National strategic and economic interests overlap

Scott Morrison’s visit to Washington this spring for a Quad meeting with Joe Biden, Indian Prime Minister Narendra Modi and Japan’s new prime minister will be vital for regional security. It will take place at a vital time for strategic, defence and economic policy on both sides of the Pacific and in Asia. Australia faces a markedly different global environment to that of October 2003, when US president George W. Bush and Chinese president Hu Jintao addressed our parliament on successive days, as Josh Frydenberg will remind the ANU Crawford Leadership Forum on Monday.

In a landmark speech, the Treasurer will point out that Australia is on the frontline of a new battleground — strategic competition — in which our economic and security interests increasingly overlap. China’s willingness to exert its economic weight by targeting our agricultural and resources exports such as coal, wine, seafood and barley was a form of political pressure. Australia will remain steadfast in defending our sovereignty and core values, Mr Frydenberg will emphasise. But in doing so, the nation had been subjected to economic coercion. Against that background, the Morrison government was bolstering national economic resilience by investing in lower personal taxes, business investment incentives, digital transformation, deregulation, skills training and education. In the same way, Australian businesses needed to invest in their own resilience. They can do so, Mr Frydenberg will note, by offsetting cyber risks, safeguarding supply chains, diversifying markets and not overly relying on any one country — essentially adopting a “China plus’’ strategy. Many also have done so, which is why exports to the rest of the world of the goods targeted by the Chinese have increased. Nor is Australia alone in dealing with strategic competition. About 130 countries now have China as their largest trading partner. The combination of economic weight, global integration and assertiveness poses new and significant challenges for many countries around the world, Mr Frydenberg will tell the forum.

China’s targeting of Australian exports shows strategic competition increasingly playing out in the economic arena, blurring the lines between economics, politics and national security. At the same time, as Greg Sheridan wrote on Saturday, Australia needs to pursue much greater self-reliance in security. Defence Minister Peter Dutton repeatedly told parliament last week that the situation in the Indo-Pacific is deteriorating and is as uncertain as the period leading up to World War II. But, as Sheridan wrote, Australia was not spending near enough to match the gravity of our circumstances. Nor were we gaining enough “bang for our buck’’. Our nation’s ability to inflict pain and cost on any serious aggressor was almost zero: “In simple terms, we need asymmetric capabilities which can inflict damage, cost and pain on a much bigger aggressor.’’ Investing in cost-effective equipment such as extra offshore patrol vessels, armed drones suitable for maritime use and unmanned underwater vessels to augment and complement our submarines and “large numbers of mobile weapons’’, would improve our position. Everything the government was doing on missiles is good, Sheridan noted, “ but it’s monstrously slow’’.

The costs of defence spending are also looming large as economic reality bites in the US, Washington correspondent Adam Creighton reports on Monday: “The President is planning $5 trillion of domestic infrastructure spending over the next decade, inevitably leaving fewer funds for weapons and soldiers. As Biden shifts the US toward a European-style welfare state, the military will become less affordable. Washington’s debt is at the highest level since World War II, and health and social security costs are set to balloon further as the population ages.’’ As the US picks itself up from the debacle of its exit from Afghanistan, it is also coming to grips with the $US2.3 trillion cost of the war over 20 years, excluding healthcare costs of looking after the veterans in the decades ahead.

Amid growing Asia-Pacific tensions and shifting strategic sands, with the victorious Taliban looking increasingly to China as an economic ally, Quad members will face major issues. From Australia’s perspective, as Mr Frydenberg will remind the ANU forum, a strong economy is not only about prosperity, living standards and jobs, vital as these are to our wellbeing. It is also “the foundation of a country’s strategic weight’’.