Keep leading, but diversify economy: Former US national security advisor warns Australia

Despite its relative isolation, Australia’s position as a global trading nation, and its entrenched dependence upon the maintenance and expansion of the post-Second World War order, has left the nation at a unique and troubling crossroads, particularly as its largest and most powerful ally, the US, appears to be floundering against the rising tide of history. 

On the opposite side of the vast expanse of the Pacific, the world's rising economic, political and strategic power, the People's Republic of China has emerged as a direct challenger to the US-led world order, seeking to expand its influence, power and prestige, while also guaranteeing its unrivalled access to raw resources, food and energy to fuel its voracious economic appetites. 

Australia in particular has reaped the benefits of its almost uncompromising economic relationship with Beijing and its enduring strategic partnership with the US, however the dream run of balancing the interests of two competing superpowers is at an end as Australia and Australians are increasingly asked to pick a side. 

While Australia is not alone in facing down this conundrum, the nation is in some ways more susceptible to the fall out of any increase in the tensions between Washington and Beijing, with Canberra increasingly finding itself at the centre of the rising power's wrath. 

This has seen an increasing number of Australian export industries find themselves firmly in the cross hairs of Beijing's attempts at economic coercion, from barley and copper to lobster and wine and, perhaps most concerningly, now Australia's coal exports are on the chopping block, as the nation is increasingly accused of provoking the rising superpower. 

China for its part has also stepped up its rhetoric, accusing the Australian government of blindly following the antagonism of the US and seeking to "poison" the bilateral relationship between the two nations, with the Chinese government declaring, "China is angry. If you make China the enemy, China will be the enemy". 

As part of these attempts, the Chinese government doubled down, delivering a dossier detailing 14 alleged disputes the nation has with Australia, ranging from government funding of the Australian Strategic Policy Institute (ASPI), alleged raids on Chinese journalists, through to the Prime Minister's calls for an independent, international investigation into the origins of COVID-19 and finally, speaking out about Chinese oppression in Hong Kong and Xinjiang. 

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Adding further fuel to the fire, Prime Minister Scott Morrison's recent official visit to Japan's new Prime Minister Yoshihide Suga to ratify the Reciprocal Access Agreement (RAA), which will expand the interoperability and engagement between the militaries of the two nations, drew further fire from Beijing, however this landmark agreement has also drawn widespread support from the US.

Former US national security advisor and retired Lieutenant General H.R. McMaster has recently lauded the leadership position Australia has embraced, standing up to the challenge and embracing the mantle of leadership in the Indo-Pacific as the US grapples with ongoing domestic upheaval and the ensuing economic, political and societal impacts of COVID-19.     

Speaking to Tom Steinfort of Channel 9's 60 Minutes program, McMaster was exceptionally complimentary of the initiative the Commonwealth government has embraced as much of the world and its traditional great powers in Europe and North America continue to grapple with the fall out of the COVID-19 pandemic, however while McMaster praised elements of the government's pushback, he believes there is more that can be done. 

In particular, McMaster expressed concerns about the nation's economic dependence upon China, the level of understanding by the Australian public and the subsequent impact both factors have upon the nation's preparedness and sovereignty and resilience as the nation responds to the blatant attempts to force Australian compliance, stating: 

"I think Australia is taking a position of leadership across the Indo-Pacific and globally. I for one am extremely grateful for it, Australia has been a leader in recognising this isn't just a US-China problem, this is a free world-Chinese Communist Party problem and if we work together, and enlist others in the cause of strengthening our democracies, of strengthening our free market economic systems that is a net good for the world, and Australia is right at the centre of that effort. 

"It [China's dream relationship with Australia] would be a servile relationship, it would be a relationship of dependence, one in which your leaders and your people would be afraid to criticise China, lest they suffer the consequences."   

McMaster, perhaps most importantly, added, "They co-opt us and then once you're in, once you're profiting from the relationship they use that coercive power against you and then they conceal these aggressive actions just as normal business practices, look at the economic coercion aimed at Australia.

"It is an issue of educating the Australian people, the American people, everyone about the threat to them and their children and grand children if the Chinese Communist Party succeeds, I think the long-term approach though is diversification of exports in such a way that we can confront the party without fearing this kind of retribution."

These comments raise an increasingly prominent, poignant and critical question for serious consideration: how does Australia adequately and cohesively respond and prepare for a future of increased disruption, competition and coercion? 

We've been here before and we still haven't learned

This startling and concerning recognition has been gaining traction in Australia's public policy community, and is identified by ASPI's director of the defence, strategy and national security program, Michael Shoebridge, in a piece titled 'The end of Australia’s China boom shouldn’t be such a surprise'.

Shoebridge establishes the nation's growing realisation that its primary trading partner might not have our best interests in mind, stating, "Australian lobster, wine, beef, barley, cotton and copper ore sales to Chinese consumers and companies are being stopped by the Chinese government. What’s happening is not just a transitory interruption, regardless of whether the blanket bans foreshadowed last week are about to emerge or stay blurry.

"Last week’s threats are simply the most recent and clearest indication that the temporary but highly profitable China market boom for Australia’s commodity and services exports that has run since 2014 is ending — and probably pretty quickly.

"That’s what booms do, and it’s never a happy time as the painful realisation emerges.

"We’ve been here before, and the psychology and political analysis aren’t that different. During the 2000s into the 2010s, we welcomed the cash flowing from the mining and mining investment booms. We had warnings from bodies like the International Monetary Fund about the economic risks that made those income streams vulnerable, but we told ourselves it was the new normal. As the Australian National University’s Warwick McKibbin said, ‘All politicians and certainly a lot of public servants seemed to believe that this boom would go forever.’ But it didn’t."

These warnings, it would seem, have been similarly supported by long-held concerns Australia is doing little to maximise the boom times and economic opportunity they presented to the nation, something Shoebridge expands on, stating:

"There were suggestions that Australia wasn’t taking advantage of the fat times from the boom to make provision for the future. Ideas were floated like starting a sovereign wealth fund with the government revenue received from the big miners, as Norway had done so successfully from its oil and gas revenues. But Treasury discounted these suggestions. Nevertheless, the investment boom ended, as we all knew it would."

We can't ignore the dramatic shift in Chinese policy

COVID-19 and the ensuing economic, political and strategic turmoil has also paved the way for the world to recognise the easily bruised ego of China's President Xi Jinping as nations, including Australia, place pressure on the Chinese government for an inquiry into the origins of the pandemic. 

This push, spearheaded by Prime Minister Scott Morrison, has seen Beijing take direct aim at Australian exports, something Shoebridge believes needs to be taken into account by Australian policymakers as the nation seeks to recover from the economic impacts of the pandemic: "Why is the China market boom ending? Because China has changed under Xi Jinping, and Xi has changed the terms under which companies and countries can access the China market.

"He’s also changed the terms on which Chinese businesses can run their companies and access things like stock markets, as Alibaba owner Jack Ma has discovered as he’s tried to float Ant Group on the Shanghai and Hong Kong exchanges. International banks are discovering this in Hong Kong as the national security law affects far more than ‘the few’ Carrie Lam promised.

"Chinese policymakers talk about ‘reform and opening up’ and making China a better, more predictable place for foreign trade, investors and companies. But the government’s relentless drive to exert greater control over trade and economic partnerships and to intervene in unexpected ways is sending the opposite message — and not just to Australia.

"China’s market is becoming more closed, more difficult and more unpredictable, not more open and reciprocal. And, for companies operating from jurisdictions whose governments are not on board with the policy directions and strategic imperatives of Xi’s government, market access is being used as a weapon.

"It’s a weapon designed to punish such governments, like Australia’s, to pressure them through domestic business lobbies that simply want sales to continue, and to intimidate other governments that might be contemplating similar policies."

What this recognition does establish is the need for a strategic rethink about the nation's economic relationships, particularly the growing need for market diversification and the introduction and expansion of a national industry policy and supporting framework to support the government's $1.5 billion Modern Manufacturing Initiative (MMI) 

Economic resilience as strategic deterrence 

The last time Australia’s public policy community was called upon to respond to such a predicament was the combined challenges of the Great Depression and the Second World War, both of which had a dramatic impact on the national psyche and the post-war period of rebuilding and expansion. 

This model is perfectly summarised by Ricky French in a piece for the Weekend Australian, titled 'After catastrophe, opportunity knocks', stating: “We’ve seen it time and time again.

“After bust comes boom. Major disruptions and economic calamities have historically opened the doors for positive change and left lasting imprints on our built landscapes.

“Against the backdrop of COVID-19, we’re seeing it again, with the rediscovery of the local neighbourhood counterpointing the tragedies of unemployment and its associated issues. We’ve started once again looking for a legacy, wondering how our country might visibly change for the better, seeking out that light in the gloom.”

Indeed, in looking for the “legacy” as French states, the Australian public are seeking to reignite not only Australia’s sense of identity, but equally reignite Australia’s potential and indeed the promise our still young nation has to offer both to the citizens and the world, particularly as we will be increasingly required to provide for our own prosperity, stability and security in an era of great power competition. 

Recognising this, French poses an important question for consideration: “So, where to now? Our borders are shut, there will be no influx of migration to fulfil grand infrastructure schemes, or create demand for them.

“As we step into our first recession in almost 30 years, what lessons from the past can we learn? Will any shining landmarks stand out when we look back on this time 30 years from now?”

Well, that is an important question to ask, and it is critical to identify that Australia’s state, territory and Commonwealth governments have made small strides to shore up industries across the economy. The approach is unfortunately fragmented and fails to be guided by a broader strategy and indeed vision for the nation at a time when both the public and the world are calling for Australia’s level-headed approach to life. 

However, the simple reality is we can’t offer the world our best if we’re not at our best. 

Addressing this requires a considered, targeted and integrated approach to develop not only economic resilience, but equally, economic competitiveness, industry diversity and, above all, trade diversity in an increasingly competitive and contested global environment. 

For Shoebridge, embracing the possibilities is a policy no brainer: "The direction we need to take is pretty clear, even if it’s not easy. We need to make the China market matter less to us, just as it did for the sectors mentioned above only six years ago. Because this is such a recent phenomenon, we know we can change the structure and direction of trade in these items. And the more difficult the Chinese government makes it for us to access the China market, the more this will happen.

"No single market can replace China, but wealthy consumers across the world want to buy more lobsters and more wine than the world can supply, and our commodities and resources are, as they were before the pandemic, high quality and well priced.

"Making the China market matter less, ironically, is also the best way to reduce the likelihood the Chinese government will use our trade against us, because it makes that trade much less of a weapon. If 20 per cent of our wine and lobster sales go to China in 2024, for example, bilateral trade will have returned to being more a simple calculation of mutual benefit that’s easier to divorce from politics and power." 

These points are further enhanced by a poignant and timely question raised by senator for NSW, retired Major General and long-time advocate for a holistic National Sovereignty Strategy, Jim Molan, AO, DSC, who recently told Sky News: "The point that I make is that if we need to put $270 billion over the next 10 years into defence, what other parts of our society, of our nation do we need to address to match whatever this $270 billion is going to buy us in the end?

"The basis for our national security is the economy. The problem I have is how does a government know risks it is taking by not funding certain aspects of national security, if it doesn’t know what we absolutely need?"

Your thoughts

Australia is a nation defined by its economic and strategic relationships with the Indo-Pacific and the access to the growing economies and to strategic sea lines of communication supporting over 90 per cent of global trade, a result of the cost-effective and reliable nature of sea transport.

Indo-Pacific Asia is at the epicentre of the 21st century’s era of great power competition and global maritime trade, with about US$5 trillion worth of trade flowing through the South China Sea and the strategic waterways and chokepoints of south-east Asia annually.

For Australia, a nation defined by this relationship with traditionally larger yet economically weaker regional neighbours, the growing economic prosperity of the region and corresponding arms build-up, combined with ancient and more recent enmities, competing geopolitical, economic and strategic interests, places the nation at the centre of the 21st century’s “great game”.

Enhancing Australia’s capacity to act as an independent power, incorporating great power-style strategic economic, diplomatic and military capability serves as a powerful symbol of Australia’s sovereignty and evolving responsibilities in supporting and enhancing the security and prosperity of Indo-Pacific Asia. 

Australia is consistently told that as a nation we are torn between our economic relationship with China and the longstanding strategic partnership with the US, placing the country at the epicentre of a great power rivalry – but what if it didn’t have to be that way?

Get involved with the discussion and let us know your thoughts on Australia’s future role and position in the Indo-Pacific and what you would like to see from Australia’s political leaders in terms of shaking up the nation’s approach to our regional partners.

We would also like to hear your thoughts on the avenues Australia should pursue to support long-term economic growth and development in support of national security in the comments section below, or get in touch with This email address is being protected from spambots. You need JavaScript enabled to view it.or at This email address is being protected from spambots. You need JavaScript enabled to view it..