Australia’s Reassessment of Economic Interdependence with China

EXECUTIVE SUMMARY

MAIN ARGUMENT

For decades, Australia insisted it could enjoy a relatively clean separation between economics and national security. However, three shocks— the discovery of China’s growing influence in its domestic politics, Beijing’s economic sanctions campaign, and pandemic-induced supply vulnerabilities—triggered a major perceptual shift. Actors across Australian society now believe that interdependence with China carries sustained geopolitical risk. Despite this shift and clear changes in government policy, the bulk of exchange between the two economies remains robust. The only evidence of meaningful and potentially enduring decoupling has manifested in narrow domains, such as information and communications technology infrastructure and critical mineral supply chains.

POLICY IMPLICATIONS

• While Australia’s commitment to deepening security and economic cooperation with the U.S. is beyond doubt, U.S. policymakers must understand the Australian government’s and business sector’s interests in engaging with China economically while upholding a rules-based order.
• Concrete security-based economic cooperation should be focused on bringing new production online to build new supply chains; thus, the Biden administration’s policies supporting the development of new mining and processing facilities are welcome.
• Australia’s balancing of its economic and security interests gives it much in common with other states in the Indo-Pacific and underscores the need for the U.S. to develop models of economic cooperation that can complement the region’s interests in broad-based economic engagement with China.

Darren J. Lim is a Senior Lecturer in the School of Politics and International Relations at the Australian National University.

Benjamin Herscovitch is a Research Fellow in the School of Regulation and Global Governance at the Australian National University.

Victor A. Ferguson is a JSPS Postdoctoral Research Fellow in the Research Centre for Advanced Science and Technology at the University of Tokyo.