Illustration by Rocco Fazzari.

PAYING TRIBUTE

If President Donald Trump tends to present himself like an elected monarch, the serial visits by foreign visitors bearing gifts are only likely to make this seem more real.

This month has seen tribute bearers from Japanese Prime Minister Shigeru Ishiba (Japanese car investment) to Treasurer Jim Chalmers (Australian super money) arrive in Washington hoping to ward off the new wave US-style economic coercion with something shiny and distracting.

Asia is home to six of the top ten countries that have trade surpluses with the US, so we can expect to see a lot more of this - until the allure fades. NEIGHBOURHOOD WATCH looks at how the region’s big three countries have managed their first contact with the new US regime.

Closer to home there has been some interesting action as the Albanese government tries to bed-down some of its key regional foreign policy initiatives ahead of an election. Indeed, these may well become the stuff of legacy claims given the latest poor opinion poll support for the government. They range from the first funding support from the $2 billion Southeast Asian Investment Finance Facility to yet another attempt at a defence treaty with Papua New Guinea. See ASIAN NATION

And with an election campaign looming, DIPLOMATICALLY SPEAKING reveals a unity ticket on chasing Chinese-Australian voters.

Greg Earl
Briefing MONTHLY editor

NEIGHBOURHOOD WATCH

CHINA: business call-up

The leaders of China and the US haven’t spoken since January 17 just before Donald Trump’s inauguration when Trump declared that he and Xi Jinping would “solve many problems together”.

The engagement since then has involved several rounds of mid-level economic feints, mostly involving tariffs, as each side seems to be testing the inclinations of the other. This has occurred amid calls between the foreign and finance minister equivalents, which in turn mostly involve the restatement of old positions and grievances. Meanwhile the Trump Administration actions and statements in Europe have involved a persistent assertion that its long-term focus is on how to deal with China.

So, the most interesting meeting so far may have Xi’s decision to publicly bring technology entrepreneur Jack Ma back from the isolation he has suffered since 2021, by shaking his hand at a gathering of entrepreneurs.

While no clear policy changes have yet occurred, Xi was widely seen to signal that he wanted to see a revival of the private sector in boosting the country’s economy after the emergence of the DeepSeek artificial intelligence model. “It is the right time for private enterprise and entrepreneurs to make their mark,” he was quoted as saying.

An introductory video call between US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng on February 21 saw Bessent complain about Chinese inadequate counternarcotic efforts, economic imbalances, and “unfair policies”, while He expressed concern about recent US penalty tariffs and other restrictive measures against China.

Within a day the White House outlined a series of measures to potentially curb Chinese investment in technology, energy and other strategic American sectors, and told the Mexican government to impose extra tariffs on Chinese imports that leak into the US.

Meanwhile the US has created some confusion over its approach to China with the State Department embracing a shift from the longstanding use of the name Peoples Republic of China (PRC) to simply China. While the previous Biden Administration approach referred to working with allies to address the Peoples Republic of China “from a position of strength,” the new Trump Administration fact sheet states the US will address its relationship with China “under the principles of reciprocity and fairness.”

While the approach can be seen as a toughening of the language in terms of economic competition, it also marks a shift from the way more China sceptic commentators in Australia have favoured using the terminology of PRC or Communist Party China (CPC) to distinguish the current governing regime from the people and culture of China.

• At the Brookings Institution, Yun Sun says China is planning to weather a storm which it thinks will leave the US weaker.  
   

JAPAN: Shinzo’s shadow

Japanese Prime Minister Shigeru Ishiba emerged from his first meeting with Donald Trump on February 7 having apparently made enough concessions to avoid any public friction emerging from what was only Trump’s second meeting with a foreign leader.

But while the two leaders made complimentary comments about each other, they remained quite formal. Conversely Trump persistently referred fondly to the late Japanese leader Shinzo Abe using his first name as if to suggest Ishiba was a more junior, less enduring leader.

Ishiba offered to redress Japan’s US$68 billion trade surplus with the US by suggesting Japanese companies would buy more US commodities especially gas and by pointing to increasing Japanese investment in the US, especially by car makers. The two also reduced tensions over Nippon Steel’s bid to buy US Steel – which was rejected by the Biden Administration – by agreeing it would be an investment rather than a takeover. “This is for the benefit of the US, Japan and the whole world. It is not one-sided, but reciprocal and mutually beneficial,” Ishiba said in words designed to appeal to Trump’s mercantilist inclinations.

But within a week Japan was calling for exemptions from the 25 per cent tariffs Trump had subsequently announced on imports of all aluminium and steel. A Reuters survey of Japanese companies found almost 90 per cent thought the Trump Administration would be bad for Japanese business compared with about 70 per cent after the November presidential election.

• Macquarie University academics Dalbir Ahlawat and Ryosuke Hanada argue at The Strategist that Ishiba managed to leave the meeting relatively well with the two leaders agreeing on more than they disagreed.
   

INDIA: renewed bromance

Narendra Modi meeting re-elected Donald Trump.

Prime Minister Narendra Modi was the second Asian leader to meet Donald Trump and perhaps more notably only the fourth foreign leader underlining how their parallel rise to power in the mid-2010s has created a bond.

The meeting on February 13 between the leaders of the world’s largest economy and most populous country was overshadowed by Trump’s latest dramatic tariff increases, but nevertheless seemed to mesh with his favoured personalised approach to diplomacy.

Trump declared Modi to be a better negotiator than him, even though India had taken a leaf out of the Japanese playbook and paved the way for Trump to feel like a winner. Modi played a dead bat to the US expulsion of illegal Indian migrants despite domestic Indian protests; conceded India would buy more US resources and military equipment to help reduce the trade imbalance; cut some high tariffs before the trip; and tolerated Trump’s criticism of India for being “a very big abuser” of tariffs.

And the Indian leader sought to draw a parallel between Trump’s Make America Great Again (MAGA) program and his own Viksit Bharat@2047 goal of developing India which he creatively re-named as MIGA (for Make India Great Again).

India’s stature as balancing power against China gave Modi ready access to the new Trump Administration, including a meeting with Tesla founder and now Trump adviser Elon Musk.  But Indian officials will now be watching to see how Trump applies his personalised approach to diplomacy to China’s president.

• At The Straits Times, Ravi Velloor says traditionally non-aligned India will want to insulate itself from being used as a bargaining chip in future US-China negotiations.  

ASIAN NATION

ASEAN: find your partner

Foreign minister Penny Wong adopted a strikingly critical tone towards Australian businesses last year noting how they were not taking up the Albanese government’s series of initiatives to promote more economic contact with Southeast Asia.

So, the government decision to award the first funding from its flagship initiative – the $2 billion Southeast Asia Investment Financing Facility (SEAIFF) – to a Singapore government program provides an interesting insight into how this money may actually be allocated.

Last November an Austrade official told the Australia Indonesia Business Council conference that the Deal Teams announced simultaneously with the SEAIFF scheme had looked at more than 100 potential investment projects for Australian companies in Southeast Asia and about 20 had been sent up the line for potential investment of some form. SEAIFF and the Deal Teams were announced last March in the first Government response to Invested: Australia’s Southeast Asia Economic Strategy to 2040 which was overseen by former Macquarie Bank chief executive Nicholas Moore.

But the first SEAIFF project to be funded is a $75 million contribution by Australia to the Singapore government’s own newly established Financing Asia’s Transition Partnership (FAST-P) initiative to accelerate the movement towards net zero carbon emission in the Southeast Asian region. Singapore has promised US$500 million in concessional capital to FAST-P to match equal contributions from other countries, multilateral lenders, and philanthropists in an effort to achieve so-called “crowding-in” of possibly US$4 billion in commercial capital for the desired regional green energy transition.

Export Finance Australia administers the SEAIFF facility and its chief executive John Hopkins says there is significant potential to connect Australian investors and businesses with opportunities in the region’s energy transition. And Trade Minister Don Farrell talked up the FAST-P contribution as an opportunity for cooperation between the Albanese government’s Future Made in Australia program and Singapore.

The test will be just where Australian businesses actually fit into a blended finance program overseen by Singapore’s central bank and implemented by the HSBC bank and Singapore’s Temasek Holdings sovereign wealth fund with additional contributions from around the world which may overshadow Australia’s money. See: Trading up below.

PNG: three km away

Australia has extended its biggest biennial defence exercise Talisman Sabre to include activities in Papua New Guinea as a sweetener for another effort to secure a formal defence treaty with its former colony.

Defence Minister Richard Marles says the treaty negotiation was proposed by his PNG counterpart Billy Joseph last December, although Australia has been pursuing such an agreement as part of the now years long rivalry with China for influence in PNG. It is likely to be a centrepiece of the 50th anniversary of PNG’s independence later this year.

The proposed treaty will build on the Australia-PNG Bilateral Security Agreement signed in 2023, which provides an overarching framework for bilateral security cooperation, a Status of Forces Agreement which originated in 1977 just after PNG’s independence, and Australia’s biggest defence cooperation program in PNG.

Marles notably said at a media conference: “I think the exact dimensions of that is something that we need to work through, but the principle here is we want to walk down a pathway of much greater interoperability, but actually towards a point of integration.”

Joseph said: “It’s not something that’s been put on us. We have decided, from our side, PNG, that the relationship between PNG and Australia has to be elevated to a treaty status.” Noting the countries were only three kilometres apart and apparently signalling to China , he said: “It is really important that with the geopolitics and all the different contexts that's going on, we have consciously made a decision to choose who should be our friends, and as far as the treaty is concerned.” See: Back to the future below

END OF TERM

It may just be desk clearing or even minds turning to legacy moments, but the new year has brought with it a spate of new appointments across the Asian policy domain.

Foreign Minister Penny Wong has announced new diplomatic representatives to PNG, Lae, Palau, New Zealand, Fiji, and the Cook Islands.  

Meanwhile new Board members have been appointed to the National Foundation for Australia-China Relations, Australia-Indonesia Institute, and the ASEAN-Australia Centre Advisory Board.

These follow appointments in December of new ambassadors or high commissioners to Indonesia, Bangladesh, Brunei, and Nauru.

DEALS AND DOLLARS

ASEAN: trading up

After the Moore report on Southeast Asian business engagement and an update to the existing regional trade agreement (known as AANZFTA), Australia is now reviewing all of its trade agreements in this region.

The Department of Foreign Affairs and Trade will conduct the review throughout this year in line with one of the Moore report recommendations and has opened a $1.75 million grant program to help generate input.

Australia now has bilateral agreements with Singapore (since 2003), Thailand (2005), Malaysia (2013), Indonesia (2020), and AANZFTA (ASEAN-Australia-New Zealand Free Trade Agreement) since 2010.  The Philippines has been a longstanding absence from this list and there has been talk of a Vietnam agreement although that has been subsumed by non-treaty level economic linkages under the “enhanced economic engagement” process. Only the regional agreement and the Singapore agreement have undergone changes.

The update of the AANZFTA is only just coming into force with measures which will help small businesses, streamline transport procedures, better protect ecommerce confidentiality, and help services providers in education, engineering, mining, and finance.

With some understatement given the US Trump Administration trade changes, DFAT says that international trade and investment settings have changed a lot since the first Southeast Asian agreements were negotiated and the Australian economy has changed.

It says the review will identify gaps and opportunities to further strengthen trade and investment in the region and examine if the rules existing agreements remain relevant.

While the Moore report talked up Southeast Asia as Australia’s second largest trading partner after China with a strong economic growth outlook, it pointed out that the region’s share of Australia’s total trade had not risen in the past 15 years despite that strong overall economic growth.  “While Australia's trade performance with the region has been consistent, it has not kept pace with Southeast Asia's GDP growth and is not sufficiently diversified to maximise benefit from the emerging opportunities,” it said.

It estimated that if two-way trade continued to grow at around the 20-year compound average growth rate of 5.5 per cent, total trade would be around $465 billion in 2040, an increase of $287 billion on current levels. But if trade growth could be boosted to 6.3 per cent, total trade would triple by 2040.

The Moore report’s ASEAN trade outlook with an increase in the annual growth rate.

RETHINKING INDIA

The Albanese government has identified clean energy, education, agribusiness, and tourism as so-called “superhighways” to build a stronger economic links with India in a new Roadmap for the relationship.

It says Australia has a once-in-a-generation opportunity to benefit from - and contribute to - India’s stature as the fastest growing large economy but needs to target the right areas for cooperation.

The Roadmap amounts to both an update to and a checklist of actions flowing from the much larger 2018 India Economic Strategy to 2035. It is the result of meetings with more than 400 stakeholders from businesses to cultural organisations across every Australia and India which is says confirmed “a strong desire for closer economic engagement with India across the full spectrum of the Australian community”.

Both Foreign Minister Penny Wong and Trade Minister Don Farrell strongly emphasise the role of the growing Indian diaspora in underpinning the relationship and implementing the ideas in the report. “The momentum in this relationship, more than anything else, comes from our people. That includes the remarkable Australian-Indian community, our fastest growing diaspora and a source of deep friendship and connection between our nations, Wong says.

Beyond the four key sectors for economic engagement, the report identifies “cross-cutting” sectors of interest mainly related to technology and then identifies as additional areas of interest: investment; defence industries; space; sports, culture and the arts; resources and mining equipment, technology, and services; and health.

The action plan for taking the relationship forward includes the Accelerator Fund to encourage use of the bilateral free trade agreement; the implementation of commitments under that initial Economic Cooperation and Trade Agreement such as holiday vias; pursuit of a broader Comprehensive Economic Cooperation Agreement; the Australia-India CEO Forum; the Australia-India Business Exchange to improv business literacy; a Director Network to help demystify India; and an India First Nations Strategy.

PNG: back to the future

The Albanese Government is sliding deeper into underwriting Papua New Guinea’s economy with more details about its infrastructure financing and another direct loan to fund the country’s annual Budget.

The government announced this month it would provide a $96 loan to PNG to upgrade Kimbe port in New Britain in the first project specific details of a previously announced $721 million support program to rebuild at least five ports over five years. Australia is providing a $100 million grant and a $621 million loan over 24 years in the largest single project so far for the $4 billion Australian Infrastructure Financing Facility for the Pacific (AIFFP).

The increasing priority on upgrading PNG port through this and other blended finance aid projects since 2021 has come amid regular reports about mooted Chinese involvement in PNG ports. But Foreign Minister Penny Wong said the latest announcement showed Australia was a “trusted partner for major infrastructure projects in the Pacific” with transparent investment to support high quality construction and use of local labour to create jobs and support the local economy.

Meanwhile Australia is again injecting money directly in PNG’s Budget with a $570 million loan at the country’s request to cover its 2014 Budget deficit. This will be the fifth year in a row Australia has injected money into the Budget for a total of $2.6 billion in a sharp reversal on a more than decade old policy of supporting individual programs rather than the Budget.

In the required National Interest Statement for such a foreign loan the Australian Treasury says the two countries have unique and enduring connections and it is in Australia’s interests “to have an economically stable partner with sustainable fiscal management.”

But economic consultant and former PNG government adviser Carolyn Blacklock has argued that Australia is enabling debt-funded pork barrelling in PNG by providing this funding after the Budget has been spent. She says it would be better to return to specific funding projects implemented by PNG people which would have more broad impact than Budget funding.

REPLACING CHINA

Japanese trading house Mitsui & Co. has forecast that India and Southeast Asian countries will make up for any flagging demand from China for Australian iron ore as it made its biggest single mining investment in mining in a West Australian project.

The third largest Japanese trading company is buying a 40 per cent stake in Rio Tinto’s unstarted Rhodes Ridge venture for more than $8 billion which it has described as the “crown jewel” in the Pilbara where it has been involved in mining since the 1960s.

The investment is being made as the price of iron ire has been falling due to the economic slowdown and structural shift in the Chinese economy away from infrastructure investment. But Mitsui chief executive Kenichi Hori said shared use of existing Rio Tinto mining infrastructure makes the investment more attractive. However, he also said increased demand for steel in other parts of Asia would offset flagging Chinese demand.

Supplying other countries with iron ore directly for their steel mills would allow Japan Inc to offset Chinese economic influence via its own steel exports to those countries. For example, Japanese energy companies are already selling their excess Australian-sourced gas to Southeast Asian countries.

DIPLOMATICALLY SPEAKING

Our government has worked hard to stabilise Australia's relationship with China. This means that families in Shanghai and Beijing sitting down to enjoy a meal together can enjoy Australian beef and Australian lobster again. There will be friends exchanging gifts of Australian cherries. And there will be people toasting the Year of the Snake, with the best wine in the world. We’ve restored that trade and rebuilt our dialogue.
  -  Anthony Albanese (Chinese New Year, February 1)

We’re at our best as a country when we’re celebrating every element of our country, and the Chinese community, people of Chinese heritage and Asian heritage have continued over the course of many, many decades to contribute to our amazing country. We live in the best country in the world, and, in good part, that’s because we have people who have come here to call Australia home, have contributed.
  -  Opposition leader Peter Dutton (February 1)

DATAWATCH

BANNED-AID

How the Trump Administration’s development aid cuts may impact on the Pacific and Southeast Asia.

ON THE HORIZON

PARTY TIME

China’s annual “Two Sessions” parliamentary meeting will open on March 5 raising the prospect the government will provide the clearest insights so far into how it will deal with the spectre of new competition with the US under Donald Trump.

The concurrent meetings of the National People’s Congress – the largest legislative body in the world - and the Chinese People’s Political Consultative Conference – the Communist Party’s advisory body - will also provide an opportunity for analysts to debate China’s future after President Xi Jinping.

China announced consumer spending initiatives in January to stimulate the economy and, as noted above, Xi has flagged more acceptance of the private sector after several years of favouring state company led growth programs.

There has also been speculation about initiatives to support the country’s ageing population both in terms of welfare support and measures to keep older people working.

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