JACK WATERFORD. Can Knut Morrison hold back the tides?

We’ve lost influence over China and the US, and over Hong Kong and Kashmir and the world may be slipping into recession.

It is beginning to look as if we are drifting, more or less without a pilot, into the interesting times of the old Chinese curse. As one might expect, given our luck, the damnable thing is that there is almost no way that Australia can now much influence or affect a host of events with the capacity to completely change our fortunes.

We have been largely a bit player, and at least on the economic side, rather more independent of the United States over the trade war with China than we have been about an equally serious ramping up of military tensions between China and the United States. Neither conflict – about terms of trade or strategic control over the South China Sea and Asian Pacific coast has yet reached crisis point. With both, either party is capable of stepping back, if no longer to the old status quo. But both arguments have involved a good deal of bombast, bluster and posturing that makes it difficult for leaders to do anything that smacks of backdown or retreat.

But Australia’s capacity to use its good offices and relationships between the two elephants fighting in our neighbourhood is now considerably compromised. Thanks to recent visits from the American secretary of state, we have been verballed into being represented as an automatic, ready and  willing partner with the US in any military confrontation between it and China. That may have been a  tacit understanding for many years, but it was never intended as a blank cheque for American provocations, least of all of the type coming from the erratic President Trump.

China has long understood that Australia is a member of the western alliance. It has, however, invited and expected us to consider our own national interests in the way in which we conduct ourselves in the neighbourhood, particularly as we have become major trading partners and, for China, a prime source of raw materials for its domestic and international economy, and as we have developed educational, cultural and tourism ties.

But they have become increasingly angry with, and dismissive of Australia as, from their point of view, we have been passive during the trade war, and increasingly, in domestic political argument inclined to regard China as a country persecuting its own, actively subverting our democracy and our economy by intelligence operations,  intent on expanding its maritime sphere of influence, and our most likely ultimate military enemy, perhaps invader.

There have always been Australians warning of the danger of China, just as there have been others pointing to the opportunities created by China’s economic growth. That’s not, until recent times, been a debate that has greatly troubled Beijing, even if it might sometimes denounce some of the players. But the tensions ramped up by Trump’s new protectionism, and the tit-for-tat retaliations for fresh tariffs have caused China to be extra suspicious of those giving the appearance of seeing China through American eyes.

The confrontations in Hong Kong are hardly calculated to appease the Chinese. Although Trump has said that he regards the issues in Hong Kong as separate from the trade disputes, there is little doubt that the demonstrations have attracted considerable western sympathy and support. China, indeed, is darkly suggesting that the demonstrations are receiving money from the CIA.

It also suspects that the timing of the demonstrations, and the apparent willingness to continue to defy Beijing in the face of troop movements in China and the horrible memory of Tiananmen Square 30 years ago is based on a premise that China will not want to risk opening another front with the world, as it were. No doubt it also wonders whether the leadership of the protests has received any promises of support from outside if there is a draconian Chinese response.

Any military intervention to put down what is regarded as an insurrection within its own boundaries, or dramatic repressive measures including mass arrests and military law would horrify western opinion, and have an immediate effect on the Chinese economy, particularly through the flight of capital. Fresh evidence of the ruthlessness of a totalitarian state, and its ultimate indifference to external opinion when it believes that the long-term survival of the ruling elite is under challenge would no doubt shock, but probably not surprise, the world. If the immediate impact on its reputation was to cause some diplomatic retreat and refocus on its internal politics, that might not worry China at all, given the problems of the world economy.

The US Stock Exchange took a bath this week after short term (two-year) government bonds rates rose briefly to being higher than long term bond rates. Historically, that has been a signal for a coming recession, usually in about 15 months time. It did not take long for stock falls in the US to reach about three quarters of a trillion dollars US. Here in Australia, the effect was similar, with more than $A60 billion wiped off the values of securities on Thursday. Australia is a major trading nation whose fortunes depend on international prosperity and growth. The combination of recession in the US, clear indications of looming recession or stagnancy in most of the economies of Europe, slowdown in China, and uncertainties about Brexit point to a poor outlook for the Australian economy, beyond any existing problems caused by drought and  sluggish retail conditions.

Australians are periodically reassured by the prime minister, the finance minister and the treasurer, about the very healthy state of the economy, and the government’s absolute conviction that it is still “on track” with its promise of a Budget surplus this year.  The uncertainties caused by poor retail conditions and drought are likely to be compounded by any significant slowing of world growth. There’s a real risk that the idea of a budget surplus in this financial year will prove the mirage it became under Wayne Swan and Joe Hockey, particularly if sluggish trade hits mining revenue and profits. (There is also, of course, a risk that the government’s fetishization of a budget surplus will lead it to delay necessary spending measures designed to get the economy back on track.

Meanwhile, India and Pakistan, both nuclear powers, are again in conflict over the future of Jammu and Kashmir, already the cause of several wars since both countries achieved independence. India has just imposed what is, in effect, direct rule from New Delhi over the divided province. Even if both countries are restrained, one can confidently predict more and more skirmishes along the boundaries, and further repression . It is interesting to think that the United Nations appointed Sir Owen Dixon, High Court judge and diplomat, as a mediator of the Kashmir dispute more than 70 years ago; he did as well as any mediators since, in the process virtually inventing shuttle diplomacy, but was unable, finally to get the two states to agree. Each was intractable because logic and reason proved no substitute for emotion and passion.

If conflict escalates, like almost all of the other friends, neighbours and relations of India and Pakistan, we will be involved in attempting to calm the parties, restrain them from full scale war – let alone the unlikely but also unthinkable resort to nuclear weapons, and to attempt to discourage interventions by outside parties, including China, but now, probably, also including militant Islamic groups searching not only for new arenas of war but also environments in which they can move among essentially friendly populations. Yet despite matters in common, including membership of the Commonwealth, it seems unlikely that Australia will have any significant weight as peacemaker or peacekeeper.

On the other side of the Hindu Kush, President Trump seems to be boiling for more confrontation with Iran, and Australia is, so far, giving every indication that if it comes to that, we will be engaged as well. It is, yet again, a conflict with the potential to engage China, and possibly Russia. And, like most US engagements in the region it is by no means clear what America’s aims are, whether they are achievable, and how we will know that we have won or lost, except through blood and treasure. What is fairly certain, however, is that if Australia becomes involved, it will have almost no role in establishing such aims or objectives, or in directing the fighting that takes place as a consequence.

I have no idea how any of these issues will develop, or what will be their ultimate outcome.  Nor, it seems, do any of the expert analysts, whether from academia, the defence and intelligence establishments, or the economic experts. But any one of them will probably have a more marked effect on Australian politics in the year ahead than anything that Scott Morrison or the Australian government says or does, either in the domestic sphere or as a middle power in the region.  The test of the government will lie rather more in its capacity to foresee and to respond to events in a way that does minimum damage to our economy and our security situation. That might not only involve being nimble, but also being flexible, with rather more focus on our own interests than on the political, economic or military interests of a poorly-led US.

One can argue that Australia’s present lack of clout and influence over such matters is not primarily a matter of our unimportance and insignificance once major players come into direct commercial or military conflict. Australia could have, should have, taken a more independent and proactive role, rather than being content to be a dull echo of the US, or a mere opportunist in the mining and agricultural market place. Nor is it too late to take such a stance, even if, in the short term, the effect of doing so will be limited.

For the moment, however, our politicians must play with the cards they have dealt themselves. It is not as if there is, on most of the matters in question, marked difference of outlook, philosophy or approach among the two major parties of government. In normal times, our politicians magnify relatively trivial differences, but, over the past few decades, our mainstream politicians have tried to make foreign affairs and defence relatively bipartisan, if only because Labor has been mortally afeared of being wedged by the coalition as being soft on national security. Economic differences are somewhat sharper, and, no doubt, Labor will be able to score if the economy contracts, and the surplus becomes both unattainable and a bad policy response to a faltering economy, rising unemployment and regional recessions, if this is what happens.

It may even be that the times will suit Scott Morrison, even as his bouncing pre-election confidence in the economy is undone by events. He has never given any particular appearance of being hidebound or ideological about economic management, and abrupt external events are easily marketable as game-changers authorising retreat from policies no longer appropriate to the situation. John Howard is the working model of redefining old policy into core and non-core commitments. Of dramatic U-turns when policies became unpopular or distractions were needed.

Rahm Emanuel, once chief of staff to Barak Obama, once said that one should never waste a good crisis. The question is whether our crisis managers are up to that task, or whether, as so often, they settle for the second rate.

Jack Waterford is a former Editor of The Canberra Times


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