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Once the world’s undisputed economic and industrial power, the United States is now facing the potential of multiple equally capable rivals, leaving a glaring “economic blindspot” in their national security planning, begging the question, where does that leave Australia?
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For much of history, the geopolitical environment has been the story of multipolarity, whether it was the intense rivalry between Rome and Carthage, the British Empire and Napoleon’s France, and even through to the Cold War competition between the United States and Soviet Union.
By far, the most central characteristic of this history is the utter dominance of a small number of nations, empires or kingdoms over others, which created what is often described as a lopsided approach to the geopolitical concept of polarity, making the world a tricky environment in which to operate, particularly for middle and emerging powers.
Today’s world is no different, despite the post-Second World War dominance of the global leavers of power, institutions and commons by the United States, the post-war world has always maintained an element of multipolarity.
The five permanent members of the United Nations Security Council, in particular, establish the world as a “multipolar” environment in spite of the widely-held belief that the United States was the global hegemon, particularly following the collapse of the Soviet Union in 1990, which required considered and measured diplomacy by all parties involved, particularly the global hegemon.
However, in recent years, the post-Second World War order has come under assault both directly and indirectly – as emerging powers like China and India, backed by established powers, like a resurgent and increasingly belligerent Russia, begin to build out rival economic, political, and strategic networks and systems to challenge the world order and directly undermine the legitimacy and reputation of the United States and the post-war order.
Today, the new revolutionary world order would not be led in major part by Russia, rather it would be spearheaded by Mao and now Xi’s China, an economic, political, and strategic juggernaut that extensively studied the lessons of history and has never quite recovered from its “Century of Humiliation” at the hands of colonial empires, with its eyes firmly set on usurping the global status quo.
For the United States, the incumbent global hegemon, the last three decades of unrivalled dominance and optimism post-Cold War have equally seen a hollowing out of the once-unrivalled US economic and industrial base, disastrous forays in military adventurism in the Middle East and Central Asia, all the while the world’s emerging powers rapidly develop their own immense economies and strategic capabilities to reshape the world in their image.
For former Deputy US Treasury secretary Justin Muzinich, the era of post-Cold War hubris, coupled with unfettered globalisation, has left the United States, like many of the Western nations, dangerously exposed and dependent on adversarial nations at worst or apathetic nations at best, all with a common objective: overthrowing the post-Second World War order they have all grown wealthy and powerful off.
In his piece for Foreign Affairs, titled “American National Security Has an Economic Blindspot: How to Reduce the Vulnerabilities That Free Markets Create”, Muzinich highlights the current challenging environment which faces the US economy and by extension, Australia and the broader Western alliance network, saying:
“The world has entered an era in which economic conflict can increasingly determine the fate of nations. While the use of economic tactics to gain geopolitical advantage extends back to ancient Greece, globalisation has amplified the consequences of potential disruptions in trade and money flows, leaving the United States in unfamiliar territory … Today imports from China are roughly (US)$500 billion, representing 15 per cent of all US imports. As an example of this US-Chinese integration, consider that Apple, the world’s largest company, relies on China for one-third of its production and nearly one-fifth of its sales. Such interdependence has created a paradox: the United States is at once more economically vulnerable and more powerful than at any time in its history.”
We’re not prepared, but we do have some tools
Perhaps most concerning for policymakers and the broader populace, who have never known an actively contested global environment, is this recognition that US power isn’t infinite and our “long holiday from history” is finally coming to an end and uncomfortably so for nations like Australia who have, like the US, waved goodbye to many critical strategic industries in favour of cheaper goods.
Nowhere is this clearer than with mounting economic stagnation and de-industrialisation, in the name of globalisation, beginning in the 1980s and continuing unabated through the 1990s and into the early 2000s, have further undermined the world’s great powers and are serving to dramatically shift the global balance of power.
Muzinich highlights this stating, “Washington, however, is not ready for this period of leverage and vulnerability. The economic security powers of the United States reside largely in the US Treasury and Commerce Departments, and the tools these agencies have can be potent. But the decision-making infrastructure that supports the use of these tools is not adequate for a period of great-power tension, in some cases having been designed to target terrorists after 9/11.
“As a result, the United States has effective tactical tools but often lacks the information and coordination needed for sound decision making. Ideally, major escalation and conflict can be avoided, but if not, Washington and its allies must ensure that free economies are better prepared to defend free people,” Muzinich adds.
Despite this, the United States and its alliance network do have a host of tools in the economic toolbox that can provide some measure of economic security, ranging from trade and fiscal policy, strengthened by legislative agendas such as the CHIPS Act signed in 2022 designed to build an in-country semiconductor industry in the event of potential hostilities over Taiwan.
These mechanisms are further supported by mechanisms like the Committee on Foreign Investment in the United States (CFIUS), similar to Australia’s own Foreign Investment Review Board (FIRB), with the sole objective of “ensuring that US companies with strategic technology cannot be purchased by foreigners who could use that technology against the United States”.
Washington is seeking to strengthen the CFIUS architecture through a number of mechanisms, namely a new push to more directly influence outbound capital, best explained by Muzinich who states, “Washington is exploring whether to adopt rules governing outbound, as opposed to inbound, capital flows – for instance, a US company funding strategically sensitive research and development in China. These rules could affect US companies more generally, not just those being acquired by a foreign entity, and could therefore significantly expand the monitoring of cross-border capital.”
Finally, there is the now well-trodden path of economic sanctions which have had varying degrees of success against Russia post-invasion of Ukraine but have been met with better degrees of success against smaller, less, “potent” global powers like Iran, Venezuela, and to a lesser extent, North Korea (by sheer virtue of its own well documented pursuit of international pariah status).
Yet these tools only have limited efficacy over the long-term, particularly if there is no long-term plan on the “economic chess board”.
Markets don’t necessarily create security
For Muzinich, the central failing undermining the long-term economic competitiveness, security, and prosperity of the United States is the tendency for short-term, policy making on the fly, as opposed to more considered economic policy making, with a realist understanding of the state of play on the global geopolitical and economic chessboard.
Muzinich highlights this raising some poignant questions worth considering in greater detail in the Australian context as well, “US policymakers need to be thinking several steps ahead, developing intuition and understanding of how the international economic chessboard could evolve were tensions to escalate between China and the United States. If the United States sanctions Beijing, would China sell its US debt and equity market exposure? How would markets react? Which parts of the US industrial supply chain could be put under severe pressure? On which allies would the United States become more economically dependent? And what if countries such as Brazil or India do not cooperate with the United States? What would that do to both the US economy and the Chinese economy?”
These questions become only more important for Australia when one considers the economic over-exposure of the nation across sectors ranging from agriculture and resources to higher education, and of course, real estate, the store of much of Australia’s economic value, particularly for the average Australian.
Unpacking the broad conceptualisation of these economic, political, and strategic challenges further, Muzinich highlights that this isn’t a uniquely Australian or American challenge, but rather it is a challenge shared by many nations in the Western alliance network, with many falling into a tried and true understanding of economic game theory, that is, “Similarly, the thinking in Washington lacks depth with regard to a basic trade paradox: trade can make war less likely because of the interdependencies it creates, but it also increases vulnerability if hostilities erupt.”
Final thoughts
Only by recognising the relative decline of the United States (not a popular opinion to state out loud) and accepting that the United States has limitations can Australia truly begin to take stock of the challenges of operating in this increasingly multipolar world.
However, it is critical for us to understand that Australia’s security, prosperity, and stability will not be determined by events in Europe, nor will they be determined by circumstances in the Middle East, while they may influence circumstance, our national future will not be determined by these areas.
It is important to highlight that in the coming era of multipolarity, Australia will face an increasingly competitive Indo-Pacific. Indeed, separate to the People’s Republic of China, our immediate region is home to some of the world’s largest populations with its fastest growing economies with their own unique designs and economic, political, and strategic ambitions for the region.
Rather, we have to accept that while the world is increasingly becoming “multipolar”, the Indo-Pacific, in particular, is rapidly becoming the most hotly contested region in the world. Underpinned by the emerging economic, political, and strategic might of powers like China, India, Pakistan, Thailand, Vietnam, and the established and re-emerging capability of both South Korea and Japan in particular are serving to create a hotbed of competition on our doorstep.
Recognising this array of challenges and opportunities, both the Australian public and its policymakers need to look beyond the myopic lens that has traditionally dominated our diplomatic, strategic, and economic policy making since Federation.
Ultimately, we need to see Australia begin to play the long game to fully capitalise on the opportunities transforming the Indo-Pacific. The most important question now becomes, when will we see a more detailed analysis and response to the challenges and opportunities facing Australia and when will we see a narrative that better helps industry and the Australian public understand the challenges faced and opportunities we have presented before us?
As events continue to unfold throughout the region and China continues to throw its economic, political, and strategic weight around, can Australia afford to remain a secondary power, or does it need to embrace a larger, more independent role in an era of increasing great power competition?
Get involved with the discussion and let us know your thoughts on Australia’s future role and position in the Indo-Pacific region and what you would like to see from Australia’s political leaders in terms of partisan and bipartisan agenda setting in the comments section below, or get in touch
Stephen Kuper
Steve has an extensive career across government, defence industry and advocacy, having previously worked for cabinet ministers at both Federal and State levels.
