We need a new synthesis of economic rationalism and state capacity at home, one fit for a world of rolling geopolitical turmoil and economic uncertainty.
Last week’s Davos speech by Canadian Prime Minister Mark Carney continues to make waves.
Treasurer Jim Chalmers called it “stunning”, saying that it had been “widely shared and discussed” inside the Australian government. James Fallows called it “a speech for the history books”. In certain circles, its resonance seems to evoke Churchill’s “Iron Curtain” speech at the start of the Cold War almost exactly 80 years ago.
As we know, Carney diagnosed a global order that’s gone and not coming back, describing this moment as a “rupture, not a transition”.
He called out great powers for acting without constraints, using “economic integration as coercion”. He went further in painting the old “rules-based” order as part fiction with its rituals and platitudes. We should not lament its passing, Carney argued, in looking to rally a new age of middle power cooperation.
Large slabs of the Carney proclamation were not new. He and others had said similar things before.
What counted last week was the timing, the setting, and the clear language in the face of US President Donald Trump’s latest assault on the crumbling pillars of the ancien regime.
Many have focused on the blueprint for middle power cooperation as the main takeout. No less important, however, was Carney’s emphasis on the need to build domestic strength to support national sovereignty and resilience in a more hostile global environment.
So, what does this new world of “weaponised interdependence” mean for Australian economic statecraft in 2026?
Our policy architecture and settings largely reflect benign assumptions from the era of deep globalisation.
I traverse this territory in a report released last month by the United States Studies Centre.
Paradigm shift: The end of the Washington Consensus and the future of Australian economic statecraft explores the great unravelling of the global economic order over a generation. It traces the domestic and international forces that have driven America’s retreat from global leadership. It also looks at China’s role in the rise of the new “economic security state”.
It’s easy to obsess about Donald Trump. In reality, surging trade restrictions, industrial subsidies, mercantilism and coercion long predated President Trump and will doubtless outlast him. The once-ascendant Washington Consensus, which supported free markets, open trade, global capital and technology flows, is in eclipse pretty much everywhere.
This fractured world presents profound challenges for Australia.
Our policy architecture and settings largely reflect benign assumptions from the era of deep globalisation. I argue that, as well as forging coalitions internationally, we need a new synthesis of economic rationalism and state capacity at home, one fit for a world of rolling geopolitical turmoil and economic uncertainty.
My recommendations fall into three buckets.
First, the Albanese government’s Future Made in Australia agenda requires a major redesign. It was touted by the treasurer in 2024 as equipping Australia for a world of “churn and change”, with the goal of aligning our national security and economic interests. In practice, it suffers from political overreach and an unbalanced emphasis on the green transition relative to core strategic interests.
The overreach can be seen in the dizzying array of policy objectives – everything from “making more things here” and turning Australia into a “renewable energy superpower” to improving the “complexity” of our economy and tackling Indigenous disadvantage.
In practice, industry support is weighted heavily towards the lodestar of net zero emissions. National security, economic security and resilience against global uncertainty are poor second cousins.
That’s not to argue all investments are wrong-headed from a strategic point of view. The Albanese government’s focus on critical minerals and rare earths is the right one given China’s arsenal in this area and growing demand. Less clear is the case for solar panel and battery incentives where major economies already dominate markets and splurge on state subsidies.
In refining FMIA, Australia could learn from Japan where the principle of “strategic indispensability” informs its economic security strategy. Strategically, our goal should be to make Australia an indispensable part of global industrial and technology systems in domains on which many other countries depend.
To do this successfully, Canberra needs greater analytical capability and industry policy muscle.
My second recommendation is to establish a National Economic Security Agency (NESA) within Treasury, drawing national security and economic expertise under one roof. NESA’s main tasks would be to assess major economic security risks, advise governments on measures to mitigate such risks and build critical national capability. Far from sidelining economic analysis, the aim is to embed it into integrated assessments of strategic risk and economic opportunity.
As a third priority, the Department of Foreign Affairs and Trade should be charged with negotiating a network of Economic Security Partnerships (ESPs) with key strategic partners. Our close alignment of interests and values makes Japan a no-brainer as first cab off the rank. Such an agreement could provide a template for others, including in areas like energy security, food security, critical minerals and national defence. This has parallels with Carney’s middle power coalitions approach.
Of course, the task of making Australia more resilient is multidimensional. It is bound up with improving budget discipline and pursuing pro-productivity structural reform. No amount of industry policy or international engagement can solve these domestic economic challenges.
It will be interesting to see what Prime Minister Carney says when he addresses our parliament in March. It will be even more interesting to see what the Australian government says – and does – in response.