Australia’s political debates are dominated by arguments about economic management and prescriptions for a speedy and lasting recovery. But how successfully we emerge from the trauma of the pandemic will be largely determined by Scott Morrison’s ability to manage external events.
In Shakespeare’s Julius Caesar, Brutus famously observed: “There is a tide in the affairs of men which taken at the flood, leads on to fortune.” Those with the skill and foresight to exploit change, and adapt, will prosper. Yet too many believe that once the virus has passed, Australia’s new normal won’t be that different from the old. Such wishful thinking ignores the biggest tidal wave of global change since World War II.
Adjusting our foreign policy, trade and security settings will be crucial to determining our place in an emerging world order that will be far less favourable than the last. Disruption to global supply chains is intensifying. Most countries want to lessen dependence on China-centric value chains, especially for strategically important goods and commodities deemed essential for national resilience. Trade protectionism and strategic tensions are on the rise. A recrudescent nationalism is leaving “anywhere” internationalists and the Davos crowd lamenting lost power and influence.
The technology divide is also widening. China and the US are threatening to go their separate ways dragging others with them, making it more likely there will be two internets and competing financial systems, both potentially game-changing developments.
Driving much of this change is escalating great power rivalry, which is particularly unsettling for Australia because the US and China are crucial to our economic wellbeing and national security. Although divorce is still unlikely, separation is well under way. It threatens to be messy and cathartic because decoupling poses hard questions about the required balance between autarky and over-dependence. Getting this balance right has special relevance for Australia as a country long accustomed to relying on great and powerful friends, a category that looked like including China until the great falling-out.
Historically, critics on the left decried our supposed over-dependence on the US, asserting that whatever the security benefits, they are far outweighed by an unforgivable loss of sovereignty. The caricature of craven subservience to the US was given further life by Malaysia’s outspoken ex-prime minister, Mahathir Mohamad, who in 2002 controversially portrayed Australia as a stalking horse for the US-led West, determined to keep Asians down.
Now, in a modern-day twist, Beijing is recycling the refrain that Australia is under America’s thumb and no more than a cipher – a useful tool for the Trump administration’s anti-China crusade. But our differences with the US on issues such as the trans-Pacific trade partnership, the World Health Organisation and the efficacy of the World Trade Organisation should have dispelled the notion that we are too dependent. Even on defence, where the US and Australia have traditionally been close, the government has resisted pressure to join the US in freedom-of-navigation operations in the South China Sea.
Scott Morrison has handled adroitly the difficult task of balancing our relations with the US and China, steering a sensible middle course and pursuing a highly independent trade and foreign policy that has not always pleased Washington. Social and political distancing have become the distinguishing hallmarks of Australian diplomacy towards both the unpredictable Trump administration and Xi Jinping’s repressive government.
Policy differences with China are more obvious because they are contentious and manifest. Headline disputes with China are a weekly occurrence and a major break – inconceivable a year ago – is now a distinct possibility unless a circuit-breaker can be found. Morrison’s determination to assert distinctively Australian positions in foreign, trade and national security policy means there will be no return to the halcyon days when there seemed no end to the China bounty or the equally valuable security goods provided by the US at little cost.
This is bad news for the business groups, lobbyists, vice-chancellors and ex-politicians who’ve benefited from ties with China. But it’s not “Australia’s fault”. Beijing’s truculence, influence operations and trade coercion have been largely responsible for the turn in public sentiment. The decision to decouple from Australia is China’s alone. Whatever we do won’t change that. Morrison’s challenge is to manage this separation so it doesn’t turn into an irreconcilable divorce.
If Donald Trump wins in November buckle up for a white-knuckle ride. He is likely to ramp up pressure to choose the US over China on a range of trade, technology and security disputes. This will sorely test the government’s ability to balance our China and US interests. We can expect to pay higher fees for our alliance membership, although Morrison made a significant downpayment in the Defence Strategic Update by announcing a healthy increase in defence spending. A Joe Biden victory may relieve some of the pressure. But US-China relations are unlikely to improve.
Chinese student numbers and migrants are unlikely to return to pre-pandemic growth. The souring political relationship will dissuade Chinese tourists and students. More will pursue education opportunities at home as their own universities continue to improve, and Beijing worries about them being infected by Western ideas and cultural influences that are anathema to Chinese Communist Party ideology.
Business won’t have an easy time either, particularly those with high levels of dependence on the China market, as our barley growers, beef producers and wine exporters have discovered. Coal could be next if Beijing decides further punishment is warranted. The China market is becoming high-risk for Australian exporters and diversification a necessity. Welcome to the new normal.
Alan Dupont is chief executive of political and strategic risk consultancy The Cognoscenti Group and a non-resident fellow at the Lowy Institute.