For more than sixty years Australia has been a reliable anchor at one end of America’s alliance system in East Asia. Australia’s fidelity to this alliance is a remarkable feature of its politics and national life, yet the aftershocks from the 2008 global financial crisis have thrown up new strategic dilemmas for one of America’s staunchest allies. The defining challenge for Australian policy today is easily stated but hotly debated: how to reconcile its rapidly expanding economic ties with China and its deepening military alliance with the United States.
Australia’s future depends on its ability to manage its growing yet distinctive links with both nations within a unified strategic concept. Australia is a big winner from the vast and still accelerating transfer of global economic prowess to Asia, and to China in particular. Yet Australia’s location in a region of escalating but uneven economic growth, and the ambient cultural and strategic tensions that invariably go with it, means it also seeks to enhance its traditional alliance with the United States.
This situation poses a challenge unprecedented in Australia’s history. From its inception as a British colony in the late 18th century and throughout its independent national history since 1901, Australia’s leading economic partners have also been its strategic allies. Before World War II, Australia’s security rested upon its status within the British Empire, which also provided its main trade and financial arrangements. As a result of World War II and the onset of the Cold War, Australia and America became formal alliance partners and, by the late 1960s, Japan had become Australia’s major trading partner arising from the bulk resources trade that fed its industrialization. Herein lay the foundation for decades of progress: Australia did not substitute its new Asian economic ties for its “great and powerful” ally, the United States. Rather, Japan and Australia were common U.S. alliance partners. No hard choices needed to be made.
This led to the formulation of Australia’s most important strategic doctrine: that its engagement with Asia and its U.S. alliance were mutually reinforcing. This idea seemed to be ratified by the remarkable post-World War II era that witnessed prolonged Asian economic growth under the umbrella of U.S. strategic primacy. Australia’s growing ties with Asia, driven by powerful economic forces, were a bonus in its alliance with the United States, and this alliance, in turn, was an asset in establishing new ties and valuable credentials across Asia. This doctrine has stood the test of time to the present day. It has been bipartisan gospel for both the Labor Party and the Liberal Party, Australia’s two main political groupings. It has endured for the past half century because, in most instances, it proved to be right.
Now this doctrine, and the various forms of good fortune it has brought, faces its most exacting test, as China has replaced Japan as Australia’s major trading partner. The rise of China has benefited many developed nations, few more so than Australia. China’s economic success is accentuated by the post-2008 structural defects afflicting both the European and American economies. For the first time, Australia faces a situation where its main economic partner is no longer the partner in its main strategic alliance. This also constitutes a complex challenge for the United States, because if the rise of China can compromise a rock-solid alliance with Australia, no other American alliance relationship in the Pacific can be considered safe from erosion.
ustralia’s unusual economic buoyancy is affecting its debate about the alliance with the United States. Australia navigated the global financial crisis without any recession. Indeed, Australia has enjoyed a 22-year growth cycle, the product of sound management since 1983 under the Hawke, Keating and Howard governments, followed by the rapid stimulus measures introduced by the Rudd government in response to the events of 2008. When the crisis arrived Australia had no major banks in trouble, a strong budget surplus and no government debt. Its unemployment rate now hovers between 5 and 5.5 percent, and the current Labor Government is under attack not because of a crippling budget deficit but because it will not achieve its 2012–13 “return-to-surplus.”
While the country was seriously rocked by the crisis and suffered significant wealth destruction, Australia’s leaders interpret the post-2008 global realignment of economic power as a golden opportunity. Labor Prime Minister Julia Gillard and Treasurer Wayne Swan have branded the 21st century as “the Asian century.” (The contrast with the 20th century as “the American century” is intentionally implied.) This sentiment reached its zenith with the “Australia in the Asian Century” white paper, released this past October 28.
This statement of official policy predicts that by 2020 Asia’s economic output will surpass that of Europe and North America combined. It also predicts that by 2025 four of the ten largest economies in the world will be in the region: China (first), India (third), Japan (fourth) and Indonesia (tenth). This assumes a vast change in the relative economic power of the United States, and it assumes these changes will offer Australia new economic possibilities. The paper’s opening paragraphs reveal an optimism that verges on hubris:
Asia’s rise is changing the world. . . . The scale and pace of the change still to come mean Australia is entering a truly transformative period in our history. . . . As the global centre of gravity shifts to our region, the tyranny of distance is being replaced by the prospects of proximity. Australia is located in the right place at the right time—in the Asian region in the Asian century.
The document has won wide but not unanimous praise. Australia’s most distinguished historian, Geoffrey Blainey, issued a timely warning, predicting that the smiling Asian century “will sometimes endanger us as well as enrich us.”
Blainey’s caution is well taken. Since the 1960s Australia has wrestled with contradictory views of Asia—as a region of threat and focus of opportunity. For much of its history Australia was a nation handicapped by its isolation, distant from the great power centers and suspicious of its neighbors. At the same time, there has been a deep belief in the benefits flowing from Australia’s Asian destiny. This is not a new idea; rather, it is an idea two generations old that has gained fresh currency. Optimism is now the prevailing mood; the tide of opportunity has won. Australia’s elites seem confident the economic forces defining the 21st century will help Australia, even if they ultimately drive the relative decline of West.
This optimism has many sources, but the greatest is the stupendous resources boom that, beginning in 2003, saw the largest and most sustained lift in export prices in Australia’s history. In 2012 the terms of trade (export prices relative to import prices) were 75 percent above their 20th-century average. Previously derided as an “old economy” because of its heavy commodity profile, Australia saw a rapid escalation in its economic integration with China over the decade as it became instrumental in meeting the massive rise in China’s steel demand. This, in turn, produced a significant lift in national income, judged by the central bank to be the equivalent of an extra 12–15 percent of GDP on an annual basis. While the boom cannot be maintained at this level, China’s growth and Australia’s role as a supplier will remain a long-run story.
The premise of the white paper is to look beyond the commodities boom to the new Asian middle class, which it predicts will increase by 2.5 billion people by 2030 and account for about 60 percent of global middle-class consumption. This presumably guarantees an expanding market for goods, food, agriculture, education, tourism, medical, financial and professional services, environmental management and a range of manufactured products. The Gillard government’s goal is the development of a national plan to ensure Australia’s integration into this market. It transcends a whole-of-government project, aspiring to be a “whole-of-Australia” project requiring the mobilization of business, communities and institutions nationwide.
The resources boom means Australia’s current economic growth of about 3 percent annually is a function of China’s economic performance. According to the government’s vision, future Australian living standards will be even more dependent on Asian and Chinese growth. Its official pronouncements reveal a preoccupation that borders on an obsession with an “Asian Destiny” determining Australia’s future. It has outlined a series of national goals for 2025 that betray not a healthy competitive instinct but overcompensation, for fear that Australia might falter before the economic prowess and cultural discipline of its Asian neighbors. These 2025 national goals include being in the top ten nations for GDP per person; a school system in the world’s top five; having ten universities in the world’s top hundred; giving all school students access to at least one priority Asian language; being in the top five economies for ease of business regulation; and being in the top ten globally for innovation. In short, it is about keeping up with dynamic Asia.
Most of these goals cannot be achieved within the current policy structure. There is no persuasive implementation plan for any of them. The current Labor government, far from having a pro-market reformist record, presides over poor productivity and rising industry costs that are making Australia less competitive, a problem accentuated by its high dollar. Indeed, there is an argument that Australia under Labor is closer in spirit to dirigiste Europe than to Asia. Witness its partial re-regulation of the labor market, increase in trade union power, rising support for human rights laws, commitment to a carbon pricing scheme, extensive welfare spending, rising social libertarianism and faith in government-run enterprises.
There is, however, no gainsaying the symbolism in Labor’s white paper and the sentiment of the policy elite that supported its ideas during a wide consultation process. The message is that Australia’s future lies in Asia, and China is the centerpiece of its hopes. This is not just an issue of trade or finance. It penetrates to comprehensive national strategy. This conclusion has significance for Australia’s ties with the United States.
ne consequence is the emerging argument that Australia, over time, must look more to Asia for its future security. This argument comes, conspicuously, from the retired political class, former Labor Prime Ministers Bob Hawke and Paul Keating. It reflects a range of factors: the economic imperative, geographical logic, and the belief to some extent that Australia must integrate more deeply in its own region. It draws strength from the current historical tide, from the sense that while Asia is rising the United States is in relative, if not absolute, decline. As Prime Minister, Keating promoted the concept that Australia ultimately must obtain its security through friendships with Asia rather than against Asia. In retirement, Keating has taken a stand at odds with the current Labor government, which, despite its convictions about Asian dynamism, sees no contradiction with a deepening U.S. alliance.
In November 2012, delivering the Keith Murdoch Oration, Keating said the “diminished growth potential of the West vis-à-vis that of Asia and South East Asia” meant that Australia’s security linkages “with the West will seem more incongruous than during the post-war years.” Moving to his conclusion Keating argued:
Whilst we will always have a close relationship with the United States based on our shared history and similar cultures, it is obvious that the right organising principle for our security is to be integral to the region—to be part of it rather than insulating ourselves from it, hanging on in barely requited faith to attenuated linkages with the relatively declining West.
Note that this argument for more distance from the United States comes from a right-wing, pro-U.S., former Labor Prime Minister. Keating’s argument embodies an elemental view that Australia cannot indefinitely enjoy rising Asia and empowered America. One of Australia’s prominent strategic thinkers, Professor Hugh White, thinks it unrealistic to expect the United States to retain strategic primacy in the region as China keeps growing. “They cannot both happen at once”, he says. In short, the model on which current Australian policy is built cannot last.
The current political generation, not just the current Labor government, disagrees. It is resolute in wanting the best from rising Asia and empowered America, as has so long been the case. This is the bipartisan policy of Prime Minister Julia Gillard and the opposition leader, Tony Abbott, a John Howard protégé. Gillard and Abbott have a bitter personal and policy relationship, yet they agree on Australia’s strategic framework: Growing economic ties with China and deepening strategic ties with the United States can be reconciled. No Australian Prime Minister will say otherwise unless events in the form of deteriorating U.S.-China relations or military conflict between them force Australia to adjust.
This deep-seated optimism has long been held by both the Labor and Liberal parties, while the challenge to this orthodoxy is only a recent event. Thus the hallmark of Howard’s foreign policy during his 11 years in office (1996–2007) was his success in intensifying the U.S. alliance through his personal ties with President George W. Bush and simultaneously strengthening economic links with China. In 2006 he declared: “I don’t think we have to choose between the Americans and Chinese.” Howard entrenched the notion that true conservatism meant deepening the U.S. alliance while making China a new partner. The Howard legacy is important; it means Australian conservatives are less critical of China and more optimistic about future relations than are American conservatives.
The most arresting display of this orthodoxy came from Howard’s successor, Labor Prime Minister Kevin Rudd (2007–10). A former diplomat and China specialist fluent in Mandarin, Rudd was an opportunist and realist in his approach to China. While dedicated to improving Australia-China ties, Rudd was hostile to China’s military expansion, promoted a 2009 White Paper with plans for an enhanced Australian defense force and, above all, urged the United States to realign its strategic priorities toward Asia. Rudd wanted both a strong U.S. military presence to balance China’s rise and a new U.S. commitment to Asian regionalism, urging President Obama at their January 2010 meeting to bring the United States into the East Asian Summit, the emerging preeminent regional forum. Rudd was fortunate in that Obama came to office predisposed to investing the Asia-Pacific with a higher priority, strengthening ties with U.S. allies in the region and engaging China to ensure its expanded power became a net positive and avoided any regional convulsion.
The pro-U.S. stand taken by Rudd and then Gillard after her successful June 2010 leadership challenge testified to the depth of support for the U.S. alliance in Australia’s political system. Rudd and Gillard have both enjoyed effective relations with Obama. The domestically divisive 2003 Iraq War, supported by Howard and opposed by Labor, had only a shallow adverse impact on Labor’s attitude toward the U.S. alliance. In office, Rudd increased Australia’s commitment to Afghanistan, a position Gillard has maintained. For Australia’s current leaders the dominant factor is the need for a firm, ongoing U.S. commitment to Asia, given the region’s rapid accumulation of economic and military power and its lack of institutions to ameliorate national rivalries.
Labor welcomed and even tried to claim some of the credit for Obama’s November 2011 Asian “pivot” or “rebalancing” speech to the Australian Parliament, in which he announced his “deliberate and strategic decision” to play a stronger role in the Asia-Pacific’s future, an unmistakable signal to China. This followed the Obama-Gillard announcement the previous day of a permanent U.S. Marine Corps training presence in northern Australia and the upgrading of air and naval cooperation between Australia and the United States. Obama said the U.S. commitment to the region was “enduring and unwavering.” Given pressures on U.S. defense spending, Australia is realist enough to take such assurances as the best available.
Rudd, Foreign Minister at the time, slammed Beijing’s criticism of the upgraded alliance. “China has stated publicly its policy is to see the elimination of U.S. alliances in East Asia”, he said. “We are not going to have our national security policy dictated by any other external power. That’s a sovereign matter for Australia.” Rudd urged the Americans to adopt a formula of “multilateral engagement with bilateral vigour”—encourage China to be a good actor but prepare for worst-case scenarios. Labor calls this a “hedging strategy.” It thus welcomes the Obama Administration’s deep engagement with China and official U.S. repudiation of containment as a viable operational concept for Sino-American relations. Australia’s policy approach finds favor among many Asian nations that want a strong U.S. presence to balance China’s rise, though Asians are usually more discreet than Australians in expressing such sentiments.
The significance of these events cannot be underestimated. An alliance originating in the Cold War two generations ago is being refurbished to manage the rise of China, Australia’s main economic partner in the coming Asian century. The alliance now points at China, yet China is the country at the heart of Australia’s simultaneous “Asian destiny” economic game plan. The critics and skeptical former Prime Ministers warn that this contradiction cannot endure. Hugh White contends that the alliance is now “re-directed against China” and that “this is really dangerous.”
The tension between the strategic and economic domains of Australian polity is a new and likely permanent reality, one bound in time to seep into politics. Australia is in the typical position of any junior alliance partner, hostage to the wisdom of its senior ally, in this case America’s skill in dealing with a rising China. The tantalizing issue is when and how China might use its economic leverage with Australia to extract strategic concessions, and ultimately force choices the Australian establishment is loath to make.
Meanwhile, domestic critics remain unpersuasive in their prescription that Australia should put more distance between itself and the United States in order to accommodate China. That advice is hardly a recipe for national success. It would be seen by China for what it is: weakness masquerading as cleverness. Withal, the United States needs to be aware of the intensifying strategic dilemma that Australia faces, and of the new debate it has spawned. But it should not be pessimistic. The task facing the current Australian political generation is unprecedented, yet history demonstrates that Australian leaders have a remarkable capacity to integrate their U.S. alliance and their Asian engagements. As long as Sino-American relations do not deteriorate into a raw, zero-sum contest, future Australian leaders should be expected to manage this challenge successfully.