A cascade of recent events has sharpened the need for Australia to devise a coherent response to China’s growing influence both in the bilateral relationship as well as globally. The current public debate in Australia about China reflects strong convictions and sectional priorities, but rarely attempts to reconcile these in a way that serves Australian society as a whole. For this, we should look to the concept of ‘grand strategy’, with precedents in international contests of past centuries.

A grand strategic approach

Like any strategic process, grand strategy balances ends, ways and means, seeking an outcome that is feasible given the ‘operating conditions’ and available resources. It is ‘grand’ in uniting actors from across society in a shared decision-making framework, directed at shaping the international order in ways both favourable and sustainable. This provides the best prospect for addressing all aspects of the national interest with all tools available.

Three long-term parameters shape the conditions and resources that Australia has to work with in our policy towards China. First, the economic bases of national power have become transnational. Production and technological progress have become extensively integrated across borders and now leverage global economies of scale. This means that any effort to bring production back within the nation-state, or even a group of like-minded states, will involve significant trade-offs, and a long, messy process of corralling myriads of actors.  

China’s weight in these transnational systems, especially within our region, creates huge inertia against re-arranging such relations by government policy alone. The snowballing costs of the pandemic will constrain the resources available, both for firms to ‘decouple’ from China and for governments to support this, even if the costs of fragmenting global supply chains are deemed worthwhile. Australia’s own trade exposure to China, as well as the importance to Australia of countries with economic ties to China that continue to grow, highlight how the resources needed to pursue national security are bound to the same systems from which insecurity derives.

While some decoupling in some sectors from China is justified, maintaining the means to prosecute an independent national strategy will likely require tolerating a large degree of ‘managed interdependence’ — a system of calibrated exchanges with a sometimes-hostile state. In a similar way to how mutual deterrence and arms control frameworks gave the Cold War a degree of stability despite nuclear arsenals, frameworks are needed to govern economic interdependencies that can be potentially weaponised today.  Devising a logic of strategic assets that integrates the costs and benefits of foreign inter-dependencies for all actors across society is the first step to deciding which exchanges are in the national interest and which are not.

Managed interdependence and fluid politics

Second, national power is increasingly based on leadership in high technology fields that are far beyond Australia’s capacity to independently master, including in computer processors, artificial intelligence, quantum systems and other fields. Progress in these technologies is driven by firms and research actors that leverage transnational networks, markets and labour pools. Again, China’s role in developing and deploying these technologies on a global scale means that our policymakers face a complex balancing act, bringing together government, private sector and university actors to mitigate risks from weaponised interdependence without hurting the future bases of our national power. 

This balancing imperative is reflected in the graduated approach that even the Trump administration has found prudent when expanding export controls against Chinese firms like Huawei. Such caution reflects fear of hamstringing US firms that depend on foreign markets and international collaborations  to maintain technological leadership. To maintain global economies of scale, technological progress cannot simply exclude Chinese actors, but should seek to allow continued collaboration while protecting the most important interests. The European Union’s 5G toolbox provides an example of an approach focused on building high fences around small yards, rather than trying to decouple across the board in a self-harming quest for absolute security.

Third, China is rising in a world where international relations and national interests are fluid. The world Australia had known since European settlement, of dominant like-minded powers and relatively fixed international alignments, has given way to one in which countries are likely to take different stances towards China depending on issues and circumstances. As one official of a key US ally recently put it, fealty on China policy is not on offer. Betting that other states will consistently align against a nation that is their largest trading partner and increasingly prominent in advanced technologies is not a strategic approach to Australia’s China policy.

Using national agency in a changing world

This does not mean that Australia is hostage to the will of foreign actors, or to the forces of a Thucydides trap that will simply sweep us along. Grand strategy is a proactive method, focused on shaping the environment while being adaptable to changing conditions. Other states too have concerns about China’s expanding military power, offshore island-building, prosecution of territorial disputes and quest for leadership in strategic technologies, which all provide levers for Australian foreign policy. The key will be flexibility: a commitment to working not just with ‘like-minded partners’ but with all actors as necessary, including China itself.

Grand strategy is important because Australia has agency to pursue its national interest. The challenge is to use that agency in a world with ‘operating conditions’ very different from those in times past, and to define the ‘national interest’ in a way that incorporates all of Australian society. This will serve to harness all our resources towards common goals.  Focusing on threats stemming from the political nature of the Chinese Communist Party, or on commercial benefits from engaging with China, will not provide a sustainable foundation for long-term policy.  A truly strategic approach starts from uniting actors from across society in an agreed and integrated use of national power, and from recognising the structural conditions for a realistic policy towards a rising China.