regional order intelligently finds more space for China.
Some assume that when China becomes the world’s largest economy, it will seek to assert itself as the hegemon of Asia. But a China with the world’s largest GDP will still be, in some respects, a relatively poor country with a relatively low per capita income. Its economic size will give it strategic leverage but China’s primary focus will also likely be domestic as it seeks further to increase the living standards and quality of life of its citizens. The same applies to India. The strategic behaviour of a large rich country and a large poor country is not the same. To assume it is can lead to serious policy errors.
Australian interests are best served by a stable strategic system in Asia which favours open societies, encourages economic integration, is inclusive in membership and looks outward.
The US-China relationship may be the central axis around which Asia’s strategic fate will be determined. But the other major powers are not going to be passive bystanders. The whole point about multipolarity is that strategic influence is spread more broadly.
Japan’s strategic perceptions will inevitably be influenced by a stronger China to which Japan’s own economic fortunes are still tied. But Japan also recognises that a brittle relationship with China is not in its interests or that of regional stability. So Japan is likely to continue with the priority it attaches to its alliance with the US.
Under the US security umbrella, Tokyo will keep moving to expand its strategic engagement, and to cast off many of the self-imposed restrictions to it becoming a more “normal” country in terms of defence and strategic policy.
India, if it finds the path to sustained economic growth, will become a more important strategic player in the broader Indo Pacific. An India with a younger demography and growing faster than China will exert influence an order of magnitude higher than now.
But India’s strategic preoccupations are likely also to remain close to home, especially Pakistan and China. Being on the periphery of the most contested Eurasian theatres, the Middle East and East Asia, gives India more room for strategic manoeuvre. How India will choose to use this is far from clear although we can safely assume that India will want to march to its own strategic tune. Notwithstanding its expanding strategic relationship with the US, Japan, Australia and others, it is unlikely to become any one’s ally.
Russia is likely to stay a two-dimensional power, relying on energy — especially its huge gas reserves — and nuclear weapons. Soft power will likely stay Russia’s weak point. Its growing relationship with China will be more opportunistic than strategic. Moscow will retain a desire to cut the US down to size and this may see more of Russia’s European blocking agenda seep into its Asia policy.
The future of the Korean peninsula is one of the big unknowns in the region. When reunification comes it will not only be costly in economic terms but will also raise the question of the strategic disposition of a united Korea and the nature of its relationships with China and the US. Which way will a unified Korea lean: towards the US or China? Or will it set out in a completely independent strategic direction?
For Australia, South East Asia will always loom large in our world view from both a security and economic perspective. And within South East Asia the country that matters most to us is Indonesia. Indonesia is the natural leader of ASEAN and the direction of its strategic policy and the strength of its economy will have a large influence on ASEAN’s standing.
The stability of South East Asia is central to our own security. We do not want to see a strategic fault line running through its middle. That is why ASEAN as an institution matters to Australia because it has played a remarkable role in consolidating the strategic stability of South East Asia as well as expanding its economic reach.
But ASEAN will have to work harder to keep its strategic influence. Its economic integration agenda has been largely underestimated. A more economically integrated Southeast Asia will add economic heft to ASEAN but the lack of a common strategic perspective will limit ASEAN’s capacity to be a strategic shaper in the big powers environment of Asia.