Failing to plan or planning to fail? Australia remains hopelessly ill-equipped to handle fallout of Taiwan crisis

The modern consumer economy has been built around the assumption that whatever we need can be sourced from somewhere in the world, moved across oceans and continents, and delivered with remarkable efficiency.

But ask Australians whether they are comfortable with the same dependence when it comes to fuel, critical industrial chemicals, AdBlue and urea-based fertilisers, pharmaceuticals, medical equipment or basic protective equipment, and the answer changes dramatically.

The COVID-19 pandemic provided a particularly uncomfortable demonstration of just how exposed Australia had become. At the height of the crisis, a country that considers itself wealthy, technologically advanced and resource-rich found itself scrambling for basic medical supplies, including masks and other personal protective equipment.

The lesson should have been obvious: efficiency is not the same thing as resilience and a supply chain that works perfectly in normal times can become a strategic vulnerability when the assumptions underpinning it collapse.

For several decades, however, those assumptions appeared entirely reasonable.

Australia enthusiastically embraced the post-Cold War era of hyperglobalisation. From the late 1980s and early 1990s onwards, successive governments pursued economic liberalisation, deregulation, financial integration and deeper engagement with global markets. Manufacturing was increasingly exposed to international competition, domestic production moved offshore and Australian businesses became ever more reliant on international supply chains.

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There were enormous benefits. Consumers gained access to cheaper goods, Australian exporters gained access to rapidly expanding markets and capital flowed more freely around the world. Globalisation appeared not simply to be an economic phenomenon, but the inevitable direction of history.

Yet beneath the impressive headline figures of an increasingly service-oriented and globally integrated economy, Australia’s industrial foundations were steadily being hollowed out.

Factories closed. Manufacturing capability migrated overseas. Domestic production of strategically important goods became uneconomic or simply disappeared. Industrial skills and supply chains that had taken generations to establish were progressively lost. In many cases, Australia retained the raw materials but surrendered the capacity to transform them into higher-value products.

The assumption was that if Australia needed something, the global market would provide it. That assumption increasingly looks less like economic wisdom and more like a strategic gamble.

Nearly four decades after the beginning of this transformation, the optimistic vision of an increasingly borderless global economy is colliding head-on with geopolitical reality. The world is not becoming less contested; it is becoming more contested. The return of great-power competition, Russia’s war in Ukraine, instability across the Middle East, the weaponisation of trade and technology, increasingly fragmented energy markets and growing competition for critical minerals have exposed the fragility of the economic system Australia built its prosperity around.

In many respects, Australia has been something of a canary in the coal mine, one other nations and governments have recognised and even sought to rectify.

During COVID-19, Australia found itself on the front line of a rapidly deteriorating international economic environment. Our relationship with China, our largest trading partner, was weaponised after the Australian government called for an independent investigation into the origins of the pandemic. Trade restrictions and coercive economic measures demonstrated that commercial interdependence could rapidly become a tool of geopolitical pressure.

The extraordinary aspect is not that Australia was caught exposed once. It is that we have repeatedly demonstrated the same vulnerabilities and still appear reluctant to fundamentally address them.

The pandemic presented an opportunity to rebuild domestic manufacturing capacity, diversify supply chains and establish strategic reserves of critical goods. Russia’s invasion of Ukraine provided another warning about the importance of energy, fertiliser, food and industrial resilience. The wars and instability across the Middle East have reinforced the vulnerability of global shipping routes and energy markets.

Yet Australia’s response has too often been sluggish incrementalism rather than transformational.

We continue to operate an economy in which a significant proportion of the goods required to keep Australians fed, mobile, healthy and productive must travel thousands of kilometres before reaching their destination. We remain extraordinarily dependent on maritime trade and uninterrupted access to international markets. We possess enormous reserves of energy and critical minerals, yet much of the processing and manufacturing value chain remains offshore.

This is the paradox at the heart of Australia’s economic model: we are simultaneously one of the world’s great resource nations and one of its most import-dependent advanced economies.

And the next crisis could be considerably more consequential than COVID-19 or the conflicts in the Middle East or Europe.

The potential ramifications of a Chinese invasion or blockade of Taiwan should force Australia to confront this reality with urgency. Such a conflict would not merely be a military confrontation in the Western Pacific. It could trigger an unprecedented disruption to global shipping, semiconductor production, energy markets, financial markets and critical manufacturing supply chains.

For Australia, the consequences could be profound.

A conflict in and around the Taiwan Strait could disrupt the maritime arteries upon which our economy depends while simultaneously increasing demand for the very resources, fuel, equipment and industrial products that Australia may struggle to produce domestically. Shipping insurance could surge, freight capacity could collapse, energy prices could spike and access to critical components could become subject to strategic allocation.

In that environment, the question would no longer be whether a product can be purchased cheaply on the global market. It would be whether the product can be obtained at all. That distinction matters.

A resilient nation cannot simply assume that international markets will continue functioning during a major geopolitical crisis. Nor can national security be reduced to the number of ships, aircraft and missiles possessed by the Australian Defence Force. Military power ultimately rests upon an economic and industrial foundation capable of sustaining it.

Fuel, steel, aluminium, chemicals, electronics, machine tools, pharmaceuticals, batteries, vehicles, telecommunications equipment, precision components, fertiliser and countless other inputs form the invisible infrastructure of national power.

The great strategic mistake of the post-Cold War era was to treat these capabilities primarily as economic questions rather than strategic ones.

Australia now has an opportunity to correct that mistake. COVID-19, the war in Ukraine, instability in the Middle East and the accelerating confrontation between the United States and China have collectively provided perhaps the clearest warning Australia will receive before the next major crisis arrives.

The choice is therefore not between globalisation and isolationism. Australia will remain an outward-looking trading nation. The question is whether we can become a trading nation that is also capable of surviving when global trade falters.

That means rebuilding domestic industrial capacity, diversifying critical supply chains, maintaining strategic reserves and developing the ability to manufacture a far greater proportion of the goods required to sustain Australian society and the national defence effort.

The objective should not be autarky. It should be resilience. For decades, Australia optimised its economy for efficiency, low prices and access to global markets. The emerging strategic environment demands something more: an economy designed not only to prosper when the world is stable but to endure when it is not.

The era of assuming that the global supply chain will always be there may be coming to an end. Australia needs to prepare for what comes next before it does.

Highlighting this is Nathan Attrill, senior analyst with the Australian Strategic Policy Institute’s (ASPI) Cyber, Technology and Security program, in a piece for The Strategist, titled Australia is not ready for an economic blockade of Taiwan, in which he detailed just how unprepared for a crisis both the nation and it’s people are should one break out closer to home.

A blockade is just as dangerous as an invasion

For many, the idea of a Chinese blockade of Taiwan can’t help but conjure up images of the US naval “quarantine” of Cuba following the discovery of Soviet nuclear weapons during the early 1960s, and in the most part, that analysis would be pretty spot on. However, the regional and global ramifications of such an event would undoubtedly be significantly higher for all involved.

This analysis stems in large part following the warnings of US Senator Tammy Duckworth during an interview for the Washington-based Center for Strategic and International Studies in mid-July, where she proposed an alternate theory to the standard theory about a People’s Liberation Army invasion of the island democracy.

Senator Duckworth said: “It is actually blockading the straits and telling shipping companies that if you want to go through the Taiwan Strait, you need to check in with the PRC Coast Guard to help escort you through the strait safely.”

Such an occurrence certainly isn’t without precedent, particularly in recent times as Iran has sought to, in essence, enforce a quarantine of the Strait of Hormuz, responsible for approximately 20 per cent of the global liquid fuel reserves. Warning of this, Duckworth said: “Let’s make sure that what’s happening in the Strait of Hormuz does not become the new and acceptable norm for all of the other waterways around the world.”

Bringing us back to the analysis provided by ASPI’s Attrill who built on the theory proposed by Senator Duckworth, saying, “Beijing could require commercial vessels entering the Taiwan Strait to report to the China Coast Guard for an escort, ostensibly to ensure their safety. China would not need to declare a blockade or immediately prevent every vessel from reaching Taiwan. It could instead present its actions as routine maritime regulation and force shipping companies to choose between complying with Chinese instructions and challenging them.”

This reality would ultimately have dramatic implications for the broader Indo-Pacific and global geoeconomic and geostrategic balance, particularly as it effectively dialled up the threshold on grey-zone warfare while further blurring the lines between war and peace, complicating the response decision-making process across the region.

Attrill hinted at this saying, “An economic blockade would exploit the uncertain space between peace and armed conflict. China could announce new reporting requirements, inspection procedures, exclusion zones or compulsory escorts. It might selectively delay or divert vessels rather than close the strait entirely. Coastguard and maritime-law-enforcement ships could take the lead, with the Chinese army remaining nearby or in the background.

Going further, he said: “Beijing would almost certainly describe these measures as necessary to preserve navigational safety and regional stability. It could accuse Taiwan of creating the crisis and portray foreign governments or shipping companies that refused to comply as irresponsible.”

And here is where the additional, downstream impacts begin to unfold before our eyes, with particularly devastating domestic economic impacts for Australia that would ultimately serve to further compound the structural deficits already unravelling the national economy before our eyes.

Attrill detailed this through the lens of the nation’s dependence on maritime trade and unmolested sea lines of communication, particularly between our continent and major trading partners in northern and western Asia, saying, “Commercial caution could then do much of Beijing’s work. Shipping companies might comply with Chinese instructions to protect crews, vessels and cargo. Insurers could withdraw coverage or impose prohibitive premiums.

“Ports and logistics companies might suspend Taiwan-bound services. Energy suppliers could delay shipments rather than risk becoming involved in a geopolitical confrontation. Each decision could appear commercially rational. Collectively, however, they could help China establish effective control over access to Taiwan without having to formally announce a blockade.”

He went on to add: “Australia would be unable to treat such a crisis as a distant dispute. Its economic security depends on open regional sea lanes and the principle that major powers cannot unilaterally impose control over international waterways. A successful Chinese effort to regulate access to Taiwan would also establish a dangerous precedent for the wider Indo-Pacific.”

As this unfolds before our eyes, it would ultimately not only colour but complicate the shape of any Australian response and equally would influence the response from regional and global allies, particularly if the scenario is kept beneath the threshold of open conflict, presenting both Australian policymakers and the Australian public with a difficult course of action.

A devastated economy, paralysed decision making, brittle military

For Australia, a Taiwan Strait crisis would begin long before the first exchange of missiles or naval gunfire. The most consequential decisions facing Canberra could initially have little to do with the Royal Australian Navy and everything to do with Australia’s merchants, ports, insurers, energy companies and shipping lines.

That is precisely what makes the prospect so confronting: Australia has built an extraordinarily trade-dependent economy, yet its capacity to protect and assert its interests in a major confrontation remains comparatively limited.

If Beijing sought to impose a quarantine or blockade around Taiwan, as proposed by US Senator Duckworth’s theory, Canberra would immediately confront a series of questions for which there can be no satisfactory answers improvised in the middle of a crisis.

Would Australian-owned or Australian-linked vessels be instructed to ignore Chinese reporting requirements and continue sailing? Would the government provide insurance, financial guarantees or other forms of support to companies prepared to maintain commercial links with Taiwan? If a merchant vessel were boarded, diverted or detained by Chinese forces, would Australia regard that as an act of coercion requiring economic retaliation?

Critically, Australia’s policymakers and the Australian public are going to have to grapple with the reality that the “global rules-based order” no longer holds any sway or influence and all the international institutions we have spent the better part of a century investing in and convincing ourselves of are no longer worth the international paperwork they’re written on.

These are not hypothetical questions of maritime law. They could become decisions with enormous consequences for Australia’s economy.

China is Australia’s largest trading partner, while Australia’s prosperity remains heavily dependent on uninterrupted maritime commerce. A serious Taiwan Strait crisis could therefore expose a fundamental weakness in the Australian economic model: we possess enormous natural resources but our ability to transform those resources into national power depends upon access to global markets, shipping and imported industrial inputs.

The first requirement for Canberra should therefore be to establish an unambiguous definition of what constitutes coercive maritime action. Beijing should not be permitted to determine Australia’s interpretation simply by describing a blockade as customs enforcement, maritime safety regulation or quarantine. If Chinese authorities impose requirements designed to restrict Taiwan’s access to international shipping, the strategic effect matters more than the terminology.

“Australia should first develop a clearer policy definition of a coercive blockade or quarantine. Beijing’s terminology shouldn’t determine Canberra’s response. Measures designed to restrict Taiwan’s access to international shipping should be recognised for their strategic effect, even when presented as customs enforcement or maritime safety,” Attrill said.

That distinction would be crucial because Beijing’s imposed ambiguity is itself a weapon.

A grey-zone operation could be designed specifically to create uncertainty among governments and corporations. If commercial vessels cannot determine whether complying with Chinese instructions constitutes ordinary maritime practice or participation in an unlawful blockade, many companies will inevitably choose the safest commercial option: stay away.

That is where Australia’s economic vulnerability becomes particularly acute.

Attrill said: “Canberra should also begin structured consultations with shipping companies, port operators, energy suppliers and insurers. The government needs to understand how these industries would respond to Chinese instructions and what support they would need to continue operating. Without prior planning, commercial actors would understandably default to avoiding risk.”

Canberra should therefore be engaging now with shipping companies, port operators, freight companies, energy suppliers, insurers, banks and major exporters. Government needs to understand precisely what these businesses would do if Beijing began issuing instructions to Australian-linked vessels and what financial, legal and security guarantees would be necessary for them to continue operating.

Without that preparation, private companies would be entirely rational in prioritising the protection of their employees, vessels, cargoes and shareholders. Governments can contemplate strategic objectives; commercial operators must consider immediate liability and financial exposure.

Australia consequently needs to treat economic resilience as an integral component of national defence.

That requires exercises that go well beyond traditional military war games. A serious Taiwan Strait tabletop exercise should bring together Defence, Foreign Affairs, Treasury, Trade, Transport, Energy and financial regulators alongside the private sector. The objective should be to model what happens when shipping insurance disappears, freight rates explode, Chinese authorities threaten Australian vessels, critical imports are delayed and major export markets become inaccessible.

Attrill goes on to say: “Australia should conduct tabletop exercises that include not only defence and foreign-policy officials but also officials responsible for trade, transport, energy and finance. A quarantine would create economic, legal and diplomatic problems before it became principally a military one.”

The exercise would almost certainly reveal something uncomfortable: a Taiwan crisis would become an economic emergency before it became a conventional military emergency for Australia.

Regional coordination would be equally important. Australia should work with the United States, Japan, South Korea, New Zealand, the Philippines and other willing partners to establish in advance what Chinese actions would trigger diplomatic condemnation, targeted sanctions, freedom-of-navigation operations or practical assistance to commercial shipping.

“Coordination with regional partners would be equally important. Governments should establish in advance which Chinese actions would trigger coordinated diplomatic pressure, sanctions, freedom-of-navigation operations or assistance to commercial shipping. Naval transits alone would not preserve Taiwan’s commercial access. Australia and its partners would also need practical options for sustaining flows of energy, food and other essential goods,” Attrill said.

Simply sending an Australian warship through contested waters would not, by itself, preserve Taiwan’s access to international commerce. Nor would symbolic diplomatic statements keep energy, food, pharmaceuticals and industrial inputs moving.

The real challenge would be maintaining the functioning of the economic arteries upon which Taiwan, Australia and the broader Indo-Pacific depend.

This is where Australia’s limited capacity to independently assert its interests becomes particularly stark. Australia is a wealthy middle power, but it does not possess the military, economic or maritime capacity to unilaterally guarantee the freedom of regional commerce against a determined great power.

Our security therefore depends upon these alliances and partnerships. But alliances are only effective when Australia has already determined what it is prepared to defend, how it will contribute and what economic costs it is willing to absorb.

The danger is that Australia’s decision-making machinery remains fragmented across departments, governments, regulators and industries, with responsibility divided precisely when speed and clarity would be most valuable.

Beijing could exploit that fragmentation. The objective of preparation should not be to make war inevitable. It should be to make paralysis less likely.

Attrill hinted at this, saying, “The purpose of this preparation would not be to make confrontation inevitable. It would be to deny Beijing the assumption that ambiguity would cause paralysis. China may calculate that other governments would hesitate to challenge a blockade that did not look like one. It may also expect individual companies to comply before democratic governments can agree on a response.”

China may calculate that democratic governments will hesitate when confronted with an operation deliberately designed to remain below the threshold of open warfare. It may expect companies to comply with Chinese demands before governments can reach a common position. If that calculation is correct, Beijing could potentially isolate Taiwan without ever formally declaring a blockade.

That is why deterrence cannot simply mean preparing to defeat a Chinese invasion. Australia and its partners must also demonstrate that an attempt to isolate Taiwan through maritime regulation, commercial intimidation and coastguard enforcement would trigger a coordinated response.

For Canberra, the central lesson is simple: the next great strategic crisis may be decided not only at sea, but in boardrooms, ports, insurance markets, fuel terminals and government offices.

Attrill said: “Effective deterrence requires more than preparing to defeat an invasion. Beijing must also believe that an attempt to isolate Taiwan through maritime regulation, commercial intimidation and coastguard enforcement would encounter an organised international response.”

If Australia waits until those decisions become urgent, it may discover that it has far fewer options than it imagined.

Final thoughts

Australia’s greatest strategic vulnerability has never been a lack of geography, resources or trusted allies. It has been a longstanding tendency towards strategic complacency, the assumption that our geographic isolation would continue to shield us from major conflict and that, should a serious crisis emerge, larger allies would ultimately carry the greatest burden.

For decades, that assumption served Australia reasonably well. But the strategic environment that sustained it is rapidly disappearing.

The international order is undergoing its most significant transformation since the end of the Cold War. Great-power competition has returned to the centre of global affairs, but this contest extends far beyond military capability. Economics, technology, energy, critical infrastructure, financial systems, supply chains and industrial capacity have all become instruments of national power.

For Australia, that means the battlefield of strategic competition increasingly extends beyond the traditional domains of the Australian Defence Force and into our factories, ports, power grids, telecommunications networks and financial markets.

The consequences of Australia’s decades-long economic transformation are therefore becoming increasingly difficult to ignore. As manufacturing capacity migrated offshore and supply chains became progressively more dependent upon global markets, Australia became extraordinarily efficient in favourable circumstances but increasingly vulnerable when those circumstances deteriorate.

A modern military cannot operate without fuel, ammunition, electronics, spare parts, skilled workers, industrial capacity and secure supply chains. Nor can a government exercise meaningful strategic independence if it cannot guarantee access to the essential goods and energy required to sustain its economy.

Australia therefore faces a defining choice.

We can continue relying upon favourable geography, global markets, inherited assumptions and the expectation that our allies will ultimately come to our assistance. Or we can deliberately build the comprehensive national power necessary to protect Australian interests in a far more contested world.

That requires considerably more than increased defence spending.

Australia must rebuild sovereign industrial capacity, expand advanced manufacturing, secure reliable and affordable energy, strengthen critical infrastructure, develop resilient supply chains and accelerate technological innovation. Our enormous reserves of minerals and energy should be viewed not simply as export commodities, but as the foundations of a far broader industrial and technological economy.

Most importantly, these policies cannot continue operating in isolation.

Defence, foreign policy, trade, industry, energy, infrastructure, science and economic policy must become components of a coherent whole-of-nation strategy. National security is no longer something that can be confined to Defence headquarters or diplomatic missions overseas. It is increasingly determined by the strength and resilience of the economy itself.

As Australian strategist and former Defence Department policy thinker Marc Ablong has rightly observed, luck has never been a strategy.

Australia has benefited enormously from favourable geography, prosperous global markets and powerful alliances. But none of these should be mistaken for permanent guarantees.

Great-power competition is no longer a distant possibility that might define the decades ahead. It already does. The question is whether Australia will shape its strategic future through deliberate preparation and national resolve or continue relying upon circumstances and assumptions that are rapidly becoming obsolete.

We still possess extraordinary advantages. The challenge is to turn those advantages into national power while we still have the freedom to choose.

Australia must decide whether it intends to shape the emerging strategic order or simply endure the consequences of decisions made by others.

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 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..

Stephen Kuper

Author

Steve has an extensive career across government, defence industry and advocacy, having previously worked for cabinet ministers at both Federal and State levels.

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