Pacific Power Play
Will Australia’s New PM Kill the Japan Submarine Deal?

Yesterday, we worried that the surprise replacement of Former Australian Prime Minister Tony Abbott with the more restrained Malcolm Turnbull might mean Canberra would be less willing to stand up to Beijing. In line with our assessment, the Financial Times predicts that the leadership change will imperil a large Australian purchase of Japanese-made submarines:

There are a few clear-cut if tangential effects from Australia’s latest coup. Earlier this year, the country opened up to tender a contract worth up to A$50bn for a fleet of submarines. Front runners Japan’s Mitsubishi Heavy Industries (MHI) and Kawasaki Heavy Industries (KHI) — favoured by former prime minister Tony Abbott — competed with France’s state-owned DCNS and ThyssenKrupp of Germany. Japan’s postwar absence from defence contracting might make it appear an odd choice. The Japanese bid is thought to have US support, however — not least to help make Japan a regional counterweight to China.

Mr Turnbull’s arrival may weaken the Japanese bidders’ chances. MHI and KHI have been reluctant to commit much of the building process to Australian facilities, citing inadequate onshore capabilities and security concerns. A reshuffled cabinet could lean towards bids that provide jobs in Australia and stem offshore leakage of taxpayers’ money.

The proposed U.S.-backed submarine purchase is a big deal: it would significantly enhance Japan’s defense industry and solidify relations between Japan and Australia. Killing it could be read as a signal in Beijing that the new Australian PM wants better relations with China. It might be read that way too in Tokyo and Washington.

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