By Benjamin Herscovitch, China analyst

Australia has arrived at a broad bipartisan consensus on simultaneously deepening economic ties with China and security cooperation with the United States.

Labor under Prime Minister Anthony Albanese has enthusiastically progressed the former Coalition government’s project of expanding the security relationship with the United States, while the Coalition opposition under Peter Dutton shares the Albanese government’s optimism about the benefits of more economic engagement with China.

This strategy might not work in worst-case scenarios.

If the United States and China went to war, then Washington would likely rethink its security commitments to any country exporting vast quantities of essential commodities to the enemy. And for its part, China probably wouldn’t be comfortable depending on any close US allies for critical imports in such a wartime scenario.

However, in the absence of a cataclysmic great power clash, Australia is likely to be able to continue simultaneously pursuing tighter economic ties with China and more security cooperation with the United States. That’s certainly been the trend in the last couple of years. 

A balancing act that may continue 

Australia might never again send a staggering 41% of its total goods exports by value to China, as it did in 2020 before the bite of Beijing’s trade restrictions was fully felt.

But after dropping down to roughly 29% in 2022, the share of Australian goods exports going to the Chinese market again surged to 36% in 2023.

Despite economic headwinds in China as its property sector cools and demographics shift, the prospects for most of the previously excluded Australian exports also look good.

Like the other Australian targets of China’s economic coercion that have since received a reprieve, wine sales have boomed following the removal of Beijing’s trade restrictions. The value of Australian alcoholic beverages exports to China in June 2024 was nearly 39 times higher than June 2023.

Of course, the trade story with China isn’t all upbeat. Australia’s live lobster exporters are still being hit with costly restrictions, which have probably caused revenue losses of $1.85 billion and counting since November 2020.

Yet the overall picture is still one of strengthening economic ties with China. This has coincided with the dramatic elevation of Australia’s security relationship with the United States.

As well as the expected rotational presence of US and UK nuclear-powered submarines to Australia, the AUKUS partnership announced in 2021 is likely to include expanded trilateral cooperation on advanced military technologies and will, assuming it goes to plan, eventually furnish Australia with nuclear-powered submarines.

AUKUS is just one part of stronger US-Australia security cooperation.

As flagged in successive bilateral announcements under both the Coalition and Labor, Australia will host a growing array of US military platforms—from strategic bombers and fighter aircraft to marines and surface vessels.

But for all the successes of Australia’s dual-track strategy, the critical minerals sector is indicative of the invidious choices that Canberra is likely to face between its economic and security priorities.

As with other major international suppliers of critical minerals, such as Indonesia, Chile, and Canada, China is seeking to expand its investments in Australian miners and refiners.

At the same time, the United States is leading a multinational effort to break the Chinese market’s global dominance of downstream critical minerals processing and build supply chains that aren’t dependent on China.

Australia is contributing to this US-led securitisation of critical minerals supply chains by, among other things, providing government support to Australian critical minerals projects and rejecting Chinese investment bids.

Although this approach is probably earning Canberra goodwill with Washington, it’s also a source of enduring discontent in Beijing. And if Australia chose to reverse course by again inviting new Chinese investment into its critical minerals sector, then Beijing’s relief and appreciation would likely be matched by Washington’s worries and frustrations.

Supporting the US-led securitisation of critical minerals means placing limits on economic interdependence with China, while approving more Chinese investments in this industry would restrict Canberra’s role in supply chain security cooperation with Washington.

The critical minerals sector is just one of a lengthening list of policy arenas that highlight the limits of the strategy of deepening both economic ties with China and security cooperation with the United States.

Canberra might be confronted with similar trade-offs as the United States pushes for forced divestment of TikTok by its Chinese owner ByteDance, imposes tariffs on Chinese electric vehicles and other green technologies, and seeks to rally international support for proposed outbound investment restrictions against Chinese technology companies.

When threading the needle gets harder

In these and other cases, Washington will likely want to bring Canberra more on board with its policies of trade, financial, and technological competition with Beijing. Meanwhile, China would probably bristle if Australia joined these US moves.

Just as declining to back Washington on these issues would amount to rebuffing more security cooperation with Canberra’s most powerful ally, agreeing to them would wind back Australia’s economic ties with its biggest trading partner.

Australia has so far been able to successfully thread the needle of tighter economic ties with China and more security cooperation with the United States.

Short of a catastrophic conflict, this dual-track approach is likely to remain feasible at the macro level.

But as the United States and China use trade and financial flows and technology policy to secure themselves against the other, Canberra will likely be pushed to make more trade-offs between its security and prosperity.

Dr Benjamin Herscovitch is a Research Fellow at the Australian National University and author of Beijing to Canberra and Back, a newsletter chronicling Australia-China relations. 

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