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Australia has once again been reminded to consider just who pays for our standard of living and economic prosperity by the director of the UTS Australia-China Relations Institute, as geopolitical competition in the Indo-Pacific heats up.
Australia’s economic relationship with China has undergone a profound transformation over the past five decades, evolving from a modest trading partnership into a complex, deeply integrated economic relationship that has significantly shaped Australia’s prosperity.
With the beginning of formal diplomatic relations in 1972, China’s rapid economic reform and opening up from the late 1970s onwards that laid the groundwork for stronger trade ties.
The true turning point came in the early 2000s with China’s entry into the World Trade Organisation, which coincided with a dramatic surge in Chinese demand for Australian raw materials, particularly iron ore, coal and natural gas to fuel its industrial and economic expansion.
By the 2010s, China had become Australia’s largest trading partner, accounting for more than 30 per cent of its exports, with the relationship expanding beyond resources to include education, tourism, agriculture and services.
Today, Chinese students and tourists inject billions into the Australian economy annually and Chinese investment grew significantly across property, infrastructure and agriculture. This burgeoning relationship was further enhanced in 2015, when both nations signed the China–Australia Free Trade Agreement (ChAFTA), cementing this mutually beneficial economic interdependence.
However, the relationship is not without tension.
As China has grown more assertive on the global stage, particularly under President Xi Jinping, Australia has faced mounting challenges in balancing its economic dependence on China with its strategic alignment with the United States.
Beijing’s increasingly coercive diplomacy, expansionist ambitions in the South China Sea and attempts to influence domestic political discourse have raised alarm in Canberra. Australia’s call for an independent investigation into the origins of COVID-19 in 2020 prompted a wave of unprecedented retaliatory trade measures from Beijing, targeting Australian exports from barley to wine and coal.
These developments have laid bare the vulnerabilities of Australia’s economic reliance on a single major partner whose strategic ambitions now directly challenge and conflict with the post-war US-led regional order.
As China continues in its ambitions and efforts to supplant the United States as the dominant power in the Indo-Pacific, Australia finds itself navigating an increasingly complex geopolitical tightrope, where we strive to preserve economic stability while safeguarding national sovereignty and supporting a free and open regional order.
This dilemma underscores the strategic complexity at the heart of Australia’s modern China policy: managing economic engagement without compromising its long-standing security alliances and democratic values and has reinvigorated domestic debate about our economic security, prosperity and the intersection of national security.
The latest to join this debate is the director of the UTS Australia-China Relations Institute (ACRI), James Laurenceson, in a piece for The Australian Financial Review, titled Hawks ignore how Australia’s China trade pays for AUKUS, in which he effectively reminds Australia not to bite the hand that feeds it.
No, it isn’t a Utopia joke
If this subject and the surrounding debate reminds you of that Utopia sketch, don’t worry, you’re not alone. I immediately had the same thought, until I remembered that from virtually every interaction with a person outside of this field on this topic eventually ends up at some version of the joke.
Bringing me to the analysis of Laurenceson who, in responding to the mounting criticism of Prime Minister Anthony Albanese’s recent China trip, takes aim at what he would perhaps term “hyperventilating” from China “hawks”, saying, “Prime Minister Anthony Albanese’s choice to emphasise trade and economic links during last week’s extended visit to China earned the ire of several prominent national security commentators.”
Laurenceson detailed the feedback from the national security community, saying, “Justin Bassi of the Australian Strategic Policy Institute grumbled that it was ‘impossible for any government to successfully separate a trading relationship with China from the security threat it poses’. Strategic Analysis Australia’s Michael Shoebridge lamented that ‘our pursuit of growing trade dependence on China is making us increasingly vulnerable to Beijing and its coercion toolkit’. Instead of doing the hard work of diversification, ‘government and Australian businesses prefer the easy path’.
“In similar vein, while describing Germany’s record of energy dependence on Russia as ‘complacency’ and ‘troubling’, the ANU National Security College’s Rory Medcalf has previously declared that ‘when it comes to geopolitical risk exposure and a lack of a plan B, the Australian iron ore industry still takes the prize’.”
It would be safe to say that much of the Defence Connect audience would, in large part, agree with the assessments made by Bassi, Shoebridge and Medcalf on the nation’s overexposure and utter dependence upon the Chinese economy and the ensuing vulnerabilities this creates within the nation’s enduring prosperity and security.
This reality becomes increasingly important when one considers Beijing’s efforts to coerce Australia during the COVID-19 pandemic for daring to question the official narrative surrounding the origins of the disease, something Laurenceson seems to be either unwilling or unable to steel man.
Rather, Laurenceson focused on the economic interconnectivity and interdependence, saying, “The big mistake made by critics of the government and businesses is that they only see risks from the economic relationship with China when, in fact, one of the big benefits is enhanced security.”
He added, “Good luck buying eye-wateringly expensive nuclear-powered Virginia Class submarines from the US minus the company tax revenue generated by more than $200 billion in annual sales to China, and with the Australian dollar trading at less than 50 US cents. Ditto gaining the approval of the Australian public when a stagnant economy means more defence spending demands cuts to health and education.”
If these points sound like a reheated version of the “Golden Arches” theory of diplomacy, that is the belief that emerged following the collapse of the Soviet Union that nations who traded with one another were less likely to go to war with one another, or, put another way, no two nations with a McDonald’s have ever gone to war with one another.
Laurenceson sought to, in part, offset this belief however, saying, “Wong’s is not a naive belief that trade makes military conflict impossible or grey zone coercion unlikely. It’s a hard-headed assessment that economic connections raise the costs. Critics also draw a straight line between exposure and risk. That last year one-quarter of our total trade was with China is seen as evidence enough that Australia is ‘too dependent’.”
Going further, he stated, “Surveys of businesses operating in the Australia–China economic corridor show a vivid appreciation of the potential costs from geopolitical fallout. Still, most rate other, more mundane risks as even more pressing, like changes in regulations. The key takeaway from Beijing targeting Australia with economic coercion from 2020–24 is that businesses are far savvier than many national security commentators seem to realise.”
Laurenceson also cited the reluctance of China to target our “big-ticket” exports during its efforts to coerce us as proof positive of that same “Golden Arches” theory, saying, “Beijing left big-ticket items like iron ore, LNG, lithium and wool untouched because Chinese importers are as reliant on Australia as a supplier as Australian exporters are to China as a market.”
However, what this overlooks is Beijing’s active efforts to diversify its own supply chains through the Belt and Road Initiative (BRI) and massive “private” investment in central and south America, central Asia and Africa as a means of effectively offsetting and safeguarding their own supply chains from potential coercion from Australia.
This has been reinforced by the rapid expansion of the People’s Liberation Army and its individual subsidiary branches which have been designed with two specific mission sets, to defeat the United States in the Indo-Pacific, usurping it as the regional hegemon, and securing the flow of raw industrial inputs in and manufactured consumer goods out of mainland China.
Questions worth asking
Laurenceson does, despite his running of interference for the China-centric economic relationship, raised some important points about the relationship between the two nations, including some important questions, citing specific examples from the 2020–24 time period, saying, “China accounted for more than 90 per cent of global live rock lobster imports. Likewise, how Australian iron ore exporters might develop a ‘plan B’ when China accounts for more than 80 per cent of global seaborne imports is a mystery.
This becomes all the more important when, as Laurenceson added, that “The China–Australia FTA also means that the average tariff Beijing applies to Australian goods is just 1 per cent. Meanwhile, Washington has walked away from the Australia–US FTA and jacked up the average US tariff to 10 per cent.”
In doing so, he sought to create a false equivalence between the actions of Beijing and Washington, subtly arguing that if Washington acts in such a way, it must also be broadly considered OK when Beijing does it.
He does so, adding, “Among Australia’s national security commentators, calling out Chinese ‘economic coercion’ comes naturally. But US tariffs, as well as diplomatic moves like leaking threats to the AUKUS partnership if Canberra does not pre-commit to fighting a war with the US against China just as Albanese landed in Shanghai, fails to earn the label.”
Now while these questions are reasonable to ask, it does serve to remind, particularly when accounting for Laurenceson’s broader thesis, perhaps in a most subtle way, that Australia needs to be careful about biting the hand that feeds it, lest we become, as former prime minister Paul Keating warned, a “banana republic”.
So this becomes an important conversation worth having with the Australian public, especially if we have a plan for diversifying our economy and industrial base.
Final thought
Both government and average Australians must face some hard truths if we’re to safeguard our future.
First, the Indo-Pacific is fast becoming the world’s most contested region. As China, India, Pakistan, Thailand and Vietnam flex new economic, political and military muscle – and as Japan and South Korea reassert themselves – competition on our doorstep is not only heating up, it is becoming our new normal. We need to recalibrate our “whole-of-nation” strategy accordingly.
Second, without a sustained surge in investment, reform and long-range planning, we risk not only slipping behind but being swept away by the inertia of our region. If we don’t act now, future generations could find Australia dwarfed by richer, more powerful neighbours, with less economic clout and weaker security.
We’ve long favoured quick wins and reactive policies. Since Federation, governments have chased immediate gains instead of playing the long game. But as the Indo-Pacific shifts beneath our feet, short-term thinking won’t cut it. We must look ahead, seize new opportunities and blunt rising threats.
The real question isn’t whether these challenges are coming – it’s when we’ll roll out a detailed, strategic response. When will Canberra set out a clear vision that rallies industry and the public behind our changing role? When will we see a plan that keeps Australia resilient amid intensifying great-power rivalry?
With China pressing its influence, Australia faces a choice: hang back as a bit-player or step up and help shape the Indo-Pacific’s future. The decisions we make now will decide whether we thrive in this new era or get swept along by it.
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 at
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.
