Middle power diplomacy essential to secure Asia against big power rivalry

Author: Editorial Board, ANU

There will be no resolution of the big problems of our age without the big powers, notably the United States and China, being willing parties to their settlement. And success will depend critically on the trust that each puts in the other’s stake in the game.

On the problems of climate change and the transformation of the global energy economy and technologies that are needed to effect a reduction in man-made global warming; on arms control and limiting the spread of weapons of mass destruction; on revamping global trade and economic governance to make it fit to manage the hyper-interdependent and digitally wired economy of the 21st century: if the United States and China don’t both buy into the solutions, there will be no solutions.

Yet what is increasingly plain for all to see is that these two great powers, left to their own devices, are incapable of resolving these problems alone, without damage of consequence to the global order and the global order over which they now imperfectly have the pretension to preside.

To be sure, the two big powers account for a considerable part of the world economy and military power. Yet together they make up just over two-fifths of global production, and under a quarter of global trade, although they account for over half of global military expenditure, as the balance of economic and military power between them tilts steadily towards China.

In 1960, the United States itself generated two-fifths of global GDP and 15 per cent of global trade. The other substantial 60 per cent of global production and 75 per cent of global trade, in 2020, belonged to Europe (around 16 per cent of global GDP and 14 per cent of trade) and a range of middle powers.

If the United States had the will to lead the global economic and trading system today — and patently it does not, as first President Trump prosecuted and now President Biden is prosecuting each their own populist versions of ‘America First’ — it doesn’t have the weight or the capacity.

Certainly the three-hour conversation during the virtual summit between US President Joe Biden and Chinese President Xi Jinping last week exuded a welcome cosiness and brought a worthy initiative to talk about nuclear missiles. But on the other big issue of the economy and global governance there was a troubling, largely empty set.

Indeed, the United States and China appear to be doing their best to undermine global trade governance. The Phase One trade deal between China and the United States is not free trade, it is managed trade — China agreed to buy quotas of US commodities. In a deal done earlier this month, the European Union lifted the retaliatory tariffs on Harley Davidsons and Kentucky Bourbon from the United States in exchange for allowing quota-ed volumes of European steel and aluminium into the United States. US protectionism that ramped up under former President Trump remains and the United States is retreating without shame to the use of voluntary export restraints and managed trade of the 1980s.

As Tom Westland explains in the first of our two lead articles this week, ‘in economics as in sport, competition is best managed by neutral umpires, not by the participants themselves’. He points out that ‘it’s not clear what Xi’s and Biden’s responsibly managed competition will look like. [But if] it looks anything like the managed trade that now governs the economic interactions of the world’s two largest economies, then “competition” is a wild misnomer’.

If the middle powers, who constitute the major third force, stand by and let the United States and China carve up the world, they will surrender their national interests and international public good to a duumvirate of big power interests. As Westland points out, ‘the US-China “Phase One” trade deal, represents the worst kind of anti-competitive policy kludge, designed to protect politically favoured industries in the United States and kicking out Australian and Canadian farmers and gas suppliers who can produce more efficiently than their American counterparts’.

These big geopolitical and economic fault-lines that threaten global prosperity and security today run through East Asia’s backyard. The middle powers — Australia, Japan, South Korea and ASEAN among them — that comprise half the region alongside China now face the challenge of devising strategies that embrace their major economic partner on one side and their major security ally or partner on the other. But at the same time, they need to protect their interests and the global rules that are essential to protect them from being trampled all over in the embrace from either side.

The dangers are immediate and real. US Trade Representative Katherine Tai last week said that she has a plan for Indo-Pacific trade that will lock the United States into Asia. If that plan is anything else like what the United States currently has on display, it’s likely to be the policy product of an illywhacker, as Westland concludes, and no self-respecting nation in the region should fall for it.

In our second feature article this week, Shiro Armstrong proposes an agenda for cooperation between Australia and Japan, Australia’s closest partner in Asia, that recognises these realities and urges a partnership to craft a regional path toward comprehensive security that deals with them by engaging but not playing second fiddle to Washington or Beijing.

‘The US alliance framework remains the bedrock of Australian, Japanese and regional security and stability’, Armstrong says. ‘The Quad, which includes India alongside Australia, Japan and the United States, reinforces that. But it is through open economic engagement that Australia needs to entrench US interests in Asia where US policies have been less supportive of the multilateral rules-based system. Japan shares those interests and brings serious economic heft to the task’.

‘Australia’s experience in the face of Chinese trade coercion demonstrates to the world that the open and contestable markets that the multilateral system helps to guarantee significantly blunt the effect of intervening in markets for political or economic gain because it offers alternative markets and suppliers’.

China’s bid to join the ​​Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Chile–New Zealand–Singapore Digital Economic Partnership Agreement signal its intent to sign up to US-led and advanced economy rules. This offers an opportunity to sort out what’s wrong with China’s trade policy not only towards Australia right now.

The multilateral trading system is a vital strategic and security interest in the region. It is through open economic engagement that the region needs to entrench US interests in Asia and that is exactly where US policies have been less supportive of the multilateral rules-based system. Tai’s plan for the region promises to limit arrangements to allies and partners and that would be a huge mistake, missing the need and opportunity to wrap the large Chinese economy in more rules and markets.

The substantial agenda for middle powers will need careful and proactive diplomacy and leadership. It will need close cooperation and coordination. This week the Australia–Japan Research Centre at the ANU launches a major report on Reimagining the Japan Relationship that sets out such an agenda for Australia in its engagement with Japan, as the leading edge of Australia’s broader Asian engagement.

The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.

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