COVID-19 has plunged the Australian and global economy into a major recession and revealed a startling vulnerability to easily constrained global supply chains, prompting a growing call for nations, including Australia, to consider the “reshoring” of industry.
For many nations, COVID-19 has served as a form of divine intervention, revealing foundations of sand and the frailty of over-dependence on the lowest cost proposition, ailing infrastructure and rapidly declining resilience – Australia is no exception, however it is in the midst of this adversity that we can truly chart our own path forward.
Across the globe, the post-Second World War economic, political and strategic order is coming under siege, driven by mounting waves of civil unrest and rising levels of the favourite boogeyman of much of the media, 'nationalism'.
Growing economic stagnation across the West, concerns about climate change and the increasing geo-strategic competition between the world's great powers are all undermining the global balance of power.
Adding further fuel to the fire is the global and more localised impacts of COVID-19, which range from recognising the impact of vulnerable, global supply chains upon national security as many leading nations, long advocates of "closer collaboration and economic integration", grasp at the lifeboats of the nation-state to secure their national interest.
While this economic, political and strategic turmoil is in some ways 'unprecedented', the favoured catchphrase of many a media personality seeking to describe anything from the bushfires that devastated swathes of the landmass, the economic impact of COVID-19 or the societal upheaval sweeping the West, Australia does its best work when its chips are down.
Responding to these challenges has pushed the public policy status quo to the edge, as government grapples with how to stimulate the economy, lower unemployment and prepare the nation for the increasingly disrupted and challenging decades to come.
The concept of "reshoring" has emerged as a powerful policy mechanism for enhancing national security, limiting a nation's dependence on easily contested or constrained global supply chains.
While this concept has been a favoured policy of US President Donald Trump and his "America First" campaign policy platform, there is an element of legitimacy to the concept.
Highlighting this, former US Defense Department official Jerry McGinn, who is now the executive director of the government contracting centre in the School of Business at George Mason University, in a piece for Defense News unpacks just how the model can be best used by the US and Australia to fast track economic growth, boost employment and secure national interests.
McGinn says, "US government officials have called for the 'reshoring' of domestic industrial capacity in several areas in recent weeks. Whether it is the production of pharmaceuticals and personal protective equipment, or the development of microelectronics, specialty chemicals and materials, calls for a significant increase in US manufacturing capabilities are coming through loud and clear. This makes complete sense, but how do we do this reshoring?
"The solution is not an autarkic 'Buy America'-only approach that would be counterproductive to our long-term economic health. Instead, we need to have a laser focus on getting out of the China business with respect to industrial capabilities critical to national security and, in many cases, doing that with a little help from our friends."
Australia isn't alone in this struggle
It is critical to recognise in forming any response that Australia is not alone in confronting this period of global and regional turmoil in isolation, however, its almost total dependence upon China's economic growth for its own growth has placed the nation in a precarious position.
This is particularly relevant as the war of words between the two nations continues to unfold and Beijing resorts to blatant economic coercion, now targeting Australia's wheat farmers to force compliance with its view of the COVID-19 pandemic and to more broadly legitimise its territorial claims in the region.
In responding to these challenges, it has now been firmly established that Australia needs to take greater responsibility for its own economic destiny, diversifying its trading relationships to better support and nurture economic competitiveness and growth over the long term.
This is something championed by Lowy Institute non-resident fellow Professor Alan Dupont, who recently issued a challenge for Prime Minister Scott Morrison, calling for him to "balance" the nation's relationships between the two antagonistic superpowers, with a focus on building Australia's economic resilience and security.
For Professor Dupont, this is an essential part of the nation's response to the global turmoil, explaining, "Adjusting our foreign policy, trade and security settings will be crucial to determining our place in an emerging world order that will be far less favourable than the last. Disruption to global supply chains is intensifying.
"Most countries want to lessen dependence on China-centric value chains, especially for strategically important goods and commodities deemed essential for national resilience. Trade protectionism and strategic tensions are on the rise. A recrudescent nationalism is leaving 'anywhere' internationalists and the Davos crowd lamenting lost power and influence."
This is part of a broader paradigm shift influencing the global economic, strategic and political balance of power Australia has been dependent upon for the best part of a century and for Professor Dupont spells only one thing: increased great power tensions, competition and animosity.
Expanding on these points, McGinn correctly emphasises that protectionism isn't the answer, stating, "It is hard to see how it is beneficial to eliminate key international suppliers from our defence industrial base, many of whom have significant physical and economic presence here, not to mention the fact that the countries where these companies are based — mainly our NATO allies and close partners like Japan, Australia and Israel — buy billions of dollars of US defence systems each year.
"Protectionist efforts are also wrong-headed because they are not strictly focused on the real problem in our industrial base, namely the dependencies on companies based in adversarial countries such as China."
Drawing the allies together
The strength of the Allied war effort during the Second World War was the sheer industrial capacity of the allies, dispersed around the world, but namely in the US, UK, Canada and Australia.
This dispursed industrial base enabled the Allies to simply out build the Axis and paved the way for the post-war economic boom responsible for the levels of wealth and prosperity these nations currently enjoy.
For McGinn, this close relationship is the key to ensuring economic resilience and security for the US and its allies, including Australia. To this end, McGinn explains:
"Under Secretary of Defense for Acquisition and Sustainment Ellen Lord has further underscored the importance of 'partners and allies supporting us as much as possible' in efforts to 'reshore as much as possible' capabilities such as microelectronics fabrication and rare earth processing. In a little-known provision, DPA projects specifically identify Canadian firms as eligible for Title III project awards.
"Furthermore, Congress expanded the national technology and industrial base in the fiscal 2016 NDAA, making the US, UK, Australia and Canada one industrial base.
"The Senate has a provision in the FY21 NDAA that would establish criteria for the expansion of the national technology and industrial base to other countries."
This concept serves to spread the burden and enables these nations to work collaboratively with 'like-minded' partner nations, providing flow on benefits for them, enhancing the alliance network overall.
Masters of our own destiny
For far too long Australia has deferred to the leadership and guidance of others, preferring to be shaped by the economic, political and strategic realities of the world.
In doing so, as a nation we have failed to reach our true potential, we have failed to become the masters of our own destiny and we have failed to bend the majesty and potential of the continent to our will, often leaving the nation equally as vulnerable to domestic shocks as it is to global ones.
As Australia and the globe enter what could be the single greatest economic depression since the Great Depression of the 1930s, Australia has two choices: be defined by the global shocks and continue to limp along as our regional neighbours surge ahead, or grasp the reins and drive our own future.
There are some models to follow, ranging from the New Deal of US president and wartime leader Franklin Delano Roosevelt or, looking more closely to our regional neighbours, South Korea's recently announced 'Korean New Deal', which leverages the length and breadth of state power to develop an economic transformation strategy for the 21st century.
In order to achieve this Australia must not only embrace the very real potential of becoming the "poor white trash of Asia" as so eloquently established by Lee Kuan Yew.
But, Australia should also use such an outcome as a rallying call, a wall against our back to unify and pull the nation in a common direction, shaking off one of the very apt criticisms of Australian policy making: the fact that public policy-making decisions are based on the comparatively short election cycles and further impacted by conflicting jurisdictional interests and actions.
In light of this, it is time for Australia to plan for the next 15 to 20 years, not the next term of state, territory or federal government, providing policy consistency, vision for the public and surety in a period of global and regional turmoil.
Each of these contribute to the nation's sovereignty and security at a time when many of the principles that Australia's post-Second World War public and strategic policy is based upon coming under threat – serving to make Australia a more reliable economic, political and strategic partner amid a period of great power competition.
Furthermore, it serves to make Australia more resilient to man-made and natural shocks, resistant to coercion, economically competitive and robust at a time when the Australian public are calling for leadership, forward planning and vision.
Australia is defined by its economic, political 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.
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.