There is an economic front line too

There is an economic front line too

National security in Australia usually has a khaki tinge to it. But the fragility of global supply chains and potential for coercion means the economy must be recruited as well. Originally published in the Australian Financial Review.

The pandemic is unwinding in Australia and much of the developed world just as it started two years ago, with a desperate reliance on medical imports from China.

First it was masks and ventilators. Now it is rapid antigen test kits, without which schools wouldn’t have opened and thousands of workers including nurses and wait staff would be off work.

The over-reliance on China for essential health and medical equipment tells us many things, not least about the dynamism of the mainland’s economy.

Look on the backs of the packets of rapid antigen tests and you will invariably see the names of companies in cities in inland provinces that few outside of the localities have ever heard of.

Perhaps local governments in these cities are supporting these enterprises, but with or without subsidies, no other country could ramp up production of these goods the way the Chinese can.

It is not just Australia that is reliant on China. It is a live issue in the US and Europe as well.

Indeed, the flip side of Xi Jinping’s COVID-zero policy of harsh lockdowns in response to handfuls of cases is a world plentifully supplied not just with masks, but with iPhones, Teslas, fertiliser and so forth.

 

Japan has a tradition of economic planning. Australia does not, or at least one that has worked.

“Globally, there’s no ripple effect from supermarkets in Sydney having to limit purchases or shut temporarily because they can’t get workers,” wrote Bloomberg’s James Mayger.

“[But] if absenteeism forced factories and ports across China to slow or shut down, that would feel like a giant wave crashing”, with shortages of a range of goods feeding into already high inflation in the US and elsewhere and creating a drag on the global economy.

At a time of geopolitical rupture, the dependence on China is the stuff of nightmares for many governments, but the complexities of supply chains and the like means the issue doesn’t get nearly as much attention as the military dimension of the contest with Beijing.

The debate about national security in Australia has always been heavily khaki-coloured, with a stress on fighting wars and protecting borders and so forth.

This is hardly surprising, given Australia’s history. We have long-time military alliances and natural centres of gravity in the bureaucracy, in the Defence Department and the intelligence agencies.

Economic future can’t be bought off the shelf

The securitisation of all aspects of government policy, really since 9/11, also means the government is much better at talking about buying military equipment and locking up terrorists than managing economic security in the bifurcated new world order.

There is a difference, of course, between the two problems. You can’t purchase an economic future off the shelf, as you might a new fighter jet.

But both sides of the coin need to be addressed. (The debate about how wisely the government is spending its military budget is a topic for another day.)

It is true that the government has focused on issues of economic security, not least because it has been forced to because of China’s targeting of Australian goods as punishment for political disagreements.

But Canberra’s policy response has been haphazard, unco-ordinated and piecemeal, with various initiatives spread across multiple ministries and agencies.

The incoherence has been carried over to foreign investment rulings in recent years, from strange and negligent (Darwin Port); dangerously late (the last-minute exclusion of China’s State Grid bid for Ausgrid in NSW); and gratuitous and symbolic (knocking back China Mengniu’s bid for Kirin’s Lion Dairy and Drinks on national security grounds.)

 

The most up-to-date model for managing economic security, and one which is being studied around the world, comes from Japan.

Late last year, the Japanese set up a new ministry for economic security, which is designed to act as a kind of command hub for securing supply chains, scarce mineral resources and strategic technologies.

Japan’s new Prime Minister, Fumio Kishida, was able to push this idea through in part because of the threat of coercion from China, and in part for bureaucratic reasons. Most of his top advisers come from the economic ministries, not traditional defence and national security agencies.

Would such an idea fly in Australia?

Japan has a tradition of economic planning. Australia does not, or at least one that has worked, and doubtless it would be resisted by Treasury, unless it was subsumed into the department as a subagency.

‘Economy and security are merging’

But there are obvious advantages at a time when Australia and like-minded countries are struggling to find ideas to co-ordinate a pushback against Chinese trade sanctions.

Such an agency would not just force the government and bureaucracy to focus collectively on where the economy is vulnerable in the short and longer terms to the vagaries of geopolitics.

It would also provide a platform for co-ordination between like-minded governments to manage the challenge of securing strategic minerals such rare earths, emergency medical equipment, and so forth.

Australia and its partners are already having to choose where to put their money to protect their economies.

Australian manufacturers recently walked away from making rapid antigen tests at home because of too-low government subsidies. But in the case of rare earths, new mines and processing plants will be underwritten by price supports. Equally, the government has subsidised a new urea plant in Queensland.

The questions about what to support and what not to will only get harder, especially as defence budgets are soaring.

“We are living in a world where the economy and security are truly merging,” Japan’s inaugural Minister for Economic Security, Kobayashi Takayuki, said on coming to office. “The time where we can separate security and economy is coming to an end.”

Areas of expertise: China’s political system and the workings and structure of the communist party; China’s foreign relations, with an emphasis on ties with Japan, the two Koreas, and Southeast Asia; Australia’s relations with Asia.
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