The United States under President Donald Trump is on a mission to add economic policy to the armoury of national security policy to deal with a rising China. The approach holds the global economic order hostage to the attempt to put China back in its box. The stakes are as high as they get. But how should middle powers like Australia and its neighbours like Japan or Indonesia respond to the hard choices they now confront?
Using economic instruments for geopolitical objectives is nothing new. Between the two world wars the practice ended in wholesale military conflict. But the US inspired post war rules-based international regime extended US political influence through the spread of open markets at the same time as it constrained the use of trade sanctions for political security objectives (although not completely as United Nations-based economic sanctions became a feature of the geopolitical action).
‘Geoeconomics’ — conventionally defined as the use of restrictions on international commercial transactions to achieve political objectives — is now being touted as a new force in international and security relations that should be brought into active play.
Without understanding the economic implications of international economic policies, alongside their political and security implications, however, the ill-considered use of economic policy for geopolitical objectives will produce misguided policies that damage both economic and national security.
That’s exactly what the United States is doing with tariffs on Chinese imports, increased barriers to investment and bilateral economic coercion in the name of national security. China is the main target but other countries, the WTO system and multilateral institutions are also under threat. These policies will make the United States poorer and weaker, and damage its status as a global leader. If other countries follow suit, they will make themselves and the world poorer, weaker, and less secure.
How should a country like Australia navigate a world in which its primary security ally and its largest economic partner are descending into destructive rivalry while still themselves being deeply economically integrated?
For some, the answer is to follow the United States further down this track and reframe foreign policy in security terms. In this conception, the only option is total alignment with US decoupling strategy, and every economic exposure to China is cast as an all-or-nothing risk to national security. No understanding of the economic costs or the security options enters this calculus. Nor are third countries assumed to be an effective object of policy engagement on an alternative, multilateral course with or without the United States.
For others, the answer is to add a geoeconomic approach to foreign policy. That might sound like a good idea but what exactly does that entail?
The intellectual origins of ideas about geoeconomics are twofold. The first is simply about the analysis of spatial, temporal, and political aspects of economies and resources. The second is a branch of geopolitics that interrogates international politics, security and economics and commonly insists that the same logic that underlies military conflict also applies to international commerce. The first idea is of interest, though marginal, to the big issues today. The second is the way of thinking about international commerce, that prominently undergirds that of Peter Narravo, US President Trump’s trade advisor, as an instrument of warfare. That idea has been hijacked by those focussed on security issues, absent hard economic calculation and comprehensive consideration of economic as well as political security that is ostensibly its purpose. Especially for small and middle powers such as Australia it’s a strategy that will sap both economic strength and national security.
The securitisation of all national interests reduces the policy space and instruments that can be deployed to enhance both economic and national security. Soundly framed international economic policies are central to reducing the costs of broader economic and political engagement, both in dollar and in policy terms.
Economic policy and engagement reinforce and habituate a rules-based international order and, significantly, they create a bigger, broader plurality of interests in countries that reduces the costs of national security.
If geoeconomics is the answer, it had better be informed by the agencies of hard economic analysis, not left to the agencies of diplomacy or security, else it too will be a security strategy bereft of judgment about national economic interest.
Take the large economic relationship that Australia has with China. A third of Australia’s exports go to China, led by education, natural resources and tourism. No economist would sensibly advocate deliberately reducing trade dependence on China, even if they consistently argue for broadening Australia’s range of economic relationships. Many in the political and security community do. It may be doable, but the question is at what cost and whether there are better options?
It’s not a matter of just the profits of businesses at the high end of town but people’s livelihoods that are put at risk. If Australia made the choice to cut back dependence on China, it would be withdrawing from trade with the world’s largest trading nation, a country that’s playing by rules to which we’ve all agreed. We certainly need more rules in some areas. But only Mr Navarro (and perhaps Mr Trump) would suggest that that’s a reason for tearing down the rules we have and that have worked quite well.
The right strategy is to manage economic interdependence within the multilateral trade regime and continue to build rules and markets that reinforce the global plurality of interests on which security within the global economic system is more soundly built. That system protects Australia effectively. It’s Australia’s primary national economic and security priority. It would be most unwise to acquiesce in tearing it down.
Shiro Armstrong is Director of the Australia-Japan Research Centre and Director of the Asian Bureau of Economic Research, The Australian National University.
Peter Drysdale is Professor of Economics and head of the Asian Bureau of Economic Research, The Australian National University.
This article originally appeared on the Australian Financial Review.