For Australia, a country that had enjoyed considerable economic success for around thirty years by developed nation standards, a major policy dilemma is how to address the growing tension between the United States of America (US) and China given that the latter has become increasingly important to Australia’s economic fortunes.
With considerable debate in recent years about China’s interference in Australia’s affairs, which led the government to pass new foreign interference laws in June 2018, the 2019 Lowy Institute Poll (2130 respondents) found that 74% believed Australia is now too economically dependent on China, 68 per cent though too much investment came from China, 73 per cent urged measures to counter Chinese influence, 77 per cent believed Australia should do more to resist China’s military activities in the region, 60 per cent backed the navy to do freedom of navigation exercises in the contested South China Sea, and 55 per cent agreed that a Chinese military basin in the Paciﬁc would be a ‘‘critical threat’’ to the national interest.
But with 72 per cent still supporting the US alliance as important for Australia’s security with 73% agreeing that the US alliance is a natural extension of our shared values and ideals, balancing security and economic needs may get a lot harder.
After all, resources do matter in terms of Australia’s ability to meet its various policy needs (including social welfare) and China received 30.6% ($117.5 billion) of Australian exports during 2017-18, Chinese tourist spending comprising over a quarter of the tourist market ($11.3 billion), and 170,547 Chinese students were enrolled in Australia’s various education sectors from January to June 2017, by far the highest proportion of the total 583,243 international students.
In the end, however, the US, which does call upon Australia for assistance to help uphold the international rules-based system in the Asia-Pacific, no longer accepts the ongoing rise of authoritarian China.
With “Made in China 2025 initiatives now intended to make China a major global player in 10 key manufacturing sectors, after China’s share of global merchandise exports increased from 2.0% in 1990 to 14.1% by 2015 (13.2% in 2017), the Trump Administration from 2017 increased tariff barriers on Chinese imports on the basis that a Section 301 inquiry gave the president power to retaliate against certain unfair trade practices that are “harmful to U.S. economic interests”.
The Section 301 inquiry found strong evidence that the Chinese government has violated trade agreements, hacked US computer systems to benefit Chinese companies, routinely pressured US companies to enter into joint ventures with Chinese partners that required sharing valuable technology, and used state funds to purchase US companies to get their patents and other intellectual property.
Any hope that US policy will soften towards China with the demise of President Trump is also unlikely given that anti-China sentiment also exists within the Democratic Party given longstanding concerns about Chinese practices with regard to trade, foreign-policy, and human rights.
During 2019, Democrat Senator Elizabeth Warren declared China had “weaponized its economy”, Senator Cory Booker called the Chinese government a “totalitarian regime” that has been “taking advantage of this country”, and Senator Chuck Schumer tweeted “Hang tough on China, President@realDonaldTrump. Don’t back down.”
For most Australians, who have little knowledge or interest in the US state of domestic affairs, mostly focusing on their own well-being and local issues, they too are now confronted by an age-old problem that confronts many nations with regard to how best to balance strategic and economic needs.
This dilemma was evident in the Lowy institute poll. Despite just 32% now trusting China to ‘act responsibly in the world’ compared to 52% trust for the US, only 50% believed that ‘the Australian government should put a higher priority on maintaining strong relations with the US compared to 44% for China, even if this harmed relations with the other major power.
But, I for one support the US’s opposition to China. Not to curtail the right of China to prosper, but to ensure that the current global order withstands the negative influence of nations with authoritarian tendencies.
In military terms, the West’s response (supported by allies like Australia) will increase as China seeks greater international influence.
While Professor Hugh White in his book How To Defend Australia suggests that military spending may need to increase to around 3.5 per of cent of GDP for its security needs given his belief that US power will decline in the region, others rightfully point to the ongoing “viability of US bases” in the Pacific, the possibility of Asian states (including India and Indonesia, Vietnam and Singapore) “working in coalition against the ambitions of China”, and the “prospective role of the US as an offshore balancer against a strong China” (Paul Monk ‘Imperfect protection Australia’s defence policy and military force structure’, Weekend Australian, 6 July 2019, p. 20)
In the South China Sea, a crucial source of transportation for regional and global economic activity, the USS Ronald Reagan carrier strike group recently conducted exercises there with the Japan Maritime Self-Defence Force’s Escort Flotilla 1, which included the Izumo multi-purpose destroyer that is slated to become Japan’s first carrier in decades (‘China has reportedly been practicing sinking ships with missiles in the South China Sea’, Business Insider Australia, 2 July 2019).
The July 2019 Talisman Sabre war games on the Queensland coast involve thousands of military personnel, mainly from the US and Australia, but also from Britain, Japan, New Zealand and Canada, with delegations from India and the Republic of Korea observing.
In 2018, the France signed joint agreements on closer defence and cyber ties Australia and called for Australia, France and India to strengthen ties for stability in the region in order “to protect our economic interests as well as our security interests” (‘Shared interests sit alongside shared values’, The Australian, 28 June 2019, p. 1).
But beyond the reality that military capability will always be an important deterrent, with military spending likely to increase further in line with growing Chinese aggression (including in Australia), Australia’s support of US and Western interests makes solid policy sense in economic terms.
While Prime Minister Scott Morrison noted prior to the G20 summit that the growing trade war between China and the US may hurt smaller countries, he conceded that many US grievances were justified given China’s intellectual property theft, industrial subsidies, forced technology transfer and digital rules with regard to e-commerce (‘Morrison urges G20 trade led recovery’, Australian Financial Review 28 Jun 2019, p. 1).
While Australia and other existing or potential allies are right to express concern at the Trump administration’s threat not to appoint new members to the WTO’s dispute-settling body by 10 December 2019, which will allow the US to impose new trade barriers without fear of WTO-sanctioned penalties (‘Risk to WTO threatens trade war Armageddon’, Australian Financial Review, 3 Jul 2019, p. 10), few will argue that the WTO needs to change the rules with regard to China.
The tough American attitude towards China does not come without an economic cost for the US. After all, tariffs raise the price of US consumer and business goods, US taxpayers were expected to pay $28 billion in subsidies to compensate farmers for lost export sales, and considerable manufacturing production had or was preparing to move from China to Southeast Asia and Mexico rather than the US.
But Australia will have to make tough economic policy choices to support the US against China. Australia was correct to support the US banning Huawei given the possibility of control by China’s communist party given that this technology is expected to connect critical infrastructure such as energy and water, and enable new technologies such as driverless transportation.
PM Morrison is also correct to give support for the Japanese-led pushback on Chinese “debt trap” lending with a support for overseas infrastructure spending by G20 nations be linked to job creation and economic returns, take into account the full costs to the borrower, ensure environmental compliance and ensure disaster resilience.
Already, Sri Lanka has handed over its port of Hambantota to China (near the world’s busiest east-west shipping) on a 99-year lease after failing to meet loan repayments, and Papua New Guinea’s $136 million Huawei internet cable connecting 14 provinces broke in four places from an earthquake (‘PM backs move to head off ‘debt trap’, The Australian, 28 Jun 2019, p. 9).
Australia, and other wealthier allied nations, may also have to provide greater economic resources to resist the lure of China. For example, Sri Lanka’s President Maithripala Sirisena recently rejected a proposed military deal that would allow US troops free access to the island’s ports against his pro-Western Prime Minister Ranil Wickremesinghe at a time when China vowed to keep providing financial help despite warnings about the island nation’s mounting debt.
Similarly, with China being Cambodia’s largest aid donor, investor and creditor, and already suffering from Chinese “debt trap diplomacy” of “exorbitant interest rates, predatory loan practices and opaque contracts”, it is argued that Cambodia has become a “haven” for companies eager to circumvent US trade sanctions as it has no choice but to comply with China’s demands (‘Country a ‘loan shark victim’, The Australian, 5 Jul 2019, p. 11).
Within a political environment when the US is more willing to take action to uphold its national economic interests, with President Trump often taunting allies such as the EU, Japan and India when industry difficulties emerge (‘Trump blasts US-Japan alliance’, Australian Financial Review, 28 Jun 2019, p. 31), Australia must promote the importance of the WTO.
As American analysis suggests, the US can work with its allies (including Australia) to confront China. With an observation that China currently gets around US tariffs by selling products in other markets, with a recent study noting that China has actually reduced its tariffs on non-US goods since the trade war began by an average 14 per cent, it is argued that the US should strengthen the WTO by bringing cases against China which will should now be treated as a market economy. This approach would limit the ability of other countries to respond to Beijing’s dumping of goods at below-market prices.
But Australians should prepare for difficult economic times ahead, although the opportunity for Australia’s basic mineral and agricultural exports may find other destinations in coming years if China ever seeks to retaliate in economic terms.
I for one, would accept a lower standard of living which may result from less exports and less reliance upon China rather than see such an authoritarian nation have greater influence at the international level.