A new report from the United States Studies Centre (USSC) at the University of Sydney recommends that Australia reshape its economic statecraft for a new era of geopolitical disorder and economic fragmentation.
In Paradigm shift: The end of the Washington Consensus and the future of Australian economic statecraft, USSC Senior Economics Adviser Dr John Kunkel examines the Great Unravelling that has seen the United States retreat from leadership of the postwar liberal economic order.
“The post-Cold War era of deep globalisation that hinged on binding countries into a US-led economic system is over,” Dr Kunkel said. The old order has given way to a surge in trade restrictions, industrial subsidies and other tools of economic statecraft, as governments view economic interdependence increasingly as a source of vulnerability rather than opportunity.
The report traces the origins of a “paradigm shift” in Washington that has culminated in the tariff hikes of the second Trump presidency. It outlines how support for free trade and globalisation within the US political system eroded under Republicans and Democrats alike. Dr Kunkel states that: “Donald Trump and Joe Biden are effectively co-authors of a new Washington Consensus centred on a shifting combination of tariffs, industrial interventions, investment screening, export controls and sanctions.”
The report argues that a more nationalist, interventionist and security-focused approach to economic policy is not simply Made in America. “The scale and character of China’s rise and its mercantilist model of state capitalism have subjected the liberal economic order to acute strain,” Dr Kunkel states. “The China challenge, in all its dimensions, is a key reason why governments everywhere have reshaped economic policies through a lens of resilience and security.”
A central finding of the report is that Australia’s policy architecture and settings are ill-equipped for a world of geopolitical upheaval and economic fragmentation. “The metronome on economic security in Canberra is moving too slowly, given heightened risks of geopolitical and economic fragmentation,” Dr Kunkel contends.
Dr Kunkel states that: “The Future Made in Australia agenda, the main policy initiative geared to responding to a more fractured economic order, suffers from political overreach and an unbalanced emphasis on the green transition relative to core strategic interests.” The report recommends further actions to renovate Australian statecraft. These include establishing a new National Economic Security Agency within Treasury and developing a network of Economic Security Partnerships, beginning with Japan.
- Paradigm shift: The end of the Washington Consensus and the future of Australian economic statecraft is now available to view or download.
Key recommendations for Australian policymakers
- Reshape the Future Made in Australia agenda to ensure a greater focus on national security and economic security challenges and opportunities.
- Establish a National Economic Security Agency within the Australian Treasury with a mandate to assess major economic security risks and to advise government on measures to mitigate such risks and to build critical national capability.
- Charge the Department of Foreign Affairs and Trade with negotiating a new generation of Economic Security Partnerships.