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U.S. President Donald Trump, left, and Australian Prime Minister Malcolm Turnbull hold a press conference at the White House on Feb. 23.   © Reuters
The Big Story

Identity crisis: Australia seeks new allies amid US-China rivalry

Trade and security links make Southeast Asia a natural choice

SIMON ROUGHNEEN, Asia regional correspondent, and JOHN POWER, Contributing writer | Vietnam

JAKARTA/MELBOURNE -- Toward the end of a meeting with leaders from the Association of Southeast Asian Nations in Sydney last month, Australian Prime Minister Malcolm Turnbull spoke in sweeping terms about the change taking place in the region.

"The meeting comes at a critical time in history," said Turnbull, the leader of the center-right Liberal Party, at a press conference with Singaporean Prime Minister Lee Hsien Loong on March 18. "The pace and scale of change is utterly without precedent."

Prosperity and security were the banner themes of the gathering -- the first of its kind in Australia, which is not a member of ASEAN -- and the two words were sprinkled liberally throughout "The Sydney Declaration" released at the end of the summit.

But the subtext, while not printed in black and white, was unmissable for those in attendance: As the U.S. and China vie for dominance in the Asia-Pacific region, Australia is looking for new partners to ensure its future affluence and security.

Graeme Dobell, a fellow at the Australian Strategic Policy Institute in Canberra, said Australia's outreach to ASEAN is about "how we protect and grow our ... interests in an Indo-Pacific [region] where the range of options seems to be narrowing and the pressure seems to be growing."

Australia hosted a summit with Association of Southeast Asian Nation leaders in Sydney in late March.   © Reuters

In many ways, ASEAN is a natural focus for Canberra's efforts to expand its pool of friends and partners. Taken together, the 10 ASEAN economies accounted for 100 billion Australian dollars ($76.9 billion) of Australia's trade in fiscal 2016.

Canberra also maintains close military ties with a number of ASEAN countries, including Indonesia, Singapore and the Philippines, where the Australian Defense Force has been assisting efforts to defeat IS-linked militants in Mindanao.

Against a backdrop of uncertainty over how the competing influences of the U.S. and China will shape the region, ASEAN's significance for Australia has only grown.

"What you've seen change in Australia is a fuller understanding of the ASEAN position, and indeed an embrace of the ASEAN position -- the ASEAN view that they never want to have to choose between the United States and China," Dobell said.

While there is no clear threat from the U.S. to loosen its long-standing ties with Australia, some observers say the country may one day face a choice between its main security ally and its biggest trade partner. Graham Allison, author of "Destined for War: Can America and China Escape Thucydides's Trap?," said that China's rise is forcing Asian countries with close ties to the U.S. to reconsider.

"Largesse, economic imperialism -- call it what you will: The fact is that China's economic network is spreading across the globe, altering the international balance of power in a way that causes even longtime U.S. allies in Asia to tilt from the U.S. toward China," Allison said.

"No winners" 

Such concerns are growing along with tensions between the world's two biggest economies.

In its latest National Security Strategy, published in December, the U.S. said that China and Russia "challenge American power" -- a sharp turnaround from the 2010 NSS, which claimed that the U.S. was building "deeper and more effective relationships" with the two countries.

At that time, the Obama administration was attempting its "pivot to Asia," touted as a diplomatic and economic refocusing on the Asia-Pacific region. Sidetracked as uprisings and civil war wracked Egypt, Libya and Syria from 2011, the Asia pivot nonetheless culminated in the Trans-Pacific Partnership, a trade deal with 11 other Pacific rim countries, including Australia.

U.S. Marine and Navy personnel take part in a ceremony marking the start of Talisman Saber 2017, a biennial joint military exercise between the U.S. and Australia, off the coast of Sydney last June.   © Reuters

U.S. President Donald Trump ditched the TPP soon after taking office and in recent weeks has announced a series of tariffs that could prove the first shots in a trade war. Driven in part by raw materials exports to a booming China, Australia has, uniquely among developed economies, seen uninterrupted economic growth since 1991, a quarter century that included Australia coming relatively-unscathed through the 1997-98 and 2007-09 international financial crises.

But on March 1, less than a week after Turnbull visited Trump in the White House, the U.S. president announced a 25% tariff on imported steel and a 10% levy on imported aluminum -- raising concerns in Australia about possible repercussions.

Though the measures will not affect Australia directly, the worry among trading countries is that they could birth a wider cycle of tariff imposition that would undermine cross-border commerce. "My concern remains that, off the back of actions like this, we could see retaliatory measures that are put in place by other major economies," Australian Trade Minister Steven Ciobo told reporters in Sydney.

Sure enough, the European Union responded with a threat to tax American imports, only backtracking temporarily after the U.S. agreed to examine giving the Europeans an exemption.

Since then, China and the U.S. have engaged in tit-for-tat tariff threats. The hope is that this is merely a Trump tactic designed to force China to compromise on market access for U.S. companies. Shane Oliver, economist at AMP Capital, said that the U.S. could be trying to replicate recent negotiations with South Korea, which saw Seoul grant some concessions to the U.S. as a means of retaining a free trade deal sneered at by Trump. "It could well be President Trump trying out some of his art of the deal," Oliver said, referring to the title of Trump's 1987 book. 

But Australian businesses worry that tactics or not, the tariff trend will spread, perhaps uncontrollably, and that multinational production chains will be undermined.

"The risk is escalation, and hopefully the parties involved see that there are no winners from trade conflict," said Angus Armour, managing director and CEO of the Australian Institute of Company Directors.

"Today, the global market is a complex web of trade of parts, ideas, products and more. I doubt that any one nation can accurately predict the outcome of any single change in a tariff, let alone multiple changes," said Alan Oppenheim, managing director of Ego Pharmaceuticals, an Australian company that has been doing business in Southeast Asia since the 1960s.

Australian exporters prefer that countries in the region opt for reduced trade barriers, citing recent free trade deals as boosting business.

Anita Poddar, corporate affairs manager at Wine Australia, a government body, said, "Australian wine exports have benefited from improved terms of trade as a result of trade agreements with Japan, South Korea and China achieved over the past few years."

With the U.S. arguably tarnishing the brand appeal of electoral democracy and open trade, China, where authoritarian governance has proved no barrier to economic growth, can portray itself as the world's free market policeman.

"We should commit ourselves to growing an open global economy. No one will emerge as the winner in a trade war," Chinese leader Xi Jinping said in an address at the World Economic Forum in Davos, Switzerland, in January. He echoed these sentiments in comments this week at the Boao Forum for Asia.

The comment marked a stunning role reversal between Communist China and the architect of the postwar trading system. 

"It is remarkable to see China -- an illiberal, mercantilist nation whose increasingly revisionist behavior represents perhaps the greatest long-term threat to the existing international order -- styling itself as champion of the liberal, cooperative system America forged," wrote Hal Brands, a professor at the Johns Hopkins School of Advanced International Studies, in a recent article in Survival, an international affairs journal.

Wheat is harvested in Western Australia. The country is the world's second-largest exporter of the grain.   © Reuters

But as bilateral trade has grown, Australia has been riven by concerns about growing Chinese political influence. The country's intelligence agency, known by the acronym ASIO, reported in 2017 that unnamed foreign governments are "clandestinely seeking to shape the opinions of members of the Australian public, media organisations and government officials in order to advance their country's own political objectives."

Widely seen as referring to China, the ASIO report fed into concerns reflected in Clive Hamilton's "Silent Invasion: China's influence in Australia," a new book that was slammed by China's foreign ministry as "malicious hype." 

On April 10, Turnbull warned China against building military bases near Australia after local media reported that Beijing had approached Vanuatu about building a permanent military presence in the South Pacific. Foreign military bases in the Pacific islands would cause "great concern," he said. Both Vanuatu and China rejected the reports.

"Asia is hard" 

During the Sydney summit, President Joko Widodo of Indonesia, ASEAN's biggest member state, appeared to welcome the idea of Australia joining the group -- a move that would add Australia's $1.3 trillion gross domestic product to the bloc's current combined $2.5 trillion, a roughly 50% increase.

Even if Widodo was merely expressing some Javanese politesse to his hosts -- Indonesia and Australia are struggling to finalize a bilateral free trade deal at the moment -- there is scope for closer economic ties between Australia and Southeast Asia.

While trade has grown, investment remains low. A 2015 survey by PwC's Australia office found that only 9% of Australian businesses were operating in Asia and of the rest, 65% "have no intention of changing their stance towards Asia in the next 2-3 years."

"Australia has invested more in New Zealand than all ASEAN countries combined," PwC said.

Judging by the PwC survey, Australian businesses give the impression of being out of their comfort zone when operating outside Anglophone or Western countries. "It is easy to consider Asia as 'hard,'" said Oppenheim of Ego Pharmaceuticals. "ASEAN, as a subset of Asia, is 10 nations, each of which is unique," he said.

But despite the apparent reluctance of Australian companies to expand into Southeast Asia, the majority of companies already operating in the region are branching out. The Australia-ASEAN Chamber of Commerce reported in March that, of Australian businesses operating in Southeast Asia, 62% of respondents "had expanded their trade and investment in the region over the past two years."

There are indications that more Australian companies are looking at expanding into neighboring countries. AICD's Armour says he has seen an increase in Australians taking instructional courses on how to become a director in Asian markets.

A Gloria Jean's Coffees in Bangkok: Australian companies are branching out in Southeast Asia. (Photo by Takaki Kashiwabara)

In 2017, the trade ministry opened a "landing pad" to assist Australian businesses trying to get a foothold in Singapore's tech startup scene. However, the ministry declined to reply when asked if the scheme would be expanded to other Southeast Asian cities where investing is more of a challenge than in Singapore, which regularly tops the World Bank's annual "Doing Business" rankings.

Over the longer term, Australia should be able to forge closer ties with Southeast Asia. Since 2014, over 13,500 Australian undergraduates have studied in ASEAN countries through the government's New Colombo Plan, meaning that in the coming decade Australian businesses will have a cadre of potential recruits with regional experience to choose from.

Frank Bongiorno, a historian at the Australia National University, said that the country's perceptions of Asia have shifted since the 1970s, when it began to take in more immigrants from the region.

The last census in 2016 recorded nearly 900,000 respondents stating one of the 10 ASEAN member states as their country of origin, offering ample scope, it would seem, for regional networking.

"Many more Australians have now traveled to Asia. Many have spent time working there, or they do business there on a regular basis. Asians now comprise a large proportion of Australia's immigrants -- a much larger proportion than when Australian had an anguished debate about such matters in the mid-1980s," Bongiorno said.

But even if business links grow and cultural differences are diluted, Australia cannot expect to form a seamless alliance with a diverse regional grouping where, Widodo's welcoming words notwithstanding, other leaders, such as Singapore's late prime minister Lee Kuan Yew, have in the past insulted Australia as "white trash."

Lee later walked back his criticisms, but old habits die hard. Last month Lee's old sparring partner Mahathir Mohamad, a vituperative critic of Australia and the West while prime minister of Malaysia from 1981-2003, told Australian media that their country remained "an outpost of Europe."

ASEAN's 638 million people live in a mix of Muslim, Buddhist and Christian-majority countries where political systems and economic development vary widely. Vietnam and Laos are one-party communist states, Thailand is a military junta, and the Philippines and Indonesia are electoral democracies. Singapore, a trade and investment gateway to the region, is among the world's richest countries per capita, while Myanmar and Cambodia place near the bottom of any such ranking.

And just as Australia is being pulled in two directions by the U.S. and China, ASEAN too is divided, with some countries more closely aligned with China than others, such as Laos and Cambodia. Thailand and the Philippines are treaty allies of the U.S., while a potential flashpoint for U.S.-China tensions is the disputed South China Sea, home to overlapping claims from China -- which has been building artificial islands there -- and Vietnam and the Philippines.

Such differences mean Australia cannot expect a seamless alliance with ASEAN, according to James Laurenceson, deputy director of the Australia-China Relations Institute at the University of Technology Sydney.

"It's also important that Australia appreciates that there are diverse strategic interests within ASEAN," he said. "Imagining that somehow they can be convinced as a bloc to support ours is naive." 

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