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Australia’s Foreign Policy Balancing Act
Melissa Conley Tyler, Jack Buckley and Katrina Senchuk*
The rise of Asia, particularly China, has changed the outlook for Australia, as it has for many
countries in the region. Australia is in a position where its largest economic trading partner,
China, is no longer the same as its foremost security ally, the United States. This is something
that Australia has not experienced in its short history. The nightmare for Australia would be if
its strategic and economic interests ever came into conflict. Australia is thus playing a
delicate balancing act, continuing to maintain its alliance with the United States while
increasing its economic engagement with China and other Asian states. While the possibility
of direct Sino-US conflict remains remote in the near future given the China’s long-term
interest in maintaining growth and US military pre-eminence in the region; debate over the
possibility of having to choose has been a focus of Australian foreign policy debates.
To illustrate the complexities of what ANU Professor Hugh White has labelled as ‘The China
Choice’ (White, 2013), this article addresses the current issues facing Australia according to
the two long-term goals of Australian foreign policy: a prosperous Australia and a secure
Australia. This article concludes that Australia will continue along its current path of
attempting to maintain strong relations with both the US and China unless an external shock
forces it to change its foreign policy settings.
A Prosperous Australia
Australia is currently experiencing impressive economic conditions. It has the 13th largest
economy in the world following twenty-two years of uninterrupted economic growth. Sydney
Morning Herald journalist Peter Hartcher describes Australia as enjoying a “Sweet Spot”
with the best living conditions in the world (Hartcher, 2011) while The Australian’s George
Megalogenis refers to “The Australian Moment” with Australia the “last rich nation standing”
following the Global Financial Crisis that devastated other developed economies
(Megalogenis, 2012). Existing financial regulation and a strong crisis response enabled
Australia to weather the Global Financial Crisis relatively unharmed and in arguably better
shape than any other time in the previous quarter century (Ravenhill, 2011, 52).
Australian National University Professor Michael Wesley has charted the development of
Australia’s economic growth through increased interdependence with Asia following the
economic nadir of 1992 when Australia’s foreign debt was a third of the overall national
output (Wesley, 2011, 13). Since then the Australian economy has tripled in size and avoided
* National Executive Director and Research Interns, the Australian Institute of International Affairs. The views
expressed in this paper are their own.

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major economic consequences whilst its major trading partners experienced difficulties
during the Asian Financial Crisis in 1997-8, the “Tech Wreck” in 2000-2001 and the Global
Financial Crisis from 2008 (Wesley, 2012).
Australia has been fortunate to possess large supplies of natural resources that are in demand
during a period of rapid industrialisation and urbanisation throughout Asia, especially in
China. In 2012, more than 60 per cent of Australia’s trade was with Asian markets, with
China accounting for 20 per cent of total trade, purchasing over one-quarter of Australia’s
exports and supplying 15 per cent of imports. Chinese demand for resources, particularly in
iron ore (as well as coal and agriculture) has driven a sustained surge in the terms of trade.
(Adams et al, 2013, 64). Australia’s growth however, has not just been through “rocks and
crops”: the largest growth has been in service industries such as education (Harcourt, 2012).
This has led to a noticeable change in orientation for Australia:
Embracing the opportunities provided by a rising Asia has proved
beneficial to Australia’s economic development with a shift in
mentality away from “the tyranny of distance” from the US and
Europe to maximising “the power of proximity” with Asia
(Harcourt, 2012, 4).
Australia’s dependence for future prosperity is therefore inextricably bound to China. And
such dependence is invariably tied to perceptions of risk. First, Australia is concerned as to
how China will continue to approach its domestic reform, particularly in relation to
rebalancing domestic and export-led growth. Second, as China steadily becomes the world’s
largest trader, Australia has a significant interest in the development of its approach to free
trade. The central concern being that, with its surmountable economic weight, China will
prefer to conduct its trade deals bilaterally and regionally; undoubtedly diminishing the
relevance of a liberal system of world trade. These perceived risks have prompted senior
negotiators within the Australian government to ask: “Will Chinese interests align with free
trade, as was the case with Britain and the United States during their periods of economic
dominance or with more restricted systems of trade? Will China be interested in international
investment frameworks or codes of conduct and what impact will Chinese leader’s policy
preferences in responding to political and other concerns over Chinese investment abroad
impact on its domestic reform?” (Adams et al, 2013, 194.)
This helps explain the paradox of Australia’s response to China’s economic boom, which has
at times been insecure and fearful despite the manifest benefits that Chinese demand has
brought to the Australian economy. Areas of sensitivity include the interaction of Australian
multinational corporations with China’s state owned enterprises (SOEs) and sensitivity
produced by Chinese foreign direct investment in Australia, especially in Australia’s natural

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resources. The dominance of SOEs in China poses a challenge for both China and Australia.
SOEs in China benefit the most from economic growth as they receive three quarters of all
formal finance, but they pose a risk to Australian investors whose interests are tested when
dealing with foreign enterprises where it is not always a profit-maximising, private concern
involved (Bisley, 2012, 79).
More broadly, Australia’s “collective sense of self” may have been adversely affected by its
dependence on the China boom. Michael Wesley describes the breakdown of what he
describes as a long-held belief in Australian politics that Australia has been the creator of its
own destiny and the impact this has had on national self-confidence (Wesley, 2012, 208). In
particular, Wesley uses theories of behavioural economics to predict that Australia will
insufficiently plan in a time of economic prosperity given that when the economy is faring
well governments are less inclined to take risks in investment. This frame of mind jeopardises
Australia’s competitive capacity in the global market place.
While Australia may fear dependency on China, Yu Chang Sen of Sun Yat-sen University
also argues that the economic interdependence is two way: he argues that China relies more
on Australia than vice-versa and, as a result, Australia possesses more power in the
relationship (Yu, 2012, 119). Signs of China’s economic boom first appeared in 1993 when it
became a net importer of oil (Wesley, 2012, 197). Since then China has expanded its
economy to require massive quantities of fuel for production which now sees exports of iron
ore comprise over 50 per cent of Australia’s total exports to China (Ding, 2012, 125). For
China to continue its ambitious national infrastructure development plan, it will continue to
rely on Australian mineral exports.
There is a widely held belief that China either does not know how to or is extremely limited
in using its economic strength for diplomatic leverage (Wesley, 2012, 202; Lee, 2012, 159-
160; Yu, 2012, 120). Trading giants such as BHP Billiton, Rio Tinto and Vale, which
currently supply 70-80 per cent of the world’s iron ore exports are better resourced to supply
the global mineral markets than the SOEs China has established as part of its resource and
energy security strategy in attempt to limit its reliance on any one country for its resources
(Lee, 2012, 159).
Australia’s economic prosperity is thus linked with relations with China. Australia will hope
that the interdependent relationship between the two nations will continue to grow and
prosper, bringing with it dividends through job creation, growth and higher living standards.

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A Secure Australia
There has been great continuity in Australia’s security posture. Australia has invested heavily
in the strategic alliance with the US over the last 62 years; it is an alliance that has been
sustained unlike other less long-lasting strategic alliances (Rudd, 2010, 301). Australia has a
long record of tying Australia’s security to US interests resulting in its involvement in
conflicts such as the Vietnam War and the Second Gulf War (Kilcullen, 2007, 53). The
alliance has withstood decades of questioning whether it is in Australia’s best interest to
maintain the alliance or increase its involvement in multilateral forums. No Australian
government wants to challenge the centrality of the US alliance to Australia’s defence and
foreign policies; this creates a culture of policy formation that is self-reinforcing.
The rise of China has threatened this policy consensus by raising the spectre of potentially
“having to choose” between maintaining good economic relations with China and close
military relations with the US (Bisley, 2012, 66). The growth in China’s military power
projection is viewed with more suspicion than its economic rise. While China’s
representatives have been at pains to point out its desire for a “harmonious rise” and that it is
not fundamentally challenging the existing international order, the threat for Australia is that
the trajectory of China’s rise will inevitably lead to a “recasting of the basis of regional
security stability” that poses a threat to US military predominance in Asia and thus ultimately
to Australia’s security (Bisley, 2012, 71).
Australian National University Professor Hugh White, in his influential work on “Power
Shift”, presents the notion that Australia does indeed face a choice between the US and
China. The choice Australia must make ‘in the face of Asia’s transformation is whether we
are content to become a small power … or decide instead to build the strategic weight needed
to be a middle power in the Asian century’ (White, 2011, 92). One thing White suggests
Australia cannot do is proceed with the status quo and not choose.
This is directly contested by La Trobe University Professor Nick Bisley with his argument
‘Never Having to Choose’. Bisley concludes that Australia is not required actively to alter the
status quo of its regional relations: Australia does not have to, and thus should not, choose
between its primary economic partner and its security guarantor. To Bisley, Australia has
already chosen to maintain the status quo by supporting the United States and its role in Asia
(Bisley, 2012, 67). Instead, the challenge for Australian diplomacy is to ensure that a
situation does not arise where it is forced to choose. Australia can therefore overcome the
threat to its security in two ways: developing multilateral security institutions through its role
as a middle power; and by balancing its tripartite relations with China and the US.

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As a middle power, Australia is certainly comfortable in promoting multilateral institutions
and is ‘an enthusiastic participant in efforts to have international institutions shape Asia’s
regional order’ (Bisley, 2012, 75). Middle powers in Asia such as Australia, Indonesia and
South Korea aim to maximise influence in the international system by leveraging multilateral
institutions to establish norms that help to promote the national interest.
Australia can do work to strengthen the Australia-China strategic relationship. University of
New South Wales academic You Ji characterises the Sino-Australia relationship as
strategically comforting and mutually beneficial as well as free of any structural conflicts of
interest. Australia’s only real security threat from China is conflict resulting from a
breakdown in Sino-US relations, such as a crisis regarding Taiwan (You, 2012, 86). The
danger is that Australia may choose to hedge against China by strengthening its security
alliance with the US, thus further distorting the off-balance tripartite relations that exist
between the three nations.
The concern is that, due to Australia’s strategic culture, Australian politicians and diplomats
may pursue a China policy that is more in line with the “pervading sense of vulnerability to
external predation” (Bisley, 2012, 66) and move away from what former Secretary of the
Department of Foreign Affairs and Trade Stuart Harris prescribes: a sensible and objective
policy based on Australia’s national interests and China’s merits (You, 2012, 100).
The official position of Australia’s 2013 Defence White Paper is that the security alliance
with the US does not demand a sacrifice of the economic relationship with China. The 2013
Defence White Paper explicitly states that the “Government does not approach China as an
adversary” (Department of Defence, 2013, 25). In fact, a significant step in constructive
engagement with China on security issues was the signing of a “strategic partnership”
agreement that would see annual meetings between the prime ministers of both nations and
the announcement of a direct currency conversion deal in April 2013 following Prime
Minister Julia Gillard’s visit to China (Fensom, 2013).
Conclusion
In the absence of a major shock, Australia’s major foreign policy settings are not likely to
change. The evidence to date is that Australian policy-makers do not wish “to choose”
between Australia’s key relationships with the US and China. It is a reasonable prediction
that Australia will continue to attempt to balance these relationships as it has in the past so
long as there is no external impetus to force a change of policy.

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Australia derives substantial economic benefits from its relationship with China, one
characterised by mutual interdependence and thus the need for careful management of
vulnerabilities. Australia also derives substantial security benefits from its relationship with
the US although, again, the alliance introduces a number of vulnerabilities, not least the
danger of being drawn into direct Sino-US conflict. Australia has no obvious substitutes for
either relationship.
This means that one of Australia’s key foreign policy goals will be to balance these two
relationships. This can be achieved through strengthening Australia’s relationship with China,
for example to include security as well as economic factors. It can also be achieved by using
Australia’s resources as an active middle power and good international citizen to build
multilateral institutions that maintain international stability and advocate for accommodating
rising powers such as China.
Australia is likely to maintain a balancing act and continue the status quo in absence of an
external shock that would force Australia to reconsider its position.

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