Australia at a Crossroads: Navigating a New Global Order

For decades, Australia has relied on two pillars for its prosperity and security: its economic ties with China and its defense alliance with the United States. Now, both are showing signs of strain, prompting the country to rethink its strategic position in an increasingly unstable world.

Australians have long balanced a sense of fortune with underlying anxiety. Despite its wealth, stability, and geographical isolation, the nation has often feared abandonment. Today, those fears are more acute than ever. As the world grapples with shifting power dynamics, Australia finds itself navigating the delicate balance between economic dependency on China and military reliance on the U.S.

A Shifting Geopolitical Landscape

The unpredictability of American leadership under Donald Trump has unnerved many U.S. allies, Australia included. His administration’s protectionist policies and willingness to impose tariffs—even on friendly nations—raise concerns about the durability of economic ties. Simultaneously, China's slowing growth and aggressive push for self-reliance threaten Australian industries that depend on the vast Chinese market. The Chinese government’s willingness to use economic coercion against nations that challenge its policies only deepens Australian anxieties.

While much of the West, particularly Europe, has been slow to recognize the risks of over-reliance on China, Australia has been confronting this reality for some time. The late Allan Gyngell, a distinguished diplomat and intelligence analyst, encapsulated this historical unease in his book Fear of Abandonment: Australia in the World since 1942. He described Australia’s shock when Britain, once the cornerstone of its foreign policy, withdrew from Asia and receded into a middling European power. This shift prompted Australia to forge a robust security alliance with the U.S., positioning itself as a dependable ally that carries its weight.

The AUKUS Gamble

Australia's commitment to its alliance with the U.S. remains firm. A key example is its recent $500 million investment in America’s submarine-building industry, a down payment on AUKUS—the trilateral security pact with the U.S. and the UK aimed at countering Chinese naval power in the Indo-Pacific. The full cost of AUKUS is expected to reach up to $228 billion over the coming decades, including plans for Australia and Britain to co-develop nuclear-powered submarines for deployment in the early 2040s. In the interim, Australia will purchase American-built submarines and invest billions in upgrading its naval base near Perth, allowing U.S. and British submarines stealthy access to the Indian Ocean.

With Trump potentially returning to the White House, Australian policymakers are preparing for a "period of triage." Immediate concerns include the risk of tariffs and broader economic disruptions. In early engagements, Australian leaders have pointed out that America has run a trade surplus with Australia since the Truman era. But a more pressing question looms: What does the U.S. actually expect from Australia in a confrontation with China? A conservative Australian lawmaker recently relayed Republican sentiment from Washington—America will demand guarantees that any U.S. submarines sold to Australia will be made available in a potential conflict over Taiwan. However, Trump and some of his advisors have sounded skeptical about Taiwan’s ability to withstand a Chinese assault, adding another layer of uncertainty.

AUKUS itself is not guaranteed to proceed as envisioned. In private conversations, many influential Australians express doubts about whether the project will unfold as planned. Some speculate that, at a minimum, America will seek access to the submarine base near Perth, regardless of whether it fully commits to defending Taiwan. Even if the U.S. steps back from Taiwan, it will likely maintain an interest in containing Chinese dominance in the Indo-Pacific’s vital sea lanes. In its dealings with Trump’s administration, Australia is positioning itself as a crucial partner in rebuilding America’s defense-industrial base, which it argues is essential to countering China’s economic and military scale.

The Risks of Economic Dependency

That naval base near Perth overlooks a skyline built with wealth from Australia’s extensive trade with China, which buys vast amounts of iron ore, coal, wool, and agricultural goods. Yet the vulnerabilities of this economic dependence are becoming increasingly clear. Australia still remembers how Beijing used trade restrictions to punish a previous government for criticizing China’s handling of the COVID-19 pandemic. Looking ahead, China's demand for iron ore—a cornerstone of Australian exports—could decline by as much as 40% over the next 30 years, according to economist Huw McKay of Australian National University. As China slows its urbanization and increases steel recycling, Australia’s resource sector faces long-term uncertainty.

Meanwhile, Chinese espionage and cyber-attacks on Australia’s critical infrastructure remain persistent threats. A security official recently described such incidents as "constant," reinforcing the need for heightened vigilance.

Strategic Adjustments

In response, Australia is diversifying its partnerships. It is strengthening ties with Japan, India, and other regional players wary of China's ambitions. However, there is little expectation of rallying Southeast Asian governments, which prefer to accommodate Beijing. Instead, Australia aims to adopt a balanced approach: calling out China’s aggressive actions while maintaining economic engagement. The broader Western strategy, as Canberra sees it, should be to make conflict too costly and peace too valuable for China.

A Harder Future

Australia faces an uncertain future, but at least it is confronting these realities head-on. Many nations are only beginning to wake up to the challenges posed by an assertive China and an unpredictable America. For Australia, the task is clear: adapt, strengthen alliances, and prepare for a lonelier world.