Hard choices must be made now on security and trade

Bifurcation of global trade is gathering pace, and countries and companies are faced with tough choices about how they must respond. Papua New Guinea this week made a welcome declaration of its close security ties with Australia in the face of intense trade and diplomatic pressure from China.

PNG Defence Minister Billy Joseph, in a landmark speech at the Australian Strategic Policy Institute defence conference in Canberra on Wednesday, said his country “stands with Australia” and supports the international rules-based order and a free and open Indo-Pacific.

Beijing’s recent naval provocations have concentrated the minds of leaders both here and in PNG.

The temperature is increased further with warnings from the top of US defence that the Chinese Communist Party leadership was serious in its preparations for an invasion and takeover of Taiwan. US Defence Secretary Pete Hegseth told the Shangri-La Dialogue in Singapore last weekend a Chinese invasion of Taiwan “could be imminent”.

Should it happen, it would be another plank in what Wall Street Journal columnist Walter Russell Meade has described as a “War of Revision” in which China, aligned with Russia, North Korea and Iran, has formed an axis of revisionist powers aimed at challenging the existing world system on every continent, at sea, in space and in the cyberworld.

Events in Ukraine are a window into what defence planners fear will be a much bigger conflict.

The current trade war delivers some grim messages about how ill-prepared Western nations are. Where China has spent years preparing – with only partial success – to insulate itself from dependence on the US and its allies, major economies, including Australia, are still heavily dependent on China for trade.

The latest example is the difficulties exposed by Donald Trump’s trade war with Beijing. The US President’s intention has been to force major corporations to return manufacturing to the US. Yet with carmakers, which have been a major target for Mr Trump, it might produce the opposite result.

Amid accusations that China had failed to honour what it promised to do in talks to reduce tariffs – no surprise there – US carmakers could be forced to halt domestic production within weeks. This is because they are unable to source magnets that are ubiquitous in today’s production lines for electronic goods.

China has a stranglehold on the rare earths needed to make the magnets and is refusing to give permission for them to be exported to US customers. The latest reports are that several traditional and electric vehicle makers – and their suppliers – are considering shifting some auto parts manufacturing to China to avoid looming factory shutdowns.

This has been a building situation that holds deep warnings for trade-exposed nations such as ours. China has been working hard to ensure it has diversified lines of supply for its critical needs. This includes major new projects to supply iron ore from Africa that could pose a substantial threat to the value of Australia’s major commodity exports.

Back home, across a range of essential goods from transport fuel to energy, policymakers have been too slow in safeguarding supplies and the supply lines that deliver them in the case of emergency.

Opportunities exist in a world in which trade and defence relations between the great powers continue to worsen, notably in developing alternative supplies of rare earths. But the warnings are clear, and becoming louder, that the window to act is closing fast.