Australia has announced a strategy for economic resilience and security. The Treasurer and Treasury Secretary have articulated a new National Interest Framework that is designed to help guide policy development and check the drift that has seen national security considerations increasingly dominate economic policies without constraint or clear logic.
The new economic security policies attempt to integrate security considerations into domestic economic policy on critical infrastructure, resilient domestic supply chains and our role in strengthening international supply chains. They rightly came with warnings about security interest mission creep, something that has been missing recently in Australian policy.
Getting domestic settings right is critical but not enough in our more uncertain world. Changes to Australia’s external circumstances are driving these policy responses and Australia’s economic security policies need strategic economic diplomacy at the forefront.
A much larger China has changed the structure of global power and wealth, and hankering for a unipolar world is a fool’s errand. Other emerging powers also have more weight now.
Great power rivalry between Australia’s main security ally and its most important economic partner, an inward-looking United States, a more assertive China and accelerating climate change have led to reactive policy responses from successive governments in Australia and globally. Those policies have included restricting foreign investment, diversification of trade partners away from comparative advantage, favouring ‘trusted’ economic partners instead of non-discriminatory trade, and increased government involvement in the market.
Trade has been weaponised by the great powers. And loss of confidence in the multilateral trading system is leading countries and companies to self-insure with diversification, stockpiling, friendshoring, onshoring and other policy measures in the name of economic security. These are third-best policy responses in a second-best world that reduce our chances of nearing the first-best solution.
The multilateral trading system that helped Australia build its prosperity through high trade shares with its neighbours in Northeast Asia may be under threat but it is far from dead. It’s that system that protected Australia from Chinese economic coercion in 2020.
The economic weapons that China deployed against Australia were deflected by a trade regime, which, whatever its weaknesses, allowed Australian exporters to, first, find alternative markets and, second, ultimately seek redress through threat of international legal processes against China. The WTO’s dispute settlement system, with all its problems, provided the exit-ramp for both Australia and China from that unfortunate episode.
Trade coercive measures would have inflicted significant economic damage in a world of closing markets with fewer alternative buyers or sellers. That was the world of the beggar-thy-neighbour protectionism of the 1930s, a world of no rules where trade restrictions fed aggression, insecurity and ultimately war.
Australia and China are part of a workaround measure that has kept the global trading umpire’s dispute settlement process working since the United States neutered it to avoid being held to account for violating world trade rules. The Multi-Party Interim Appeal Arbitration Arrangement (MPIA) has seen 53 WTO members — almost a third of WTO membership — join a plurilateral framework which duplicates the Appellate Body, enabling members to resolve WTO disputes among themselves.
China has a substantial stake in the established system of trade rules — as the world’s largest trading nation and a nation without any major formal allies — and is deeply dependent on the system that helps to manage its trade exposure for its economic and political security.
We are told that China’s abuse of market power should be viewed through a security lens and that there’s a need to de-risk from critical minerals trade with China and to de-risk from Chinese supply chains, leading to reduced trade shares, and with government help to develop ‘trusted markets and suppliers’. That would be both costly and damaging to national security goals.
Australia is indispensable to China’s economic security: China has no substitute for Australian iron ore in quality or quantity that must supply over half its entire steel industry for decades at least. A strategy that builds interdependence with China in critical minerals and close cooperation with China and other Northeast Asian partners in the massive transformation that will need to take place in its steelmaking technology over the coming decades to achieve decarbonisation goals via the input of green energy is likely to contribute to Australian prosperity and security, not detract from it.
A Chinese economy and society that is less integrated into the global economy is one that brings more international political risks, not less. Australia’s economic and security interests lie in sustaining Chinese dependence on that system and the maintenance of its multilateralist posture.
Australia is not alone in this circumstance and shares an interest in doing so with its partners in East Asia that are locked into a similar destiny.
Southeast Asia is a particular blind spot in Australia’s global economic diplomacy despite its being our country’s strategic front line. Total trade with ASEAN in 2023 was AU$143.8 billion, making it Australia’s second most important trading partner after China. While the United States has many other theatres of interest, East Asia is Australia’s primary theatre of leverage and action.
Australia may be a small open economy and middle power politically but it can be a leader in its theatre of influence and interest in East Asia. That is where Australia will find agency to protect its national and global interests.
This is no starry-eyed nostalgia for the past. For a small open economy like Australia, the multipolar world that is already a fact of international life means finding domains — on issues such as investment, technology, climate, migration or in geographic spheres — where large powers have an interest in developing and enforcing rules. These interests are shared by middle powers and open economies, both of which are heavily concentrated in East Asia. Australia is not alone in its region, or globally in this multilateral mission. ASEAN, Japan and South Korea are aligned to the same objectives.
This is the vital second front of diplomacy for Australia’s national security strategy. Our alliance relationships are the first front in national security strategy. Without initiative on this second front, the risk of military conflict that ends in tears and ashes will be much higher.
This article first published in the East Asia Forum.
July 28, 2024 East Asia Forum
