Australia’s Strategic Priorities and Challenges with Southeast Asia

Going into the 2022 election, improving relations with Southeast Asia was at the top of the foreign policy to-do list for the Australian Labor Party, led by now prime minister Anthony Albanese. While the outgoing Liberal-National coalition government had notched up some achievements in its engagement with the region, there was also a sense of drift. The Pacific Step Up policy had focused on boosting ties with one of Australia’s two near regions, but Southeast Asia had not received the same level of diplomatic focus. Among the Labor Party’s pledges were appointing a special envoy for Southeast Asia, providing A$470 million in new aid to the region, and creating an office for Southeast Asia within the Department of Foreign Affairs and Trade. [1] For the most part, the Albanese government has followed through on its commitment to strengthen ties with Southeast Asia through more active diplomatic outreach, an economic strategy to boost two-way trade and investment, and a more nuanced approach to managing sensitive issues in Australia’s relations with the region, especially China-related issues and Middle East policy.

During the new term of government beginning in 2025, it is likely that the Albanese government will maintain Southeast Asia, along with the Pacific Islands, as a region of high priority. Albanese’s July 2025 John Curtin Oration articulated what he called Labor’s “constructive and creative role” and gave high billing to efforts to intensify economic engagement with Southeast Asia and deepen security cooperation with Indonesia. [2] While other global relationships may fluctuate according to events, the central importance of Southeast Asia within this distinctively Labor worldview suggests that engagement with this region, especially Indonesia, will remain high on Australia’s agenda for the next three years.

This essay analyzes the achievements of the Albanese government in its relations with Southeast Asia. It also assesses the continued challenges Australia faces both in deepening economic relations with the region and in continuing to balance regional ties with the U.S. alliance, especially given a less predictable and more demanding administration in Washington.

Consistent high-level diplomatic outreach with Southeast Asian countries has been the centerpiece of the Albanese government’s efforts to strengthen ties with the region. Within her first year in office, Foreign Minister Penny Wong visited every Southeast Asian country except Myanmar. [3] Indonesia was the destination for Albanese’s first bilateral visit after his 2022 election and the first destination of his second term of office in May 2025. [4] Albanese also hosted all the leaders of the Association of Southeast Asian Nations (ASEAN) leaders bar Myanmar in Melbourne for a commemorative summit in March 2024, which focused on economic, maritime, and climate cooperation. [5] Albanese’s diplomatic record has not been perfect, however: in a break from recent historical precedent, he skipped the 2024 inauguration of Indonesian president Prabowo Subianto. [6]

The centerpiece of the Albanese government’s Southeast Asia policy in his first term of government was “Invested: Australia’s Southeast Asia Economic Strategy to 2040.” This strategy, developed by a prominent Australian investment banker, aimed to lift the level of Australian trade and investment with Southeast Asia. Australia’s trade relationships with the region are generally healthy: five of its top-fifteen trading partners are in Southeast Asia, [7] and ASEAN, if taken as a collective, is Australia’s second-largest trading partner. But Australian businesses have been reluctant to invest in Southeast Asia. Just 0.8% of Australia’s total investment stock abroad went to Southeast Asia outside Singapore, and Australia’s investment has not kept pace with that of other investors, such as Canada. [8]

Sound reasons underpinned the Albanese government’s decision to focus on economic engagement. It reflects the priority attached to investment and economic engagement by the Southeast Asian countries themselves, who seek a diversity of high-quality partners to support their national development agendas. Wong has also argued that economic engagement “helps build alignment,” because it reassures the region that Australia has a shared interest in its success and prosperity. [9] Australia is likely conscious that the lack of a compelling economic narrative has hampered the U.S. presence in Southeast Asia and wants to avoid the perception that its own engagement is similarly too heavily focused on defense and security cooperation. [10]

Still, real questions remain about whether the economic strategy will be successful in achieving its aims. Australian businesses operate independently from government, and many of the long-term factors that have dampened their interest in Southeast Asia remain in place. Large businesses tend to be publicly listed, and shareholders have generally not rewarded those that have made more adventurous investments in Southeast Asia. These same companies have also been able to make steady profits at home in Australia, again limiting their incentives to invest in Southeast Asia. [11] Institutional investors, especially Australia’s superannuation (pension) funds, have complex fiduciary and due diligence obligations, which have made investment in emerging markets like Indonesia a poor fit. [12] There are many examples of Australian small and medium-sized enterprises successfully investing in Southeast Asia, but without Australia’s corporate heavyweights, the total level of investment will remain unimpressive.

Recognizing the complexity of these challenges, Australia’s economic strategy is deliberately long-term and has brought new resources to bear. These include additional diplomatic staffing in Australian diplomatic missions throughout the region and the establishment of an A$2 billion investment finance facility that aims to support business engagement, especially in relation to the clean energy transition and infrastructure. To its credit, the government has also sought to demonstrate implementation through an update report published in 2024. [13] Anecdotally, the strategy has strong awareness among Southeast Asian officials, who are generally positive about the strategy’s seriousness of purpose. [14] However, success stories are still lacking, and many Australian businesses and experts that have witnessed the failure of previous efforts to drive investment to Southeast Asia express skepticism about the strategy’s likely effect.

A related set of challenges is Australia’s perennial struggle to develop its own “Asia literacy.” The economic strategy identifies the need for Australia to develop greater awareness of opportunities in Asia and understanding about the cultural and business environment in Southeast Asia at all levels, including in schools, universities, governments, and corporate boardrooms. Yet this problem is a “chicken and egg” situation: students have few incentives to study Asian languages or develop expertise in Southeast Asia if they judge that these skills will not be valued by employers. And indeed, there is evidence that students who have participated in study programs in Asia feel that this experience is not fully valued or appreciated by employers on their return to Australia. [15]

It is notable that the Albanese government has not advanced a signature policy to address the issue of Asia literacy. Apart from budgetary constraints, one factor here may be that the government sees the Southeast Asian diaspora in Australia as playing a more important role in fostering connections back to the region. Foreign Minister Wong herself was born in Sabah to a Malaysian father who studied in Australia under the original Colombo Plan, which brought students from across Asia to study in Australia. Indeed, Australia does not lack for speakers of Vietnamese or Filipino/Tagalog. According to the most recent census, communities speaking these languages number around 321,000 and 220,000, respectively. [16] The economic strategy identifies diaspora communities as an asset in boosting engagement with Southeast Asia. Perhaps, the thinking goes, Australia could take better advantage of the Asia literacy it already has, rather than focusing on building skills from scratch.

One important exception to this picture of language and literacy is Indonesia, despite that country’s strategic and geographic importance to Australia. The Indonesian diaspora in Australia is very small (less than 100,000), and the study of the Indonesian language in Australia has declined steadily with the closure of programs in both schools and universities. [17] The number of students taking Indonesian during their final year of schooling in Australia has slumped since the early 2000s. [18] And despite efforts through programs such as the New Colombo Plan—a scholarship scheme to boost the number of Australian undergraduates studying in Asia—the number of students spending a semester or more in Indonesia has remained relatively static. [19]

One special case in Australia’s Southeast Asian relationships, Timor- Leste, deserves particular attention, as it does not fit the general patterns described elsewhere in this essay. Australian support helped bring about independence for Timor-Leste in 2002. But there remains extensive historical baggage between the two countries, with Australia’s earlier support for Indonesia’s sovereignty over Timor still rankling in some quarters (even while Timor-Leste today enjoys strong relations with former occupier Indonesia). The view of Australia as a larger, wealthier neighbor that has not been sufficiently generous to Timor-Leste plays into ongoing commercial negotiations over the development of the Greater Sunrise gas field, an essential economic resource that will have a vital impact on Dili’s long-term economic outlook. Timorese leaders insist that the resources must be developed onshore, while commercial assessments suggest that this is not economically viable and that a more practical approach would involve piping the gas to be processed in Australia. This impasse has proved a stumbling block in Canberra’s bilateral relationship with Dili, and at the time of writing, it remains unclear how the two countries will seek to bridge their differences.

The Albanese government had a solid track record of deepening defense and security cooperation with Southeast Asian countries over its first term in government, and it looks likely to continue this effort in the next three years. The most significant achievement was a treaty-level defense cooperation agreement with Indonesia, which, among other actions, will help facilitate the entry and exit of personnel between the two countries, making it easier to train and exercise together. While the agreement falls short of a bilateral security treaty (it does not contain a mutual security guarantee), it reflects the growing trust and cooperation between the armed forces of both countries.

Australia’s defense cooperation with other countries has also grown, particularly the Philippines. Australia has been keen to support Philippine resilience to China’s coercion in the South China Sea, both through a stepped up program of bilateral engagement on maritime issues and quadrilaterally with Japan and the United States through a regular series of maritime cooperative activities in the Philippines’ exclusive economic zone. [20] Additionally, in 2024 the Vietnamese People’s Navy deployed a vessel to a multilateral exercise in Australia, the first time for such a deployment to any Western country. [21]

One complicating factor at times for Australia’s strategic relationships in Southeast Asia has been its perceived closeness to its ally the United States. This is not a new issue, and since 1946, Australia’s neighborhood relations have existed alongside its U.S. alliance. The same is true for several of Southeast Asia’s other important partners, such as Japan, which successfully maintains an autonomous and multidimensional role in Southeast Asia alongside its important security ties with the United States.

But for Australia, historically seen as an Anglo-Saxon country, perceived policy proximity to the United States has at times posed challenges for its relationships with Southeast Asia, sometimes called the “deputy sheriff problem” after Prime Minister John Howard in 1999 acquiesced to an interviewer’s suggestion that this identity characterized Australia’s role in Asia. The label stuck through the partnership between John Howard and George W. Bush during the post–September 11 war on terrorism and military interventions in Afghanistan and Iraq. By the end of his term in office, Howard had cultivated strong relationships with diplomatic partners in Asia—for example, beginning a diplomatic tradition of attending the inauguration of Indonesian presidents and signing ASEAN’s Treaty of Amity and Cooperation, which enabled Australia to join the East Asia Summit. Even so, the deputy sheriff label stuck.

The Albanese government has quietly worked to defeat the deputy sheriff problem since 2022. One example is that it has successfully distinguished its approach on Middle East issues from that of Washington. By contrast, Indonesia and Malaysia reacted negatively to the Morrison government’s announcement in 2018, following a decision by the first Trump administration to relocate the U.S. embassy, that Australia would recognize “West Jerusalem” as Israel’s capital. [22] Regional surveys have shown that U.S. support for Israel in its war on Hamas since October 7, 2023, has had a sharp impact on support for the United States in Southeast Asia’s Muslim-majority countries. [23] Yet, despite Australia’s status as a close U.S.- ally and traditional supporter of Israel, the same criticisms have not been leveled at it from within Southeast Asia. Australia and ASEAN were able to agree on extensive language on the Gaza conflict in the joint statement issued at the 2024 ASEAN-Australia Special Summit in Melbourne. [24] This suggests a level of awareness in the region that Australia’s post–October 7 voting record in the United Nations has aimed to strike a middle ground and has not always aligned with that of the United States.

Today, the deputy sheriff problem manifests most acutely in the context of Australia’s close strategic alignment with the United States in relation to China. Over recent years, Australian strategic policy has at times elicited concern in Southeast Asia, particularly Indonesia and Malaysia. For example, after Australia and the United States announced the presence of the U.S. Marine Rotational Force in Darwin in 2011, Indonesian foreign minister Marty Natalegawa expressed concern about the deployment adding to mistrust or misunderstanding in the region. [25] And ten years later, the 2021 announcement of the AUKUS nuclear technology–sharing partnership between Australia, the United Kingdom, and the United States attracted strong criticism in Indonesia and Malaysia as well as a more mixed reception elsewhere in the region. [26]

Since the AUKUS announcement in 2021, Australia has put much effort into developing more mature strategic dialogues with Southeast Asia— for example, by establishing new institutionalized dialogue mechanisms and pre-briefing programs before defense announcements. Australian officials understand that such dialogues will not fully resolve divergences in worldviews but hope that more dialogue can help avoid surprises and reassure regional countries about the goals of Australian policy.

It is possible that the delicate balancing act between Australia’s U.S. alliance and its regional relationships may become more challenging with the Trump administration proving a less predictable and more demanding alliance partner. For example, the Trump administration might conceivably demand Australian support for policies that would be unpopular in Southeast Asia. But it is perhaps more likely that the reverse will be true, and that cooler political relations between Australia and the United States will be a driving factor in Australia continuing to invest more of its energy in relations with Southeast Asia.

Alongside engagement with Pacific Islands countries, relations with Southeast Asian countries will remain a top priority for Australia. Faced with unpredictable geopolitical circumstances, the Albanese government is banking on the certainty that geography is immutable and investment

in neighborhood relationships will never be wasted. Yet persistent gaps between rhetoric and reality on both security and economic cooperation with Southeast Asia mean that it is unlikely these relationships will ever offer a fully formed “plan B” that can compensate for the loss of predictability in relations with both China and the United States.