The ongoing strategic competition between the US and China and, to a lesser extent, the same tempo of competition between Japan and South Korea may challenge the global ‘rules based order’ but Australia is well positioned to emerge as a stable, honest and reliable alternative for economic and industrial investment, enhancing the nation’s strategic independence.
As a nation, Australia has enjoyed a record setting three decades of uninterrupted economic growth buoyed by the voracious appetite of a growing China, however all good things come to end as the political, economic and strategic competition between the US and China enters a new phase placing both the global and Australian economies in a precarious position.
Further compounding these emerging challenges is the growing period of economic and strategic competition between Japan and South Korea, equally important US and Australia allies, which have long-standing, robust links to Australia's economic security. As this vortex of competition continues to devolve into a game of economic brinkmanship, resulting in trade tariffs and hindered supply chain access, many within Australia's political, economic and strategic policy communities have sought to redouble the nation's exposure to volatile and slowing economies.
Australia's earliest economic and strategic relationship with the British Empire established a foundation of dependence that would characterise all of the nation's future economic, defence and national security relationships both in the Indo-Pacific and the wider world. As British power slowly declined following the First World War and the US emerged as the pre-eminent economic, political and strategic power during the Second World War – Australia became dependent on 'Pax Americana' or the American Peace.
The end of the Second World War and the creation of the post-war economic and strategic order, including the establishment of the Bretton Woods Conference, the International Monetary Fund and the United Nations, paved the way towards economic liberalisation and laid the foundation for the late-20th and early 21st century phenomenon of globalisation.
While the collapse of the Soviet Union and the end of the Cold War cemented America's position as the pre-eminent world power – this period was relatively short lived as costly engagements in Afghanistan and Iraq, peace-keeping interventions in southern Europe and enduring global security responsibilities have drained American 'blood' and 'treasure' – eroding the domestic political, economic and strategic resolve and capacity of the US to unilaterally counter the rise of totalitarian regimes and peer competitors in both China and Russia.
For Australia, the economic emergence of the Indo-Pacific has presented the opportunity to re-write the nation's economic narrative, leveraging areas of natural competitive advantage, supporting the industrial reset with the birth of the fourth industrial revolution. Economic diversity and competitiveness is an essential component of enduring and sustainable national security.
However, this period of economic, political and strategic competition and brinkmanship provides interesting opportunities for Australian policy makers eager to navigate the economic, political and strategic competition of the region – the vast size and potential of Indo-Pacific Asia, particularly the economic opportunities and competition between global manufacturing hubs, the advent of Industry 4.0 and the new industrial revolution, combined with Australia's vast resource, energy and agricultural wealth serve as viable avenues for Australia to develop economic, strategic and political independence.
Developing economic independence in the Asian Century
While successive Australian governments of both persuasion have sought to expand Australia's integration and participation in the economic miracle that is the rise of the Indo-Pacific – China has continued to dominate the nation's economic narrative from the housing sector to agriculture and resources and energy – often to the detriment of relationships with regional nations that approach Beijing with a degree of caution.
Undeniably China is an immense economic, political and strategic power – with a voracious appetite driven by an immense population and the nation positioning itself as the manufacturing hub of the world – however, beyond the 1.4 billion people, Indo-Pacific Asia is home to approximately 2.5 billion individuals each part of the largest economic and industrial transformation in human history.
Importantly, as Australia's traditional strategic benefactors continue to face decline and comparatively capable peer competitors – the nation's economic, political and strategic capability are intrinsically linked to the enduring security, stability and prosperity in an increasingly unpredictable region.
This approach fails to recognise the precarious position Australia now finds itself in, however it does identify key areas for the nation's political and strategic leaders to focus on if Australia is to establish a truly independent strategic capacity – this focuses largely on:
- Australia's continuing economic prosperity and stability and the role the economy plays in supporting defence capability;
- The economic, political and strategic intentions of Australia's Indo-Pacific neighbours; and
- The rapidly evolving technology-heavy nature of contemporary warfare.
But what does this look like? This period of unravelling relationships, seemingly fickle, transactionally focused strategic partners, economic slow downs and direct economic confrontation between allies all positions Australia as a stable, reliable and responsible nation committed to the economic, political and strategic stability of the Indo-Pacific.
What this does require is a shift in the way in which the nation views not only itself, but also its position within the region – this also requires an opportunistic approach to the competition embroiling key allies like Japan, South Korea and the global shift away from China driven by US President Donald Trump's continued pressure on companies with heavy operations in the rising power.
The rise of these economic powerhouses – driven by a combination of increased resource, energy and consumer goods consumption and the development of an advanced domestic manufacturing base – places Australia in both an opportune and precarious position, as the growing economic wealth has translated to increased demand for resources, energy, agricultural and consumer goods, but also increased investment in defence capability.
This rapidly evolving global and regional environment, combined with the increasing instability of the US administration and its apparent apprehension to intervene or at least maintain the global rules-based order following the radical shift in US politics, also forces Australia to reassess the strategic calculus – embracing a radically new approach to national security strategy and policy – more specifically, the role industry plays in supporting long-term national security.
Certain industries, including heavy manufacturing like steel production, shipbuilding, auto-manufacturing, aerospace and chemical engineering, resource and energy exploitation and agricultural output, serve core components of a strategic industry. Meanwhile, the growing complexity of the regional and global strategic paradigm supports the necessity for a cohesive industry development strategy.
Industry 4.0 and resetting the industrial balance of power
Despite Australia's widely recognised position as providing a world-leading research and development capacity – supported by both private and public sector research and development programs driven by organisations like the CSIRO – traditional areas of high wage-costs and low productivity in Australia's manufacturing industry exemplified in the failure of Australia's domestic car industry and in the series of cost overruns and delivery delays on both the Collins and Hobart Class programs have characterised Australia's reputation as a manufacturing economy.
Enter Industry 4.0 – the combination of additive manufacturing, automated manufacturing and data sharing, with a coherent National Strategic Industry development policy, can compensate and in some cases overcome the traditional hindrances faced by the Australian economy, with public-private collaboration essential to ensuring the long-term sustainability and success of Australia's defence industrial base and broader manufacturing economy.
While industry largely provides the technological expertise, government policy provides the certainty for investment – particularly when supported by elements of Australia's innovation and science agenda combined with grant allocation and targeted, contractual tax incentives (signed between the Commonwealth and the company as a memorandum of understanding) linked to a combination of long-term, local job creation, foreign contract success, local industry content, and research and development programs, which are critical components that can be used to empower and enhance the overall competitiveness.
Australia as a nation, like many Western contemporaries, has been an economy and nation traditionally dependent on heavy industries – capitalising upon the continent's wealth of natural resources including coal, iron ore, copper, zinc, rare earth elements and manufacturing, particularly in the years following the end of the Second World War.
However, the post-war economic transformation of many regional nations, including Japan, Korea and China, and the cohesive, long-term nation building policies implemented by these nations has enabled these countries to emerge as economic powerhouses, driven by an incredibly competitive manufacturing capability – limiting the competitiveness of Australian industry, particularly manufacturing.
Recognising this incredibly competitive global industry and the drive towards free trade agreements with nations that continue to implement protectionist policies buried in legislation, Australia needs to approach the development of nationally significant heavy industries in a radically different way, recognising the failures of and the limitations of Australia's past incarnations of heavy industry.
Identifying these industries is the first step in building a cohesive, long-term plan as part of a broader National Strategic Industries Act – using the legislative power of government to counter-balance industry development policies of allied, yet still competitor nations like South Korea – which leverages the industrial development policies of export oriented industrialisation (EOI) to develop its economy into a major economic and modern, advanced manufacturing powerhouse.
Indo-Pacific Asia's rise means the ‘tyranny of distance’ has been replaced by a ‘predicament of proximity’. China, India, Indonesia, Thailand, Japan and several other regional nations are reshaping the economic and strategic paradigms with an unprecedented period of economic, political and arms build-up, competing interests and rising animosity towards the post-World War II order of which Australia is a pivotal part.
The nation is defined by its relationship with the region, with 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 global maritime trade, with about US$5 trillion worth of trade flowing through the South China Sea and the strategic waterways and choke points of south-east Asia annually.
For Australia, a nation defined by its 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 geo-political, economic and strategic interests, places the nation at the centre of the 21st century's 'great game'.