In a speech last week Treasurer Josh Frydenberg stated Australia is “on the front line” of “the return to strategic competition … that is increasingly playing out in the economic arena”.
He would know. The most immediate strategic challenge facing Australia is economic coercion. Since May 2020, at least eight different Australian industries have seen their exports to China subjected to bans, tariffs and other disruptions.
Geopolitics and national security are colliding with trade and commerce in unprecedented ways – what some describe as an emerging “geoeconomic world order”.
With Foreign Minister Marise Payne and Defence Minister Peter Dutton to meet their US counterparts in Washington this week for the annual Australia–US Ministerial consultations, it is worth asking whether the Australia-US alliance is postured to meet the full range of contemporary strategic challenges.
To date, Canberra’s unprecedented geoeconomic difficulties have merely garnered rhetorical support from Washington. In March, US Secretary of State Antony Blinken promised that the United States would not leave Australia “alone on the pitch” in the face of Beijing’s coercive campaign.
But other than statements of support – echoed by other partners including Japan, the United Kingdom and France – there remains no substantial US policy response.
To be fair, it remains unclear what concrete actions Canberra would or should want Washington to take.
While the Morrison government remains steadfast in its refusal to concede to Beijing’s political demands, Australia also does not want to escalate the situation further. This would risk additional restrictions on Australian exports to China.
As the Treasurer said, the overall losses to the Australian economy remain modest. Some affected industries have been able to adjust while unsanctioned iron ore profits have boomed.
Moreover, such “grey zone” measures pose an additional hurdle: the fact that US industries – including coal, wine and beef – are benefitting from the misfortune of Australian miners and farmers.
Given Joe Biden’s “foreign policy for the middle class” policy platform, there is little chance the White House will undermine American industries even for the laudable goal of helping an ally.
And even if the Biden administration were willing to push back more forcefully, Australia does not want to endorse any kind of extra-legal economic retaliation against Beijing, lest doing so further undermines the already weakened rules-based economic order.
These cross-cutting interests in security, prosperity and the integrity of the rules-based order illustrate the thorny policy challenges posited by geoeconomic issues.
It is undeniable that trade and investment relationships, especially those with untrusted countries, increasingly generate strategic consequences. These include vulnerabilities to coercive disruption and fragilities in globalised supply chains, as demonstrated by pandemic shortages.
However, governments must be careful in applying national security principles to economic decision-making. Doing so can quickly slide into protectionism and undermine the rules-based system that Australia relied upon to help deliver unprecedented economic growth.
A concrete cooperative agenda for the two allies should be based on the twin principles of trust and diversification.
A focus on trust acknowledges that where commerce creates unacceptable security risks, certain economic relationships will need to be based on reliable security and political relationships if they are to endure.
The principle of diversification represents the flipside of the trust imperative. Closing off economic links with every untrusted partner is unrealistic and corrosive of the international economic system.
Rather, a balance must be sought between reducing dependence on untrusted sources and maintaining the openness that served Australia and others so well in the postwar era.
The Australia-US alliance offers both countries the opportunity to pioneer efforts to balance geoeconomic trade-offs by putting these principles into action.
Canberra and Washington share similar perspectives on the nature and scope of today’s geoeconomic challenges.
Notwithstanding exceptions such as coal and wine, the structure of their two economies is relatively complementary, with few areas of competitive overlap. Critically, it is a relationship of deep trust accumulated over decades of cooperation.
A first step is to develop policy architecture to tackle the problem together. In a speech last month, Prime Minister Scott Morrison called for a strategic economic dialogue between the two countries.
This could be achieved by upgrading the annual ministerial consultations into a true strategic and economic dialogue, supported by a working group dedicated to geoeconomic issues.
The Treasurer should attend and engage with his American counterparts on the very issues covered by his speech last week.
Second, policy responses to geoeconomic challenges, whether countering coercion or managing fragile supply chains, require a collaborative and consistent response.
This should include jointly developing an attribution mechanism to identify coercion. After all, Chinese economic pressure often sidesteps formal legal measures and Beijing frequently denies it is even happening. This stifles international push-back.
The simple act of “naming and shaming” – identifying instances of economic coercion and consistently calling them out – would be a marked improvement on the international community’s piecemeal response to date.
Finally, developing more direct countermeasures would be a longer-term possibility.
For example, a counter coercion fund jointly financed by like-minded governments could partially offset coercive losses.
Such a fund is politically unrealistic now, but if Beijing’s use of coercion becomes even more frequent, these politics may change.
It is quite remarkable that Australia’s Treasurer delivered a speech on the topic of strategic competition.
It is time to expand the scope of Australia-US alliance cooperation to meet the novel and unconventional strategic challenges of the present.