21 August 2019
Former Secretary of the Department of Foreign Affairs and Trade, Peter Varghese AO spoke at the Indo-Pacific Strategic Futures: Dialogue and Simulation dinner at PwC Sydney on 12 August 2019
It is not often that a country changes the geographic definition of its primary strategic environment. But that is precisely what Australia has done in recent years by embracing the concept of the Indo Pacific.
It is a concept which is still very much a work in progress. It is both an act of imagination and a recognition of an emerging structural shift in our strategic environment.
At its heart the Indo Pacific reflects two propositions.
First, that the maritime environment is likely to be the primary focus of strategic planning and strategic competition over the next several decades.
Secondly, that India’s strategic focus will over this period shift well beyond India’s immediate neighbourhood and embed India in the strategic dynamics of the broader region in a way it has not in the post war period.
These two propositions do not, in themselves, create a coherent Indo Pacific strategic system. But they do suggest that the idea of the Asia Pacific needs to adapt to accommodate them.
In this sense, the idea of the Indo Pacific is best understood as an evolution and expansion of Australia’s Asia Pacific bearings, not a rejection of the Asia Pacific.
It is also important to understand what the Indo Pacific is NOT.
It does not, for example, treat the Indian and Pacific oceans as a single strategic system. Nor does it seek to bring all of South Asia let alone the Indian Ocean littoral into the old Asia Pacific strategic system.
For now the Indo side of the Indo Pacific is, in my view, really just India and it is more about bringing India to the Asia Pacific than stretching the footprint of Australia’s primary strategic focus all the way to the western reaches of the Indian Ocean.
Over time, more structure and integration may evolve in the Indian Ocean such that it might become a coherent strategic system akin to its counterpart in the western Pacific. But that is a long way off and by no means certain. So for the foreseeable future when we think about the Indo Pacific we are thinking of an Asia Pacific which finds room to accommodate India as a key strategic player, and an India whose strategic and economic interests will increasingly draw her into acting as such a player.
India has always seen itself as an Indian Ocean power whereas Australia has traditionally placed a greater emphasis on the Pacific as the ultimate arbiter of our strategic stability. Now we have an opportunity to better align these perspectives and to build a partnership which bridges both oceans. It is a neat symmetry for an Australian continent which faces both the Pacific and Indian oceans and an India which has always been strategically anchored in its namesake ocean.
Since the strategic posture of India is important to Australia’s conceptualisation of the Indo Pacific, it is worth considering what type of strategic power India is likely to be.
India is today in the midst of a major geopolitical repositioning, as it discards its old nonaligned movement rhetoric, pursues a hard headed national interests based policy and builds stronger strategic ties with a wide range of countries including the United States and its allies in the region, especially Japan.
Indian strategic thinking is likely to be shaped by six key factors.
First, a firm attachment to strategic autonomy and to preserving maximum freedom of action. India is not about to become an ally of the US or anyone else. It will be guided by its own interests as it builds strategic ties with a range of countries, including many with which Australia and other western countries have limited strategic congruence, such as Russia and Iran.
Second, deep strategic competition with China, not just as a neighbouring state but also in relation to China’s broader regional ambitions and influence.
Third, India is showing a growing level of comfort in increasing strategic cooperation with the US and its allies in the region such as Japan and Australia.
Fourth, India is likely to continue to support a liberal international order, although that will not extend to support for US exceptionalism. Also, India will want the international order to better reflect the power distribution of the contemporary world. India will not be bound by rules in which it had no say.
Fifth, India is committed to increase significantly its defence capability to buttress its strategic autonomy. This will add to its strategic weight.
And sixth, India is likely to be cautious about pressing a human rights agenda in its bilateral relations and nor is it much interested in an international policy of promoting democracy. Moreover it will hold to this caution notwithstanding its own considerable domestic credentials in relation to human rights and democracy.
How will these drivers play into the agenda of strategic cooperation between Australia and India?
The Australia-India strategic relationship stands on its own merits. It is however closely linked to the broader security of the region and therefore inevitably also brings in China, if only because China, like the United States, looms large in the strategic calculations of both countries.
The India-China relationship will have elements of both economic cooperation and strategic competition, not unlike the way in which those two elements thread their way through China’s relationships with the US, Japan and others.
India will want to maximise its economic relationship with China. But it will also be opposed to any move by China to become the predominant power in the Indo Pacific. And it will be particularly concerned to ensure that China’s expanding interest in the Indian Ocean is not given free reign.
While China is a factor in the strategic partnership between Australia and India, it is important to understand that Australia and India do not approach China from identical perspectives. Indeed, there are some large differences in our respective relations with China.
Unlike India, Australia is an ally of the United States. China looms much larger in the Australian economy than it does in India’s economy. We have in Australia a large Chinese diaspora who are a valued part of Australia’s multicultural character. Also, Australia has no border dispute with China and nor have we ever gone to war with China, unless you count the participation of Australians in putting down the Boxer rebellion.
When India looks at China it sees a great power with which it shares a long and disputed land border and against which it has gone to war. The Indian perspective is shaped by its desire to preserve its freedom of manoeuvre and a concern that China’s rising power could narrow India’s strategic choices and flexibility.
Australia, on the other hand, approaches China from a different perspective. Ours is not a great power’s view of China. But it is a view influenced by the character of the Chinese state.
China’s political system is of course a matter entirely for China. Australia has neither the capacity nor the right to demand China pursue a particular system of government.
But China aspires to be the predominant power in the Asia Pacific if not the Indo Pacific and that, by definition, would make it the single most important shaper of the region’s strategic culture and norms. So whether it is a democracy or a one party state matters.
India shares our democratic bias but the political character of the Chinese state is not its primary strategic concern. For Australia, a democratic China becoming the predominant power in the Indo Pacific is a very different proposition to an authoritarian China occupying this position. India’s concerns about a powerful China would exist irrespective of whether China were a democracy.
Let me now turn to the US-China relationship which has entered a potentially dangerous period.
At its core are two conflicting ambitions. China aspires to become the predominant strategic power in at least the Asia Pacific and the US is determined not to yield its primacy. That determination runs deep in the American psyche.
The US now views China as more than a strategic competitor. It sees China as an adversary. Australia has not reached the same conclusion, although it is only a matter of time before we abandon the idea that there can be a comprehensive strategic partnership between Australia and China.
For China strategic predominance is a return to the Middle Kingdom. It hopes to get there not by invasion or territorial expansion but by exercising economic leverage. China seeks a pre-emptive surrender to its interests. It wants the countries in the region to accept that cutting across China’s core interests would come at a high and ultimately unacceptable price.
Recreating the Middle Kingdom and an unambiguous determination to ensure the monopoly power of the Chinese Communist Party are the twin pillars of China’s foreign and domestic policies.
China also seems to be moving away from economic reform and giving the market a larger role in the allocation of resources. It has benefited from an open trading system but does not offer equivalent access to its own market. Party control reaches into all aspects of the economy. Covert interference in the politics of regional countries has risen. Cyber attacks are becoming more sophisticated. Hide and bide has been replaced with a sense that China’s time has come.
There is nothing new about the US being determined to hang onto strategic primacy. But what is new is the suggestion that this can be achieved by blocking or thwarting China.
For Australia, there is no sensible alternative to engaging China. Containing China, in the way the West sought to contain the Soviet Union, is a policy dead end. China is too enmeshed in the international system and too important to our region and our economy to be contained. And the notion that global technology supply chains can be divided into a China led system and a US led system is both economic and geopolitical folly.
The US is right to call China to account. But it would be a mistake for the US to cling to primacy by thwarting China. Those of us who value US leadership want the US to retain it by lifting its game, not spoiling China’s. The US should play to its considerable strengths in economic depth and flexibility, technology, research, alliances and values to buttress its standing.
A strategy anchored in blocking China is a dangerous course. A country which already looks to redeem itself from a century of humiliation does not need its worst fears confirmed.
China’s rise needs to be managed not frustrated. It needs to be balanced not contained. Constructing that balance and anchoring it in a new strategic equilibrium in the Indo Pacific is the big challenge of our time.
Australia cannot simply assume that the US will remain the predominant strategic power, however much we would like that to be the case. If China continues down even a moderate growth path, the law of large numbers suggest it will overtake the US economy in market exchange measures at some point. This is by no means certain but it is more likely than not.
What we can say with much greater certainty is that China’s economic and strategic weight will be no match for the aggregate power of those countries which do not wish to see the return of the Middle Kingdom and that includes the US, India, Japan and Australia.
The purpose of such a grouping would not be to stop China but to constrain China: to ensure that if China does indeed become the predominant power in the Indo Pacific it would not have carte blanc. It is a mechanism for managing China’s rise which stops short of containment.
Already a de facto balance along these lines is in the making through the shared desire of the US, India, Japan and others to balance China. Each has its own geopolitical and historical reasons for doing so, of which the non democratic character of China is by no means the primary driver. Moreover, this is not a classic balance of power grouping. It is an organic, not an orchestrated arrangement.
It is also an evolving balance on both sides.
Russia, for now, lines up with China. They both share an interest in clipping the wings of the US. Neither support a liberal international order. For the most part theirs is an opportunistic partnership masking a fundamental strategic suspicion of each other. But it is a partnership with a shelf life at least as long as their authoritarian systems.
Where Korea lines up in the longer term in the strategic balance of Asia is an open question. The ROK is an ally of the US. But what would be the strategic disposition of a united Korea? Would it lean towards China or the US? Or, more likely, would it seek an independent path with or without nuclear weapons? A united Korea is likely to be a democracy and this suggests it will at least lean towards balancing China. But no one knows which of these options will eventuate which is one reason why China does not want to push the North Korean regime to the point of collapse.
ASEAN as a grouping may remain on the sidelines of the strategic balance. But, with some notable exceptions such as Singapore, more and more individual ASEAN nations are being pulled into China’s orbit: not with enthusiasm or conviction but because they see that the economic cost of opposing China’s agenda is too high. Even Vietnam, which has a long and fraught history with China, will be constrained in how far it can go in lending support to balancing China.
So the long held hope that a non-aligned ASEAN would still lean towards the US and the west is now looking less likely. The US is doing little to change this and the unpredictability of the Trump administration as well as many of its policy instincts only makes the problem worse. Japan and India, on the other hand, understand the stakes but their efforts to balance Chinese influence in South East Asia may not be enough.
Indonesia is the strategic pace setter of ASEAN. Its current leadership sees the world through an economic prism and that favours China more than it does the US. This may not be permanent but nor is it likely to change any time soon. So where to position Indonesia in the evolving geo strategic balance of Asia is an open question. That has large consequences for Australia because South East Asia is at the epicentre of our strategic interests.
The two Asian powers with an unambiguous commitment to balancing China are Japan and India. For each, China is the reference point of their strategic compass. Geography and history pull them to the other side of the China balance. This creates common strategic ground between them and both are moving quickly to build on that foundation.
Let me conclude with these observations.
It is the conceit of every generation that it is poised on the threshold of something new and different. But when we look out at our international environment it is hard to avoid the sense that the ground is shifting beneath our feet. To adapt a title from the late Tom Wolfe we seem to be facing a “bonfire of certainties”.
So many of the supporting pillars of the post Cold War world seem less secure: US strategic predominance is narrowing even fading. Protectionism is on the rise. The liberal international order is on life support. In many developed democracies, identity politics is overshadowing older ideological fault lines. And illiberal democracy and authoritarian approaches are attracting more support than they ever deserve.
For decades we have spoken about the fluidity of our strategic environment as shifts in economic weight rearrange strategic relativities and economic integration jostles with strategic competition. Today it seems that rather than reach a settling point this fluidity may be leading us towards a tipping point.
We are currently in the middle of a transition in international relations and that is probably the worst time to put it into perspective. Some of what we are seeing today are exaggerations or aberrations which are unlikely to become enduring trends. But others go to the bedrock of global geoeconomics. Deciding which is which is far from easy.
For example, it would be a mistake to see President Trump as an aberration and assume that US policy will return to its norm after his departure. But equally it is unlikely that all of his policies will survive his departure. It is more likely than not, to take just one example, that the value of US alliances will be restored to a central position in US policy in a post Trump world. And with China, we may well see a tactical shift in China’s approach as it recalibrates how far and how fast it should proceed with its more assertive foreign policy position.
For Australia the challenges ahead are large. If US China policy continues towards containment we will see a sharp divergence in the way Australia and the US see China policy. For the first time since the European settlement of Australia we find ourselves in a region where our great and powerful friends face a serious challenge to their strategic primacy. Our economy, so dependent on external markets and foreign investment, must now navigate a global economy with protectionist sentiment on the rise and a US-China relationship – a relationship between the two largest economies – entering a new and unpredictable stage.
Trends are like waves. We can see them on the horizon but we do not know exactly when they will break and in what pattern they will reach the shore. We cannot, Canute like, order them back. But we can prepare for them and think through what form we want them to take. They cannot be resisted but they can be shaped and that is what the burden of leadership is ultimately most about: not just anticipating trends but working to shape them with a sense of social and moral purpose and a commitment to the best interests of our communities.
Economic policy uncertainty is at unprecedented levels due to the COVID-19 pandemic. In previous research, I highlighted the role of economic policy uncertainty in driving cross-border trade and investment, but also exchange rates...