Harness collective clout of allies to counter China’s power

Australia and South Korea have much in common as regional middle powers, and not in a way that either country has relished in recent years.

Both countries are US security allies and have been targeted for trade sanctions by China, which also happens to be the market to which they send the bulk of their exports.

In the process, Australia is discovering now what South Korea found out a few years back – that the US alliance is all but useless in the short term in alleviating the economic pain inflicted by Beijing.

This is just as China intends, of course. Beijing is a master at pursuing political gains under the threshold of conflict, as it did with the construction of artificial islands in the South China Sea in 2014.

In such an environment, the issue that still gets raised in Australia – will the US come to our defence under the Australia, New Zealand, United States Security Treaty if we are attacked? – is not only the wrong question, it is all but irrelevant.

The real question that is exercising policymakers, in Washington and Canberra and elsewhere, is how to make alliances and partnerships fit for purpose in the new era of Chinese power?

Put another way, how can like-minded countries, such as Canada, the UK, France, Japan, India and Sweden, to name just a few nations at odds with Beijing, co-ordinate to develop counter-leverage outside of direct military conflict.

The military realm obviously remains important, especially around Taiwan and the south and east China seas, but like-minded countries need to find ways to work together in other areas. Otherwise, China will be able to do what it is doing now – pick off countries which displease it one by one, without incurring any costs along the way.

Every bilateral problem involving Beijing has its own dynamic. China targeted South Korea, for example, over the deployment of a US missile shield in 2016.

With the dispute confined largely to a single issue, Beijing and Seoul were able to negotiate a compromise agreement to return their bilateral relationship to a relatively normal footing a year later.

In Australia’s case, where tensions with China are deep and multifaceted, there is no off-ramp in sight. Neither side is expecting any improvement in bilateral ties this year or next.

Australia’s trade with China is still healthy in gross terms, artificially so, because iron ore prices are high and China for the moment has few alternative suppliers.

For South Korea, bilateral trade also thrived under sanctions, largely because Chinese companies still needed their neighbour’s technology as manufacturing inputs.

Nonetheless, trade sanctions extended over time can have deep and lasting consequences when China is responsible for about one-third of global growth.

The iron ore boom is only camouflaging the much more important trend in Australia, in which Beijing is undermining the trade model that has served the country well since the 1950s.

Australia has hitched itself to each Asian economy as they have powered themselves out of poverty. A vengeful Beijing is now attempting to leave Australia behind.

Countering these economic measures, or at least alleviating their impact as a political weapon, is difficult, especially when commercial interests among your allies and friends benefit from them.

American farmers have stepped in to fill some of the gaps left by Australian crops and produce over the past year. In China, the fall in sales of South Korea’s Hyundai cars lifted the US auto joint ventures.

Canadian miners helped fill the gap left by the bans on Australian coal going into China. French, Chilean and South African winemakers have rushed to fill the gap left by the blocking of Australian imports.

The world might be dividing into two geopolitical camps aligned with the US and China. It is still far from willing and able, though, to operate in two separate commercial realms.

While politicians in Washington continue to discuss decoupling, investors are going in the opposite direction, as US and China build one of the largest financial relationships in the world.

But like-minded countries still have enormous clout, if only it can be harnessed collectively.

That is already evident in security, with the QUAD countries – the US, Japan, India and Australia – rapidly building the fledgling group into an organisation with a common purpose and a blueprint for action.

On human rights, the US, Canada, Australia and the UK, are co-ordinating on issues such as Xinjiang and Hong Kong.

Beijing hates such co-ordination, as evidenced by the editorial in the party-owned Global Times saying the Five Eyes intelligence alliance (minus New Zealand) was a “US-centred, racist, and mafia-styled community, wilfully and arrogantly provoking China”.

The next - and harder - step is economic co-operation between democracies and their partners to help nations, such as Australia, which have been singled out by Beijing for punishment.

Beijing’s diplomats have already been puzzled and annoyed by an increasing number of countries raising with them China’s treatment of Australia.

Taking it to the next level – finding mechanisms to offer a sanctioned ally or partner some measure of concrete support – is the subject of a flurry of conversations between like-minded countries around the world.

In China in recent months, a confident new phrase has gained popularity, about how, in the words of Chen Yixin, a Politburo member and Xi Jinping confidant, “the rise of the East and the decline of the West has become (a global) trend”.

The Chinese leadership believes the world is moving its way. And they’ll be right, unless other countries bind together to test the proposition.

Richard McGregor is a senior fellow at the Lowy Institute in Sydney.