As former Prime Minister Tony Abbott once admitted, Australia’s China policy has been driven by “fear and greed,” implying that China is a source of both economic prosperity and security discomfort. As in other Asia-Pacific countries, facilitating trade with China has provided a growth engine for Australia's economy. Up until the mid-2010s, despite concerns over security threats posed by China’s military expansion, hard balancing against China did not seem to be an option for Australia. Australia’s recent moves against China, however, signal that Canberra has reset its China policy, with an overhaul of its national security and defense strategy. The shift of Australia’s China policy is an interesting case to study how the regional order is likely to evolve in the growing US-China competition. Assessing Australia’s recent foreign policy is also relevant to South Korea, both in terms of navigating Korea’s relations with the US and China and enhancing strategic ties between Australia and Korea. Against this backdrop, this study aims to unravel Australia’s strategic responses to the changing regional order and draw implications for Korea’s foreign policy.
Chapter 2 examines Australia’s strategic interests in the evolving regional architecture and how these interests have influenced Australia’s China policy recently. China’s retaliatory measures in response to Australia’s calls for inquiry into the origins of Covid-19 fueled the conflict between the two sides, but Australia-China tensions have loomed large over the past five years. Beijing’s responses to the PCA ruling on the South China Sea and persistent gray zone activities have alarmed Canberra to advocate for rules-based order and closely align with the United States in countering China’s hegemonic power. Most notably, high-profile scandals over China’s interference in Australia’s politics in 2017 led to a series of measures to counter Chinese influence in the country. In August 2018, Australia took the initiative in banning Chinese vendors including Huawei from its 5G network over national security concerns. China’s economic sanctions against Australia in 2020 reinforced anti-Chinese public sentiment, fostering an environment where the concerns of policymakers in the security sector are well-received. In particular, the Defense Strategic Update 2020 suggests that China’s military expansion poses a direct threat to Australia’s national security, calling for an increase of military capabilities. Along with an unprecedented large-scale investment in military forces, Canberra took a step further to initiate the launch of the AUKUS pact in September 2021, thus allowing Australia to build nuclear-powered submarines. In the past Australia used to be cautious about ruffling the feathers of its largest trading partner, but a series of recent moves against Beijing make it clear that security concerns have overridden economic considerations in Canberra.
Chapter 3 analyzes the economic effects of China’s import restrictions on Australian exports. Our findings suggest that the import restrictions did not have a significant impact on the overall volume of Australian exports to China. The total export volumes of iron ore (not included in the restriction list) have actually increased, which counteracted the decrease in total exports of restricted products, such as beef, wine, and lumber. Hence, China’s import restrictions were not an effective tool for altering Canberra’s stance towards Beijing. Chinese policymakers could not expect the offsetting effects of Australian iron ore, which accounts for over 60% of China’s total iron ore imports. Nonetheless, this recent economic dispute caused Australia to revisit the potential consequences of overreliance on China as the major trading partner. Given the volatility of commodity prices, Canberra is also aware of the limits of relying on natural resources as the main safeguard against Beijing’s retaliatory actions. Consequently, the Australian government and businesses are exploring ways to reduce economic reliance on China, mostly via trade and investment diversification.
Chapter 4 assesses how Australia is responding to China’s growing influence on global economic and political environments. First, in response to the growing economic threat from the overreliance on China, Australia is experimenting with government policies related to trade and investment diversification. Recommendations from the Joint Standing Committee on Trade and Investment Growth of Australia include 1) a “China Plus” or “China And” type approach to open new export markets; 2) market liberalization via bilateral or multilateral FTAs; 3) upgrading manufacturing processes; 4) prioritizing national security in trade policies; and 5) strengthen support for export industries and their associated businesses. As evidence of these trade diversification efforts, Australian barley exporters found a new destination in Saudi Arabia, away from massive Chinese tariffs. Moreover, Australian policymakers are being cautious with the large influx of Chinese investment into their mining and real estate industries. Recommendations from the parliament include 1) establishing national security guidelines, 2) increasing the number of foreign investments subject to a review for national interests (i.e., Foreign Acquisitions and Takeovers Amendment Regulations 2020), 3) providing incentives for domestic investment, and 4) supporting domestic manufacturing industries. Similarly, Australia’s Modern Manufacturing Strategy intends to create competitive and resilient domestic industries. Bilateral and multilateral FTAs are at the forefront of achieving the aforementioned initiatives to diversify trade and investment, away from China’s influence. Australia aims to conduct over 80% of global trade via FTAs, while actively participating in Indo-Pacific centric multilateral FTAs. Furthermore, Australia is heavily involved with setting a global technology standard in an era of the U.S.-China Technology Competition, reflecting its interests in national security and the Indo-Pacific region.
Second, in response to the growing regional security threat from China, Australia has embarked on its largest military build-up for decades. Based on a new defense strategy outlined in the “2020 Defense Strategy Update,” the Australian government resolved to accelerate military transformation to enhance its self-defense capability. Australia has also strengthened defense ties with US allies and strategic partners, playing a part in consolidating the US-led security cooperation network. Apart from the Quadrilateral Security Dialogue (Quad), Canberra managed to conclude the AUKUS agreement, which allows it to acquire a variety of advanced weapon technologies including nuclear-powered submarines. The AUKUS partnership has also enhanced security commitments by the US and the UK to the Indo-Pacific region, which suits the interest of Australia. Third, sharing concerns about China’s hegemonic role in the region, Australia is actively participating in regional efforts to counterbalance China’s Belt and Road Initiative (BRI). Australia is particularly wary of China‘s growing influence in the South Pacific and Southeast Asia, where Australia’s most direct strategic interests lie. Accordingly, in close cooperation with the US and Japan, Australia has sought to support infrastructure development in the Pacific Islands and enhanced its bilateral engagement with Pacific states through the “Pacific Step Up” initiative. In regard to ASEAN, Australia newly launched the ASEAN Future Initiative in 2021 with an emphasis on maritime security, connectivity, SDGs and economic cooperation with Southeast Asia. In consideration of the strategic value of the Mekong region, Canberra has also launched a new partnership with the Mekong region called the ASEAN-Mekong Program (MAP).
Based on the analyses above, Chapter 5 discusses the implications for Korea. First, Korea needs a preemptive strategy to ease the negative effects of China’s potential economic sanctions. Australia could fight through the negative effects via its irreplaceable commodities and trade diversification efforts for replaceable products. Analogous to Australia, Korea needs to secure leverage over critical products and technologies and explore alternative export markets, all along with the support of the government. Faced with China’s heavy tariffs, Australian barley farmers found new export destinations, then the Australian government followed through with additional support. This example showcases how the Korean government can also support businesses to expand export networks. Second, as Australia searches for new economic partners, Korea should renew economic relationships with Australia. Namely, the most workable area for the Korea-Australia cooperation is the supply of rare earth minerals. For instance, Korean companies can increase investment in Australia’s natural resources sector, while Australian companies can build an integrated rare earths refinery in Korea. As Australia develops future battery and critical minerals industries strategies, the Korea-Australia cooperation can extend to operations in the downstream sector, which would contribute to diversification of value chains for critical technologies.
Third, given Australia’s commitments to regional development in the Indo-Pacific, Korea needs to enhance its partnership with Australia for the prosperity of the Indo-Pacific region, particularly in Southeast Asia, where the two countries’ strategic needs converge. At the country level, Indonesia can be prioritized in pursuing bilateral partnership since both countries have enjoyed deep bilateral cooperation with Indonesia. At the ASEAN level, Seoul and Canberra need to jointly support the implementation of the Master Plan on ASEAN Connectivity (MPAC 2025) and strengthen cooperation on cyber, digital and technology standards in which both countries have a competitive edge. In addition, as both countries closely work together with the US in promoting peace and prosperity of the region, more active trilateral dialogue between Korea, Australia and the US should be carried out on a regular basis to enable effective collaboration.