Feb 22, 2018 | 09:15 GMT

7 mins read

Australian Trade Hangs in the Balance as Turnbull Meets Trump

Australian Prime Minister Malcolm Turnbull
  • Australia will continue to champion a policy of fostering alternatives to China's economic largesse while taking care to avoid any action that could anger Beijing.
  • Canberra will promote plans among the Quadrilateral Security Dialogue to earmark funds for infrastructure development, but any such project is unlikely to mirror China's Belt and Road Initiative.
  • U.S. President Donald Trump will not heed Australian Prime Minister Malcolm Turnbull's entreaties to reconsider Washington's decision to withdraw from a trans-Pacific free trade deal.

A country with Western roots on the edge of the Asia-Pacific, Australia has long focused on preserving the balance between East and West. Though a close ally of the United States for decades, Australia has forged deep trade links in recent years with China, the economic juggernaut in its neighborhood. Now, with Australian Prime Minister Malcolm Turnbull off to meet U.S. President Donald Trump and U.S. defense and security officials for the first state visit by an Australian leader since 2006, Canberra will exert efforts to maintain this delicate equilibrium. Turnbull hopes to use his Feb. 21-24 visit to acquire insight into Australia's possible role in the United States' emerging regional strategy and promote a nonconfrontational trade and defense architecture that could maintain the dominance of U.S. allies while providing alternatives to current patterns dominated by China. But with Washington seemingly focused on protectionist measures, Turnbull may return empty-handed — at least in part.

Resisting the "Tyranny of Distance"

Because it is isolated on the edge of the Pacific, Australia's survival has depended on maintaining open sea lanes to avoid what Australians describe as the "tyranny of distance" — the constraints imposed by the nation's remoteness from other Western powers. Historically, because it lacked a globally capable navy, Australia could not guarantee safe passage for its wares, but as a British dominion, it could call on the services of the world's premier sea power. And when the United States assumed this role in the middle of the 20th century, Washington quickly became Australia's indispensable ally. But China's growing regional clout has highlighted potential long-term challenges to U.S.-led freedom of navigation, even as Australia's economic success obliges it to foster ties with the dynamic economies of East Asia, namely China. The East Asian giant is a major market for Australia's exports, particularly minerals, hydrocarbons and animal products and other agricultural goods. In 2016, Australia shipped almost a third of its exports to China, while Beijing has invested $103.7 billion in the Australian economy since 2005.

With China too large to ignore, Australia is seeking a Pacific order that offers opportunities for competition and trade alternatives to Beijing but avoids encouraging great power rivalry or tit-for-tat protectionism. Released late last year, Australia's Foreign Policy White Paper reflected this ambivalence, emphasizing concerns about China's unprecedented rise but highlighting the importance of the countries' bilateral economic partnership. Amid a furor at home over China's role in Australia's politics and economy, Turnbull will attempt to reconcile these differences during his U.S. visit by emphasizing how the United States could provide alternatives to China by reconsidering its decision to withdraw from the Trans-Pacific Partnership (TPP) and adding an economic component to the budding four-country Quadrilateral Security Dialogue format.

Questions about the Quad

The Quadrilateral Security Dialogue brings together Australia, Japan, India and the United States in an effort to coordinate action to address China's rise. In November 2017, Australia met U.S., Japanese and Indian officials to revive the partnership and discuss its future direction and attitude toward Beijing. In the past, Australia has vacillated about the degree to which it wishes to contain China. As part of the Quad, former Prime Minister John Howard agreed in 2007 to send Australian troops to participate in India's Malabar military exercises, but subsequent Prime Minister Kevin Rudd eventually withdrew from the annual war games over concerns about China's reaction. In 2008, similar sensitivities prompted Rudd to veto the Quad's initial, rudimentary structure.

But with Australia more intent on answering China's challenge to the regional status quo with a strategy of counterbalance instead of containment, Australia is likely to back proposals to insert an infrastructure investment component into the Quad so it can provide an alternative — or supplement — to China's sprawling 65-nation Belt and Road Initiative. The four countries discussed the proposal at the November 2017 meeting, and Australia and Japan subsequently have downplayed any potential military aspects to the Quad, perhaps out of worries over Beijing.

The United States, Japan, India and Australia will find it difficult to channel resources to mirror China's plans.

Such an infrastructure plan would not aim to confront China or to prune back its regional outreach but to add alternative options. Asia needs an estimated $1.7 trillion per year in infrastructure investment, and the four members of the Quad could aid in meeting these needs. By doing so, the four countries could help counter some of the risks they perceive in China's Belt and Road Initiative — namely that it will trap small countries in debt or that Beijing will use it to control strategic points on the map. And with the Trump administration's focus on infrastructure deals both at home and abroad, Turnbull stands a chance of finding a sympathetic ear in the White House. Nevertheless, the United States, Japan, India and Australia will find it difficult to channel resources to mirror China's plans, since the four have much less ability to marshal the resources of their domestic companies. Because the Belt and Road Initiative is likely to whet contractors' appetites for Australian raw materials, private Australian companies could focus their attentions on China's projects rather than the Quad's potential undertakings.

Turnbull's Targets With Trump

But with Australia's national security ultimately hinging on free trade and U.S. engagement in the Pacific, Canberra has strongly encouraged Washington to cancel its 2017 decision to pull out of the proposed TPP and join the 11 countries that are pursuing the pact's successor, the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), before the signing of a final deal next month. For Australia, the trade deal is a win-win, as it would tie the United States more tightly to the Pacific Rim and hopefully channel U.S. wishes to confront China into a direction more amenable to Australia's free trade imperatives. The CPTPP resembles the Quadrilateral infrastructure idea in that it is an alternative (not a rival) network to that of China. After all, eight of the current 11 CPTPP members, including Australia, already enjoy free trade agreements with China. If Turnbull can persuade Trump to join the pact, it could also eliminate one of Australia's other great concerns — the prospect that the United States could initiate a trade war against China. Because of its strong interest in maintaining substantial regional trade flows — commerce that U.S.-Chinese competition would jeopardize — Australia wishes to corral Washington toward a strategy that would counterbalance China, ultimately increasing net trade around the ocean. At the very least, Australia will seek assurances that it will not become a casualty of U.S. protectionist retaliation against different players in the region.

Washington, however, is unlikely to genuinely reconsider its rejection of the trade pact. The Trump administration has pursued a policy of delinking regional security from trade policy, as evidenced by its drive for contentious renegotiations on trade with South Korea even in the midst of the North Korean crisis. Trump, instead, has repeatedly emphasized high domestic employment rates and the restoration of U.S. industry as a core national interest, noting that trade deals should be tailored according to these standards and not for strategic reasons. Last month, Trump said he may seek separate deals with the CPTPP signatories — or agree to a pact that is overhauled to suit U.S. interests — but his administration largely opposes the use of trade as a tool to reshape regional dynamics, preferring to tackle commerce on a case-by-case basis.

As Turnbull and Trump sit down this week, the former will hope to obtain a better understanding of the latter's strategy in the Pacific and — if at all possible — shape it in Australia's interests. Canberra is eager to supplement Beijing's economic might with Washington's presence, all while avoiding any Chinese retaliation. But as the Trump administration's Indo-Pacific strategy leans toward a renewed focus on containing China, Australia will find it difficult to make headway on its economic vision for the region or deepen the trade regime that sustains its economy.

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