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Journal of Contemporary China

ISSN: 1067-0564 (Print) 1469-9400 (Online) Journal homepage: http://www.tandfonline.com/loi/cjcc20

The Economics of Power Transitions: Australiabetween China and the United States

Nicholas Thomas

To cite this article: Nicholas Thomas (2015) The Economics of Power Transitions: Australiabetween China and the United States, Journal of Contemporary China, 24:95, 846-864, DOI:10.1080/10670564.2015.1013376

To link to this article: http://dx.doi.org/10.1080/10670564.2015.1013376

Published online: 26 Mar 2015.

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The Economics of Power Transitions:Australia between China and the UnitedStates

NICHOLAS THOMAS*

This article examines Sino–Australian economic relations, and their impact on the ties

between the United States and Australia. First, drawing on power transition theory, it is

argued that in a post-Cold War environment, economic ties play as great a role as strategic

relations in determining the orientation of third-party states. Second, it is also argued that

Australia’s deeper economic and commercial ties with China have usurped a role previously

held by the United States. This has forced Australia to pursue a bifurcated foreign policy—

one split between its economic and national security needs. Third, these deeper ties with

China have generated a degree of alliance drift between Australia and the United States. As a

result, there is now a significant debate in Australia over the future of both bilateral

relations—even as its space for policy innovation remains limited.

Introduction

In the past three decades, China has undergone a profound transformation. From aneconomy whose gross domestic product (GDP) was only worth US$147.3 billionin 1978, it grew to be worth US$8.28 trillion by 2013.1 As China’s socio-economicdevelopment has accelerated, two intertwined processes have emerged. Down onetrack, the Chinese government has had to meet increasing energy demands to supportthe growth of the domestic economy. Down the other track, China has become tiedever-deeper into global flows of capital and resources, with Chinese companiesincreasingly investing in markets around the world, even as international companiesseek opportunities in China.This rapid rise has not been without controversy. Concerns have been raised as

to China’s intentions for the international order and what China’s rise will mean forthe future of the United States-led international order. As Mearsheimer stated,‘Australians should be worried about China’s rise, because it is likely to lead to an

*Nicholas Thomas is an Associate Professor in Asian and International Studies at City University of Hong Kong.He would like to thank the referees for their comments on earlier drafts. This article was partly supported by a HongKong University Grants Council, General Research Fund award entitled, Resource Diplomacy Under Hegemony,No. HKUST 646010. The author can be reached by email at ndthomas@cityu.edu.hk

1. Chen Jia and Cecily Liu, ‘GDP grows 7.8% to top $8 trillion’, China Daily, (19 January 2013).

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intense security competition between China and the United States, with considerablepotential for war . . . To put it bluntly: China cannot rise peacefully’.2 One key areawhere these concerns are magnified is on China’s significant and growing economicand commercial ties. China needs more resources than it can produce from domesticsupplies. Without these supplies, the capacity of the Chinese economy will shrink andthe viability of the ruling CCP will be called into question. But the United States (andother countries) needs these resources too. In some cases, such as Australia, theUnited States was there first but Chinese investment has now displaced the UnitedStates as the primary economic relationship. This raises a critical question: does tradefollow the flag or does the flag follow trade?The purpose of this article is to extend the analytical utility of the triangular

relationship through a novel application of power transition theory, with a particularemphasis on partnerships within shifting economic orientations. This article arguesthat as China rises it is consolidating its power by building up a range of political tieswith other states through a redistribution of economic goods. As this redistributionbecomes embedded in the recipient state, it increasingly begins to reorient itsinternational outlook towards China. In states that have alliances or other strong tieswith other major powers, this reorientation forces those states to balance theircompeting geopolitical interests. In a peaceful environment, the more a state iseconomically aligned with China the greater the propensity it will have to tilt towardsits economic benefactor. With a particular focus on economic and investmentactivities, it will be shown how the Sino–Australian axis has, over time, become thekey foreign relationship for Australia, even as it seeks to accord primacy to thenormative and strategic alliance with the United States.

Power transition theory

Australian foreign policy since 1972 has undergone an alteration in style and directionprobably unprecedented in the experience of any sovereign state which had not beensubjected to domestic revolution . . . changes had taken place in the area of foreign policywhich had seemingly shifted Australia’s alignment from that of one of the mostconspicuously Western-aligned nations to one of the least.3

Power transition theory was first articulated by Organski in 1958 against the backdropof the Cold War and significant inequalities within and between states. In brief, powertransition theory identifies the conditions for change within a hierarchical world order.The ability to change rests on three key elements of power: demographic strength,economic performance and political capacity.4 Changes in any one of these elementslead to changes in the power of the state. Since its initial conception, power transitiontheory has been developed as a model for understanding power shifts amongst leading

2. John Mearsheimer, ‘The Gathering Storm: China’s Challenge to US Power in Asia’, Fourth Annual MichaelHintze Lecture in International Security, University of Sydney, Sydney, Wednesday 4 August 2010.

3. Glen Barclay, ‘Problems in Australian foreign policy, July–December 1974’, Australian Journal of Politicsand History 21(1), (1975), pp. 1–10.

4. Ronald Tammen, Douglas Lemke, Carole Alsharabati, Brian Efrid, Jacek Kugler, Allan Stam, MarkAbdollahian and A. F. K. Organski, Power Transitions: Strategies for the 21st Century (Washington, DC: CQ Press,2000), p. 15.

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states.5 Within Organski’s model, these changes in the distribution of power have animpact on the world order when the dominant state is supplanted by a rising state.This theory was formulated during the Cold War period, when military-based

security concerns were predominant. In the post-Cold War period security concernshave been reordered, with economic challenges as well as other non-traditional threatsgaining an equal—or greater—weight in security deliberations. Yet, despite thisreorientation, the theory remains valid but divided—as Lemke described—betweenpessimistic and optimistic schools of thought. To put it another way, between thosewho argue that the return to a multipolar world order is a return to past instabilities andthose who see the world now divided into ‘zones of peace and zones of turmoil’; wherethe peaceful zones will inevitably spread, while the zones of turmoil shrink.6

In the decades after the end of the Cold War, both views retained a degree oflegitimacy. For the optimists, although there was a statistical hump in the openingyears of the new century, there has indeed been a decline in both inter- and intra-stateconflicts. Such a decline would make it possible to conclude that the zones of peaceare indeed spreading. However, at the same time, the rise of China as a clear,dissatisfied challenger state to the United States has created the preconditions for anunstable power transition to occur. As far back as 1968 Organski had alreadysuggested that the economic potential in China, coupled with its demographic base,made it as likely a challenger to the United States-led world order as that of the SovietUnion: ‘The rise of China, which is now in the stage of transitional growth, promisesto be equally spectacular’.7 More recently Tammen et al. wrote ‘Upon finishing withone comparatively weak challenger, China has surfaced as the new threat to USdominance of world affairs. As the Chinese challenge develops during this century,the tectonic plates on which international relations rest will move irreversibly’.8

If China is becoming a global power to rival the United States then it can be expectedthat the two powers will have overlapping geographies of interest among other states.It is within these triangular relationships that the Sino–United States power transition isthe most intense. However, the balancing point in this transition is the role played bythird-party states,whose alignmentwith either power is key to determining theoutcomesfor resource acquisition and thereby the power transition contest. But the orientationof a third-party state can be uncertain: ranging from friendly to neutral to hostile.For China this means that there is a spectrum of states where some are closer to the

United States and its norms and are therefore less well-disposed to China.Simultaneously, there are some states that are aligned with China and its norms and

5. A. F. K. Organski, World Politics, 2nd edn (New York: Alfred Knopf, 1968); A. F. K. Organski and JacekKugler, The War Ledger (Chicago, IL: Chicago University Press, 1980); Kim Woosang, ‘Alliance transitions andgreat power war’, American Journal of Political Science 35(4), (1991), pp. 833–850; Jacek Kugler and DouglasLemke, eds, Parity and War: Evaluations and Extensions of the War Ledger (Ann Arbor, MI: University of MichiganPress, 1996); Douglas Lemke, ‘The continuation of history: power transition and the end of the ColdWar’, Journal ofPeace Research 34(1), (February 1997), pp. 23–36; Emilio Casetti, ‘Power shifts and economic development: whenwill China overtake the USA?’, Journal of Peace Research 40(6), (November 2003), pp. 661–675; and Steve Chan,‘Is there a power transition between the US and China? The different faces of national power’, Asian Survey 45(5),(September–October 2005), pp. 687–701.

6. Lemke, ‘The continuation of history’.7. Organski, World Politics, p. 342.8. Tammen et al., Power Transitions, p. 153.

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are therefore less well-disposed to the United States. Tammen et al. observed thatpower transition could be conceived as ‘alliances as stable coalitions of states withsimilar evaluations of the status quo’.9 This echoes Organski’s original work whichstated that ‘[n]ations are not to shift from one international order to another withoutserious internal changes, involving usually a change in the economic system, achange in the predominant class, a change in the political system, and a change inideology’.10 Organski further noted the differences between economic and strategicrelations, observing that ‘over a long period of time, economic relations do change.New resources are discovered and developed, new rivals win markets away fromtheir competitors, new financing and shipping arrangements are made’ but that in ashort period it would ruin a national economy to abruptly switch sides.11 In contrast,strategic relations are far more stable—to a large extent because of the high degree ofintegration that modern military ties require:

Under such circumstances, a nation is not likely to make and break alliances lightly. Toomuch has been invested in the present system of alliances, and too long a time would haveto elapse before new defenses could be built with new allies.12

However, as Lemke noted, a key challenge in post-Cold War security is theinternational ramifications of Chinese economic performance and whether that willlead to a new power transition threat emerging.13

The fluidity of alliances is an area of difference betweenmost power transition theoryscholars and those who favour a balance-of-power understanding of internationalrelations. As Duncan and Siverson observed, the ‘relatively equal distribution of powerbrings about flexibility in alliance partner choice’.14 Given that economic andcommercial ties are an effective way to redistribute goods, these ties can be seen as acritical element in any rising power’s strategy. In other words, as a rising state developsparity with the dominant state the relative equality of power encourages subordinatestates to consider alternative power choices. Organski noted this phenomenon in thepost-World War 2 period, where there was ‘a scramble for allies—the creation of blocsand counter blocs, the wooing of neutrals, and endless conferences and agreements’.15

Thus, when the economic and commercial ties from the rising state with a third-partystate exceed those provided by the dominant state, the third-party state should start toshift its allegiances. As such, it is the aggregate power of the relationships that are criticalin determining the outcome of the transition not just the capacity of the military sector.

Expansion of the power transition model

Organski’s theory holds that the equivalent parity in resources between two states couldbe a trigger for a power transition. If alliances are considered in that statement then that

9. Ibid., p. 33.10. Organski, World Politics, p. 334.11. Ibid., pp. 352–353.12. Ibid., p. 353.13. Lemke, ‘The continuation of history’.14. George Duncan and Randolph Siverson, ‘Flexibility of alliance partner choice in a multipolar system: models

and tests’, International Studies Quarterly 26(4), (December 1982), p. 512.15. Organski, World Politics, p. 338.

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conclusion would be revised to state that the equivalent parity in resources between twogroups of states could be a trigger for a transition. This further suggests that far frombeing outliers in power transitions third-party states are, in fact, central to the progressionof the power transition. This conclusion is supported by Kim who concluded that thesupport of allies needs to also be taken into account when considering relative powerlevels approaching, during and after a transition.16 As Kim later succinctly observed,‘alliances, as well as internally derived capabilities, provide power’.17

In the case of triangular relations between China, the United States and third-partystates, competition for the alliance partner becomes more intense as the value that thethird-party state can bring to the overall power capacities of either China or theUnited States increases. Although states that are neutral to either party are the easiestwith which to establish relations, it is those states with power capacities allied to theother state that are most prized as they simultaneously strengthen one side whileweakening the opposition. Organski’s theory suggests that such states are highlyunlikely to change sides except where there is a wholesale reorientation of statepolicies, norms and elites. But this was an assumption generated through a military-focused lens of alliance structures.In the post-Cold War period, these military alliances remain influential but—in the

current absence of global conflicts between states—military alliances have beenparalleled and/or superseded by economic and trade ties. The globalization of economicactivity in this period has also allowed such ties to be established between former (andcurrent) strategic adversaries or competitors. If the flag follows trade then it is possibleto conceive of a weakening of military alliances in favour of the acquisition of newgoods or resources arising from new ties with old adversaries.Within the context of thepower transition theory, this wouldmean that alliance commitments are more fluid thanearlier efforts suggested and may therefore have a greater impact on the outcome of thetransition struggle than previously envisaged. It also means that third-party states havethe scope to support their established ally, balance their interests between the risingpower and the established order, or to tilt towards the rising power and thereby hedgetheir national interests against future shifts in the international order.This article argues that both the perceived and actual economic and commercial

benefits of deeper ties with China have led Australia to shift its alliance interests.18

From a previously strongly committed US-ally, Australia now prefers to balance itscore normative and strategic ties with the United States against its economic relationswith China.19 However, this balancing is a challenge for Australian governments withboth the United States and China pushing it to choose a side. It is this challenge tomaintain a balance which highlights the economic complexities of power transitions.In exploring this argument, the Sino–Australian relationship will be reviewed with

16. Woosang Kim, ‘Power, alliance, and major wars, 1816–1975’, Journal of Conflict Resolution 33(2), (June1989), pp. 255–273.

17. Kim, ‘Alliance transitions and great power war’, p. 849.18. A related effect can be seen in the South Pacific with respect to Sino–Taiwanese competition, see: Simon

Shen, ‘From zero-sum game to positive sum game: why Beijing tolerates Pacific island states’ recognition of Taipei’,Journal of Contemporary China 24(95), (2015), DOI: 10.1080/10670564.2015.1013378.

19. A similar argument with a different framework is also put forward in: James Reilly, ‘Counting on China?Australia’s strategic response to economic independence’, The Chinese Journal of International Politics 5, (2012),pp. 369–384.

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the intention of understanding how the economic relationship has developed, wheredoes the balance of power lie in the relationship, and what are the implications forAustralia–US ties.

Options for Australia

If the conclusions regarding the role of third-party states in power transitionspresented above are correct, then it is pertinent to now consider the options facingAustralia as it seeks to manage its relationship with China and the United States. Oneview is that the US will have to accept the new strategic reality of the importance ofChina to Australia (and other key US allies), but with the caveat that, in the event of aconflict or a sanctions regime imposed on China, Australia would support the UnitedStates.20 (Critically, this view is predicated on Australia avoiding economicdependency with China which, as the following analysis demonstrates, is not thecase.) A stronger interpretation of this view was put forward by Secretary of StateClinton who, in response to the question as to whether or not Australia shouldreassess its alliance with the US in light of Australia’s China ties, stated that, ‘ourrelationship is essential to both of us. That doesn’t mean we won’t have relationshipswith others, but it does mean that this will remain the core partnership’.21

This viewpoint allows for a balance to be struck between the two powers, but withAustralia tilting towards the United States’ bandwagon against a China threat.As Garrett argued:

Australia must continue to pursue a strategy towards China coupling economicengagement with political and security wariness. Australia’s China stakes grow everhigher. So too do the challenges in executing Australia’s China balancing act. The goodnews for Australia is that the US position on China is similar, creating a clear path forupdating the ANZUS Alliance to the new realities of the Asia–Pacific Century.22

A more demanding position suggests it is in Australia’s own interests to strengthenthe US strategic alliance because, ultimately, that is the only ‘guarantor thatAustralians very much will enjoy their lifestyle’.23 As former US Deputy Secretary ofState Armitage described:

If I were Australian, and I was sitting here, and I was beginning to feel the tectonic platesmove a bit by the ascension of China, the ascension of India, then I think I would opt onthe side of ‘maybe I’ll just keep this security alliance a while longer’.24

As Wezeman observed, ‘There is a clear sense of potential threat and that threat is afive-letter word starting with C’.25 Indeed, as Malik concluded, ‘[m]uch as Canberra

20. Michael O’Hanlon and Michael Fullilove, Barack Obama, Kevin Rudd and the Alliance: American andAustralian Perspectives, Working Paper (Lowy Institute for International Policy, Sydney, August 2009), p. 4.

21. Peter Hartcher, ‘Back America over China, Clinton urges’, The Age, (9 November 2010).22. Geoffrey Garrett, ‘Strategic choices: Australia, China and the US in Asia’, The Asialink Essays 2(5), (2010),

available at: ussc.edu.au/s/media/docs/publications/1008AsiaLinkGarrett.pdf (accessed 5 June 2014).23. Peter Hartcher and Cynthia Banham, ‘Don’t leave the field to China, US warned’, Sydney Morning Herald,

(19 August 2005).24. Ibid.25. Ben Doherty, ‘Australia buys up, enters Asian arms race’, Sydney Morning Herald, (16 June 2014).

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would like to avoid choosing sides, there is little doubt that in the event of a conflict,Australia would side with the United States because sitting on the fence in regionalaffairs has never been an option’.26 Given that, in 2014, 41% of Australians view therise of China as a critical threat to future national security, the role of the US as astrategic ally is likely to continue to receive popular support.27

An alternative view is that Australia can act as an interlocutor between the UnitedStates and China or it can balance the two powers, giving both relationships equalesteem. As Rosencrance argued ‘Washington and Beijing will continue to haveimportant common interests. This suggests that Australia should strive to supporttripartite institutions that bring the three countries together and not be left with thenow outdated bipolar pattern of the past’.28 In this formulation, Australia provides the‘cement’ between the US and China. However, US officials suggested that this ideacould be based on false perceptions as the

United States and China have multiple dialogues. Both sides now consult over policiestowards Africa, the Asia–Pacific, and the Middle East. Instead, Australia has its ownstrong ties with both countries. On some issues they overlap but Australia otherwisepursues its own policy agenda.29

He articulates a supporting view, arguing that Australia’s accommodation of bothpowers militates against conflict in the triad, encouraging ‘non zero-sum questions,while blurring or undermining friend–enemy assumptions in traditional alliancepolitics’.30 This position was echoed by former Prime Minister John Howard whodeclared that:

I count it as one of the great successes of this country’s foreign relations thatwe have simultaneously been able to strengthen our long-standing ties with theUnited States of America, yet at the same time continue to build a very close relationshipwith China.31

The 2014 Lowy Institute poll demonstrated that this is the preferred option for mostAustralians, with 87% agreeing that it is possible to have a good relationship withboth powers.32

However, there is insufficient evidence to suggest that Australia is significantenough to either major power for this role to be accepted. As former Prime MinisterKeating argued:

26. Mohan Malik, ‘The China factor in Australia–US relations’, China Brief 5(8), (2005), available at: www.jamestown.org/single/?no_cache¼1&tx_ttnews%5Btt_news%5D ¼ 3845#.U5CFv2eKDcs (accessed 5 June 2014).

27. Alex Oliver, The Lowy Institute Poll 2014 (2014), available at: www.lowyinstitute.org/files/2014_lowy_institute_poll.pdf, p.8 (accessed 6 June 2014).

28. Richard Rosencrance, ‘Australia, China and the US’, Australian Journal of International Affairs 60(3),(2006), p. 367.

29. Interviews with US Department of State officials, 24 October 2012.30. He Baogang, ‘Politics of accommodation of the rise of China: the case of Australia’, Journal of Contemporary

China 21(73), (2011), p. 70.31. John Howard, ‘Address to the Asialink—ANU National Forum: Australia’s Engagement with Asia: A New

Paradigm’, Speech Transcript, Canberra, 13 August 2004, available at: usrsaustralia.state.gov/us-oz/2004/08/13/pm1.html (accessed 5 June 2014).

32. Lowy Institute, ‘Australia, US and China’, 2014 Lowy Institute Poll (2014), available at: www.lowyinstitute.org/lowyinstitutepollinteractive/aususchina.php (accessed 6 June 2014).

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China has become the second major economic power in the world. It does not need usto help construct its foreign policy, any more than the United States needs usto insinuate ourselves on to China to its account. That’s not to say we can’t beinfluential at the margin, on either one of them or both of them—we probably can andshould.33

As White observed, it is in Australia’s interest for it to act as an interlocutor betweenboth powers ‘but Australia can do little to broker this kind of deal—certainly it has norole as an intermediary between America and China’.34

While these two views can be considered as capturing the majority of policy andpublic opinion in Australia, there are also those who advocate a hedging strategy withChina—where the strategic relationship with the United States is downgraded orabandoned. As former Prime Minister Malcolm Fraser said of Australia and theUnited States, ‘our armed forces are so closely intertwined with theirs and we reallyhave lost the capacity to make our own strategic decisions’ to the point where‘Australia risks being pulled into a disastrous war against China because successiveAustralian governments have surrendered the nation’s strategic independenceto Washington’.35 In the 2014 Lowy Institute poll, 21% of respondents describedUS foreign policy as a threat to Australian interests, suggesting that this is a minority-held viewpoint, but the percentage still indicates a significant degree of negativitywith respect to the US alliance.36

Responding to this spectrum of views, which change over time and governments, isa unique challenge for Australia as it seeks to manage its end of the triangularrelationship. It is also a challenge for the United States and China as they take intoaccount the changing political and social orientations of this key Pacific state. As the2013 BBC World Service Poll revealed, while the balance of Australian sentimenttowards the US is positive it is not overwhelmingly so. Between 2012 and 2013,‘Australian views shifted from leaning positive in 2012 (50% vs. 38%) to being moreequally divided this year (46% vs. 42%)’.37 However, the Lowy Institute polls since2006 consistently show that the relationship with the United States is well-regardedby a majority of the Australian population and, if anything, is only getting stronger.38

Within the BBC sample there is also a similar level of division towards China,although the most recent results tend to be more negative. In 2010 the BBC World

33. Paul Keating, ‘Asia in the New Order: Australia’s Diminishing Sphere of Influence’, 2012 Keith MurdochOration, State Library of Victoria, Melbourne, 14 November 2012.

34. Hugh White, ‘Australia’s choice: will the land down under pick the United States or China?’, Foreign Affairs,(4 September 2013), available at: www.foreignaffairs.com/articles/139902/hugh-white/australias-choice (accessed4 May 2014).

35. Mark Kenny, ‘Malcolm Fraser warns Australia risks war with China unless US military ties cut back’, SydneyMorning Herald, (25 April 2014), available at: www.smh.com.au/federal-politics/malcolm-fraser-warns-australia-risks-war-with-china-unless-us-military-ties-cut-back-20140425-zqz8p.html#ixzz33mWAaFJ6 (accessed 5 June2014).

36. Lowy Institute, ‘The US alliance’, 2014 Lowy Institute Poll (2014), available at: www.lowyinstitute.org/lowyinstitutepollinteractive/usalliance.php (accessed 6 June 2014).

37. BBC World Service, ‘BBC World Service Poll: Views of China and India Slide While UK’s Ratings Climb:Global Poll’, (22 May 2013), available at: www.worldpublicopinion.org/pipa/2013%20Country%20Rating%20Poll.pdf (accessed 5 May 2014).

38. Lowy Institute, ‘Feelings towards other nations’, 2014 Lowy Institute Poll (2014), available at: www.lowyinstitute.org/lowyinstitutepollinteractive/feelingsthermometer.php (accessed 6 June 2014).

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Service Poll concluded with respect to China, that ‘while Australians leaned positivein 2009 (47% to 37%) they now lean negative (36% positive, 43% negative)’.39 By2013, these figures worsened to 36% positive but 55% negative.40 This attitudinaltrend was supported by the results of the annual Lowy Institute Poll, which found thatbetween 2009 and 2014, 41–48% of Australians viewed China as a military threat.In the same period, the percentage of Australians who thought there was too muchChinese investment in Australia rose from 50% in 2009 to 56% in 2014.41 Despitethese sentiments, China was still ranked in this poll as Australia’s closest friend inAsia (31%) compared with Japan (28%) and Singapore (12%).42

Keeping both partners happy is clearly a key policy goal for successive Australiangovernments, but if the United States and China become more confrontational,Australia may not have the luxury of choice. Given the power dynamics of such aconfrontation, the key question to ask is which side would Australia choose to be on?The answer to this question may well lie in the economic and commercial tiesAustralia has developed with China, and how much of an influence these ties have onits geopolitical orientation.

Economic and commercial relations

No country other than China has a greater reason to look back with gratification andsatisfaction over those 60 years of the remarkable development of China than Australia.We have been an extraordinary beneficiary of China’s economic growth.43

In the four decades since diplomatic recognition, Sino–Australia trade ties have beentransformed from a bilateral relationship, where the economic power once residedwith Australia, to a relationship where China’s economic pull has delinkedAustralia’s economy from its traditional US/European base. Economic ties withChina allowed Australia to weather the global financial crisis of 2008–2010, andprovided successive federal governments the capacity to pursue counter-cyclicalgrowth policies. This delinking has deeply affected Australia’s relationship with theUnited States, splitting the country’s economic security from its traditional security.Given the former’s role in guaranteeing national security at the domestic level, thishas also created a perception of a reorientation away from the United States to China.In 1973, bilateral trade between Australia and China was only A$113 million but

grew to A$130 billion by the end of 2013.44 Helped by a mining boom that started in2003, China’s share of Australia’s two-way trade in goods and services increased

39. BBC World Service, ‘BBC World Service Poll: Global Views of United States Improve While OtherCountries Decline, (18 April 2010), available at: www.worldpublicopinion.org/pipa/pipa/pdf/apr10/BBCViews_Apr10_rpt.pdf (accessed 6 May 2014).

40. BBC World Service, ‘BBC World Service Poll: Views of China and India Slide While UK’s Ratings Climb’.41. Lowy Institute, ‘Attitudes to China’, 2014 Lowy Institute Poll (2014), available at: www.lowyinstitute.org/

lowyinstitutepollinteractive/china.php (accessed 6 June 2014).42. Lowy Institute, ‘Australia’s best friend in Asia’, 2014 Lowy Institute Poll (2014), available at: www.

lowyinstitute.org/lowyinstitutepollinteractive/bestfriend.php (accessed 6 June 2014).43. Robert Hawke, ‘Looking back on China’s relations with Australia’, East Asian Forum, (27 September 2009),

available at: www.eastasiaforum.org/2009/09/27/looking-back-on-chinas-relations-with-australia (accessed 6 May2014) (Robert Hawke is a former prime minister).

44. ‘Xi’s visit to Australia to promote bilateral ties’, Xinhua, (13 November 2014).

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rapidly, from just 5.1% in 1999–2000 to 28.1% in 2012–2013.45 This trade is largelycomplementary, with Australia exporting mainly primary resources and importingdeveloped products from China. If not for the resource component of Australia’strade with China, levels of bilateral trade would not be so significant today andChina’s surplus would be far greater. Between 1999 and 2009, the content of thebilateral trade has shifted significantly, with Australia’s natural resources comprisingthe vast majority of Australian exports, with light industrial goods making up themajority of China’s exports. By 2012, the three largest component trades were ironore, coal and gold. Trade in these three components accounted for 37.2% of allexports. In contrast, the three largest imports in 2012 from China were computers,telecommunications equipment and furniture-related items.46 Looking forward,Australia’s reserves of uranium are also going to become increasingly valuable as areits holdings of natural gas and rare earths.The increase in the trade in goods has had a positive impact on the Australian

domestic economy. The combination of lower prices and cheaper parts, in suchindustries as the automotive sector, directly reduces household expenditure andassists local manufacturing in remaining competitive by reducing unit costs.47

China’s demand for Australian resources has also contributed to a reduction ofoverall levels of unemployment, even as the domestic focus on meeting China’senergy needs causes distortions in the local economy—especially the manufacturingand housing sectors.

Bilateral investment

Two-way investments play an important role in the relationship. Even though trade isimportant, it is a short-term activity. Investment implies a longer-term commitmentto a partner country, which must be based on greater trust and economic certainty.While the early investment relationship was dominated by Australian outboundflows, China’s rise has brought a wave of new investment. Chinese ODI intoAustralia now significantly exceeds that of Australian ODI into China. As a DFATbriefing noted, ‘Australian FDI in China remains at low levels (2.3 percent ofAustralia’s total FDI in 2012). However, it has also increased significantly to reach A$8.4 billion in 2012 (compared to A$847 million in 2005)’.48 In contrast, by 2013Chinese ODI in Australia reached A$15.8 billion. Investment is, however, the onesector of the economic relationship that China does not dominate, with the UnitedStates and the United Kingdom are both larger sources of ODI.49

45. DFAT, Australia’s Trade in Goods and Services 2012–13 (Canberra: Department of Foreign Affairs andTrade, 2013), available at: dfat.gov.au/publications/tgs/index.html (accessed 6 May 2014).

46. DFAT, Composition of Australia Trade 2012 (Canberra: Department of Foreign Affairs and Trade, MarketInformation and Research Section, June 2013).

47. Allen Consulting Group, The Benefits to Australian Households of Trade with China, a report prepared for theAustralia China Business Council, (January 2009), available at: www.allenconsult.com.au/publications/view.php?id¼333 (accessed 8 May 2014).

48. DFAT, People’s Republic of China Country Brief (Canberra: Department of Foreign Affairs and Trade, 2014),available at: www.dfat.gov.au/geo/china/china_brief.html (accessed 7 May 2014).

49. Foreign Investment Review Board, Annual Report 2010–11 (Canberra: CanPrint Communications, 2012),p. xv.

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That said, Chinese investors in the resource sector have a major presence(including mineral exploration, development and processing), largely throughmergers and acquisitions. Chinese companies have also established new companieswith Australian investors to explore for deposits in Australia as well as overseas.However, Chinese SOE’s efforts to buy Australian companies with large resourceholdings, such as Chinalco’s desired purchase of Rio Tinto, often run intogovernment and social resistance, encapsulating many of the contemporary hopesand fears of Sino–Australian ties. Australia’s public and private sectors sawChinalco’s attempt to buy a controlling stake in Rio Tinto as an effort to ensure lowerprices for Chinese buyers. Even after Chinalco opted for a lower stake in the companyand additional restrictions on its presence on Rio Tinto’s internal committees,50

concerns still abounded that its involvement would allow the company—and byextension the Chinese government—to exert a disproportionate influence upon RioTinto.51 Given the importance of high-value commodities trade to the Australianeconomic model, this bid was rejected for running counter to the country’s nationalinterest and a possible (hostile) flexing of China’s economic strength in the bilateralrelationship.52 But Chinese officials attributed the negative outcome to anti-Chinesesentiment stemming from ‘political deliberation’ and ‘Cold War thinking’.53

The Chinese perception that Australia is seeking to limit Chinese access to itsresources has grown since 2009 when Treasurer Swan revised the threshold formandatory review by the Foreign Investment Review Board (FIRB). The revisedguidelines allowed for foreign investments under A$219 million (annually indexed)to be exempted from mandatory review, unless the investor is a state-ownedenterprise (SOE) or a sovereign wealth fund (SWF). Similar changes to the ForeignAcquisitions and Takeovers Act (FATA) had earlier provided greater scope forscreening foreign investments based on the ‘potential voting power’ of the investors.Although the FATA did not formally come into effect until early 2010, it was maderetroactive to early 2009 when it was first announced by the Treasurer. But this newdefinition increased FIRB’s latitude to block investments by foreign SOEs or SWFsbased on perceptions of Australian national interest. While no specific country, SOEor SWF was identified by the government as a trigger for these revisions, they wereperceived as being targeted against Chinese interests.This perception was confirmed in a Wikileaks cable from September 2009 that

quotes Patrick Colmer, the Head of the Foreign Investment Division of Treasury anda member of the FIRB, briefing United States diplomats that the new rules ‘wereintended to “pose new disincentives for larger scale Chinese investments”’.54

However, a number of potentially contentious investments by Chinese SOEs havebeen conditionally approved—rather than blocked—since the FATA amendments

50. Matthew Chambers, ‘Chinalco trims Rio bond deal’, The Australian, (22 May 2009).51. Rowan Callick, ‘China and Rio in a torrid affair—Chinalco challenge’, The Australian, (13 May 2009); and

Nils Pratley, ‘Financial: viewpoint: Rio can’t disguise the stench of a rotten Chinese deal’, The Guardian, (22 May2009).

52. Phillip Coorey, ‘Chinalco question not just about investment’, Sydney Morning Herald, (18 May 2009).53. Michael Sainsbury and Matthew Chambers, ‘Beijing fires up at anti-China “prejudice”’, The Australian,

(11 June 2009).54. Peter Martin, ‘Swan denies China targeted’, The Age, (4 March 2011).

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came into force, suggesting that Australia recognizes that Chinese trade andinvestment is necessary for its economic prosperity. Moreover, Australia isencouraging other resource-hungry countries, such as Japan and India, to investlocally, while trying to assert a space for economic independence. Within thisdiversification strategy—and despite signing a Free Trade Agreement with the US in2005—there is no mention of deepening Australia–US trade and investment,signalling that for the time being, the United States cannot vie for dominance withChina in Australia’s economy.The government’s perception that Australia needs to exercise caution in accepting

Chinese investments, even as it benefits economically from the resulting development,is one shared by the Australian people. In a 2012 Lowy Institute poll, 70% ofrespondents agreed with the statement that Chinese investment in the Australianresources sector was the major reason why Australia avoided the global financial crisis.Yet, a majority of respondents also agreed that increases on current Chinese investmentlevels and intentions were not desirable, with 54% agreeing that ‘China is seekingto buy Australian mining and agricultural companies and these need to be kept inAustralian hands’, and 51% agreeing that ‘China has so much money to invest it couldend up buying and controlling a lot of Australian companies’.55 These percentages arehigher than the baseline of 46% of respondents who felt that the Australian governmentwas allowing too much foreign investment, indicating that the general populationperceives Chinese investors more negatively than most other investors.As Chinese investment in the Australian resource sector continues to diversify into

soft resources—such as land or water—this type of social opposition can beexpected.56 Indeed, these types of governmental and social concerns about the impactof Chinese trade and investment temper the desirability of closer economic tiesbetween the two countries. This desire to control investment flows and their localimpact led, in part, to Australia agreeing in 2005 to open negotiations with China fora Free Trade Agreement.

China–Australia Free Trade Agreement (CAFTA)

With trade between Australia and China increasing rapidly—and given the additionalbenefits to both sides—in 2003 the two countries established a joint study groupbetween the Chinese Ministry of Commerce and the Department of Foreign Affairsand Trade. In its 2005 report, the study group concluded that there were sufficientadvantages for a China–Australia Free Trade Agreement (CAFTA) to be pursued.The 2005 report stated that ‘an FTA could boost Australia’s and China’s real GDP inthe order of US$18 billion (A$24.4 billion) and US$64 billion (RMB529.7 billion),respectively, over the period 2006–2015’.57 However, the report also observed that‘there are significant impediments to trade and investment between Australia and

55. Fergus Hanson, Lowy Institute Poll 2012: Public Opinion and Foreign Policy, (5 June 2012), available at:www.lowyinstitute.org/publications/lowy-institute-poll-2012-public-opinion-and-foreign-policy (accessed 10 May2014).

56. ‘Chinese company looks to invest in WA land’, ABC News, (18 January 2012).57. DFAT, Australia–China Free Trade Agreement: Joint Feasibility Study (Canberra: Department of Foreign

Affairs and Trade, 2005), available at: www.dfat.gov.au/fta/acfta/feasibility_full.pdf (accessed 12 May 2014).

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China’,58 signalling that—while desirable—realizing the CAFTA was never going tobe easy.In parallel, China had also been lobbying Australia to define it as a ‘market

economy’ to help it avoid WTO anti-dumping penalties, while Australia had beenseeking deeper access into the Chinese market and a mechanism to maximize therising trade between the two states. In April 2005, the bilateral MoU to startnegotiations provided the recognition China desired, placing Australia at odds withthe United States’ position.59 As Feldman observed, ‘the United States now knows itis holding something that China values highly, and yet is not worth very much, anenviable negotiating position’.60 The decision to award market economy status toChina ahead of a bilateral FTA generated a high degree of opposition from the UnitedStates. US Trade Representative Bob Zoellick directly lobbied Trade Minister Vaileon the issue and—highlighting the seriousness of the divide—US officials directlyapproached many top Australian companies operating in the United States.61

In November 2014, Australia and China finally signed a declaration of intent,bringing the negotiations to a conclusion (pending parliamentary approval).In considering the progress of the CAFTA negotiations over the nine years, it is clearthat while there were always strong technical grounds for an FTA, the negotiationswere hostage to the political relationship. In October 2013, Australian PrimeMinisterTony Abbott stated that Australia would take ‘whatever we can get’ in the CAFTA.Despite this public relaxation of Australia’s position, however, politics continued tointerrupt talks. In the final year of negotiations, the Coalition government upheld theban on Huawei participating in the National Broadband Network due to nationalsecurity concerns. Australia also indicated that—despite the prime minister’sannouncement to the contrary—it was not inclined to relax the FIRB screeningthresholds for SOE investments. Although the Chinese negotiators were seekingparity between the thresholds required for Chinese and US investments, theAustralian government opposed such a move for SOEs.While most of the media and official commentaries have focused on the economic

benefits of the FTA, which are now expected to exceed the US$18 billion earlierforecast, it is worth noting that the relative sizes of the two economies will meanthat—for most sectors—the increase in Australian exports will not challenge China’sdomestic firms. But the flipside, an increased Chinese presence in Australianeconomic activity, is guaranteed. In other words, even though both countries willbenefit from the FTA, Australia will become ever more dependent on China.In sum, even as Australia and China benefit from closer economic interests, the

relationship is not comfortable. Undercutting both the commercially-led and thepolitically-driven aspects of these economic ties is a lack of complete confidence.

58. Ibid.59. Ashton Calvert, ‘Closing Speech at the Australia China FTA Conference—Future Directions’, Sydney,

August 2004, available at: www.dfat.gov.au/media/speeches/department/040818_aus_china_fta_calvert.html(accessed 12 May 2014).

60. Elliot Feldman, ‘China’s status as a non-market economy’, China–US Trade Law: Baker-Hostetler, (21September 2010), available at: www.chinaustradelawblog.com/2010/09/articles/cvd/chinas-status-as-a-nonmarket-economy-aaceaacaeaaa (accessed 10 June 2014).

61. John Garnaut, ‘In trade, Australia looks to China’, Sydney Morning Herald, (9 August 2004).

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Australia—despite the FTA—remains wary of getting too close to China, as therefusal to relax the FIRB rules for SOEs indicates. Over the last decade, theAustralian public have also become more sensitized to the socio-economic impact ofthe relationship on local communities. This new variable to the relationship cannot beentirely predicted or controlled by either government.

Alliance impact of an eco-synchronous orbit

It used to be said that when the US economy sneezed, the rest of the world caught a cold.That is no longer the case. While still the world’s biggest economy, the US is just not thatimportant any longer, particularly not for Australia. We are now a Sino-economy. That is,our economic fortunes are now dependent upon China, not the US. And should Chinasneeze, then we will really know it.62

The impact of the economic relationship described above is such that, since the turnof the century, an argument can be made that the Australian economy has delinkedfrom its traditional partner, the United States, and is now in orbit around the Chineseeconomy. The gravity of this relationship is even heavier when third-party economies(such as those within the Asian region) are factored in. This suggests that even as thisarticle argues that Organski’s model needs to take into account triadic—and not justdyadic—relationships, an argument can also be made that the broader relationshipsthat immediately link the three states together should also be a factor inunderstanding economic power transitions.In the case of Australia, the impact of China’s dominance over Australia’s trade in

goods, services and investment shapes the Australian domestic economy far morewidely than just those sectors directly engaged in the bilateral relationship. A goodexample of this can be seen in the case of the Australian stock exchange. Not onlydoes the Australian exchange closely follow China’s growth cycles but that there isalso a clear correlation between the performance of the exchange and the value of theAustralian dollar.63 These data are supported by research undertaken by UBS andAustrade in 2010 and more recent reports from DFAT. These studies suggest

that the ‘direct’ impact of China to Australia is limited to 3.5 per cent of GDP. This is upfrom around 1 per cent of GDP in 2000. After all, as Australia’s largest trading partner,China takes 22 per cent of Australia’s goods exports, but given its role as a marginalbuyer of resources, influencing the price of over 70 per cent of our exports, the directimpact could be up to 10 per cent of GDP.64

However, in the 2010–2013 period, China’s share of Australian goods exports hassignificantly increased from 22% to 31.9% giving it an even greater impact over thenational GDP.65

62. ‘Let’s hope China doesn’t sneeze’, The Courier Mail, (25 July 2008), p. 36.63. Source: http://blog.axa.com.au/2010/09/08/how-much-does-australia-rely-on-china (accessed 6 May 2014).64. Tim Harcourt, Bright Lights, Big City: Australia’s Role in Urban China (Sydney: Austrade, 3 May 2010),

available at: www.austrade.gov.au/Bright-lights-big-city-Australias-role-in-urban-China/default.aspx (accessed 18June 2011).

65. DFAT, ‘Australia’s trade in goods and services by top ten partners 2013’, Composition of Trade 2013, (2013),p. 45, available at: www.dfat.gov.au/publications/stats-pubs/cot-cy-2013.pdf (accessed 13 November 2014).

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Taken together, these figures suggest that not only has Australia realigned itseconomic future to that of China’s but that to seek to delink from China would causefar wider socio-political disruptions than just to the bilateral trade and investmentregime. That this economic reorientation towards China has taken place without theending of Australia’s strategic relationship with the United States would furthersuggest that—while Organski’s high-cost scenario of alliance shift might remain truefor a short-term shift—any costs associated with realignment over a longer term canbe mitigated and managed by the alliance partner as long as there are associatedbenefits.However, since the mid-1990s there have been increasing disruptions to the

Australia–US relationship, where both the commitment of Australia to theresponsibilities of the alliance and the relative importance Australia places inthe alliance have been questioned. One of the biggest tests of the alliance has beenover Taiwan, and Australia’s role in the event of a conflict. In 1999, RichardArmitage visited Canberra with a message that ‘if Washington found itself in conflictwith China over Taiwan it would expect Australia’s support. If it didn’t get thatsupport, that would mean the end of the US–Australia alliance’.66 While the initialcause of this visit is not known publically, the message resulted in a strategicreinforcement of Australia’s commitment to the ANZUS alliance, suggesting that adegree of strategic drift had been taking place in Australia prior to the visit. Chinaresponded to this reinforced commitment, directly warning Australia of ‘very seriousconsequences’ if it chose to side with the United States in a conflict over Taiwan.67

Indirectly Chinese commentators suggested that ‘China should apply diplomacy tofoster good neighbor relations. Tighter regional relations can help defuseinternational hegemonism by the United States because regional alliances can rivalUS power and cut into its influence’.68 Caught between the two, Australiarecommitted to the ANZUS alliance, declared its adherence to the One Chinaprinciple, and hoped that a conflict would not break out any time soon.69

Five years later Foreign Minister Downer reignited the issue with a declaration thatAustralia was not bound to support the United States in any conflict with China overTaiwan. As Foreign Minister Downer stated in 2004,

Well, the ANZUS Treaty is a treaty which of course is symbolic of the Australian alliancerelationship with the United States, but the ANZUS Treaty is invoked in the event of oneof our two countries, Australia or the United States, being attacked. So other militaryactivity elsewhere in the world, be it in Iraq or anywhere else for that matter does notautomatically invoke the ANZUS Treaty.70

The foreign minister went on to categorize Australia and China as developing astrategic relationship, akin to that between Australia and more traditionally allied

66. Greg Sheridan, ‘What if bluff and bluster turn to biff?’, The Australian, (10 March 2000).67. ‘China warns Australia not to side with US over Taiwan’, Agence France Presse, (5 November 1999).68. Yan Xuetong, ‘Best friends next door’, China Daily, (7 March 2000).69. For more analysis on this see: William Tow and Leisa Hay, ‘Australia, the United States and a “China growing

strong”: managing conflict avoidance’, Australian Journal of International Affairs 55(1), (2001), pp. 37–54.70. Roy McDowall, Howard’s Long March: The Strategic Depiction of China in Howard Government Policy,

1996–2006 (Canberra: ANU E-press, 2009), available at: epress.anu.edu.au/sdsc/hlm/mobile_devices/ar01.html(accessed 3 June 2011).

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states. Although these comments can be seen as part of a natural evolution of a trustedrelationship—from economics and trade connections to increased social and culturalties to deeper political and strategic relations—its implications challenged theintegrity of the alliance between Australia and the United States. They can also beconsidered as a logical development from Barclay’s 1975 observation as to thereorientation of Australia’s foreign policy towards China; it just took nearly threedecades and the end of the Cold War for the effects to fully manifest.A flurry of communications from the United States led to a clarification of this

position, one where Australia would indeed support the United States in the event of aconflict over Taiwan. Although this clarification reaffirmed the primacy of the US–Australian alliance, it is another example of the growing power regarding theeconomic significance of China’s promise for Australia against the portrayal of Chinaas a strategic threat and the impact this reconceptualization has had on US–Australian ties. Throughout the remainder of the Howard tenure, Australia began tomore clearly bifurcate its foreign policy—with a clear emphasis placed on thehistorical and contemporary relevance of the strategic relationship with the UnitedStates but with an (at least) equal weight given to the economic security of thecountry (and the unstated domestic political benefits), which was being increasinglyinfluenced by the relationship with China. This bifurcation can be seen as an attemptby Australia to hedge its national interests against its two largest foreign relations,until the ties between those two partners are clarified.During the Rudd/Gillard governments, Australia also began to upgrade its strategic

relationship with China to a co-equal level (at least in status) with that of the UnitedStates. The election of Labor Prime Minister Rudd in 2007 led—at least in politicalrhetoric—to a renewed embrace of China. During a speech at Peking University in2008, the prime minister declared that Australia was China’s ‘zhengyou’ or ‘truefriend’, one who could—and would—speak frankly to China for the benefit of bothstates.71 Although this sentiment was not reciprocated, it was interpreted by bothsides to be a new political push towards deeper political and strategic ties. An earlyindication of these deeper bilateral ties was the Rudd government’s decision in 2008to withdraw from the planned Quadrilateral Dialogue with the United States, Japanand India. Chinese diplomats had been strongly lobbying against the Dialogue since itwas first proposed by the Japanese government in 2006. However, Australia was thefirst country to withdraw, with Foreign Minister Smith citing Chinese opposition tothe plan as one reason for their actions. The foreign minister also returned to thecontentious theme of Australia upgrading its economic relationship into a strategicrelationship, stating that

we have an emerging relationship based for a long period of time on our early recognitionof China as one nation, on the economic complementarity between our two nations andtoday we see the relationship going to another level, a strategic dialogue.72

71. See text of this speech in: ‘Beijing University speech by Australian Prime Minister Kevin Rudd’, TheAustralian, (9 April 2008).

72. Stephen Smith, ‘Joint Press Conference with Chinese Foreign Minister, 5 February 2008’, available at: www.foreignminister.gov.au/transcripts/2008/080205_jpc.html (accessed 3 June 2011).

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It is pertinent to observe that, on this occasion, this categorization of the bilateralrelationship did not generate the same backlash from the United States as had ForeignMinister Downer’s initial suggestion of a strategic dialogue four years previously.By this stage the US had begun to accept Australia’s deeper engagement with Chinaas a political reality and was focusing on ways to re-tilt the alliance.This re-tilting was given (largely rhetorical) shape in 2011 with the decision to

rotate a small contingent of US marines through Darwin, to revise the ANZUS treatyto cover cyber-attacks, and a stronger push from the United States on the Trans-Pacific Partnership (TPP)—all of which were important for Australia–US relationsbut all of which were also activities under the US ‘pivot’ policy to Asia. It is thispolicy which places the most stress on Australia’s relations with both powers. On theone hand, the US expects Australia to prioritize its strategic efforts in the region overtrade concerns with China. As Hilary Clinton warned Australia, with reference to theRussian–Ukraine relationship, over-reliance on trade with China ‘makes youdependent, to an extent that can undermine your freedom of movement and yoursovereignty, economic and political’.73 On the other hand, China expects Australianot to take offensive actions (even of an indirect nature) against its regional interests.China views the pivot as an unsubtle attempt to contain its regional expansion.As Glasser observed, ‘the US Asia “pivot” has prompted Chinese anxiety about UScontainment and heightened regional worries about intensified US–China strategiccompetition’.74 As a result, the ‘US and China only smile for the cameras, but bothare thinking over detailed plans on how to win a potential conflict’.75

In response to local concerns about Chinese opposition to these developments,Prime Minister Gillard said: ‘I think it is well and truly possible for us in this growingregion of the world to have an ally in the United States and to have deep friendships inour region, including with China’.76 This distinction between allies and friendshipsconfirmed the US-tilt of the Gillard government. However, it was a tilt that was morelimited than either leader publically suggested. Initial requests from the White Housefor 7,500 marines to be deployed were blocked by the Gillard government who wereconcerned about the domestic political fallout. The Gillard government even tried tostop the announcement of the rotation during the president’s visit, so as to lessen thedomestic and foreign policy impact of the decision. It was only the threat of thecancelling of President Obama’s visit that changed this request.77

The subsequent Chinese over-reaction to this deployment also highlighted China’ssensitivity to any form of closer Australia–United States ties and demonstrated itswillingness to lobby for foreign policy changes by the Australian (but not, in thisinstance, the US) government. The MFA felt that expanding military alliances werenot in the interest of the region,78 while the less diplomatic Global Times suggested

73. Paul McGeough, ‘Hillary Clinton criticises Australia for two-timing America with China’, Sydney MorningHerald, (28 June 2014).

74. Bonnie Glasser, ‘Pivot to Asia: prepare for unintended consequences’, Global Forecast 2012, (2012),pp. 22–24, available at: csis.org/files/publication/120413_gf_glaser.pdf (accessed 12 June 2014).

75. Zhou Jinghao, ‘US containment frays China’s nerves’, Global Times, (25 November 2013).76. ‘Obama visit to focus on military ties’, ABC News, (17 November 2011).77. Peter Hartcher, ‘PM had cold feet on US base plan’, Sydney Morning Herald, (2 November 2013).78. Jackie Calmes, ‘A US marine base for Australia irritates China’, New York Times, (16 November 2011).

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that ‘China cannot remain detached if Australia undermines its security’.79 Despitethese strategic issues, interviews by the author in Beijing the following month withChinese think tanks and academics showed that the real concern was the creation ofthe TPP—an economic group with 40% of global GDP, which would normativelyexclude China rather than the marine contingent.The 2013 election of Prime Minister Abbott created a brief policy window that

allowed for relations with China and the United States to be reset. However, bilateraland trilateral issues as well as external events quickly eroded any sense of calmbetween Australia and China. The seeming collapse of the TPP talks in the face ofJapanese and domestic US political pressure ended hopes that a new economicalternative to China could open up for Australia. The failure of these talks means thatthe economic status quo—in which Australia remains within China’s economicorbit—will prevail for the foreseeable future. However, Australia’s support for theUS push back over China’s declaration of its Air Defence Identification Zonegenerated significant backlash from senior Chinese officials—as did Australian andUS protests over Chinese actions in the South China Sea and the mooted expansion ofthe US forces in Darwin. From Australia’s perspective, this can be seen as a limitedattempt to carve out an independent foreign policy space. However, a keywaypoint—Australia’s willingness to sacrifice significant economic benefits toachieve strategic gains—has not yet been passed. Hence, what Australian resistanceagainst closer Chinese ties that has been witnessed remains largely rhetorical innature.

Conclusion

Australia is faced with a difficult choice. On the one hand, its economic ties to Chinaneed to be maintained if the country is to continue to prosper. Yet there are strongreservations held by the Australian populace as to the appropriate level of these tiesand about the future geopolitical intentions of China. On the other hand, Australia isclosely tied to the United States. Australia has been able to maintain low levels ofspending on its defence sector precisely because the United States is its strategicguarantor. The two countries also share common socio-political norms and have beenallies since 1951. Yet the Australian populace also holds reservations as to thedirection of US foreign policy, and is almost equally divided in its views of theUnited States. Overarching these two bilateral relations is the complicatedrelationship between China and the United States, which tends to oscillate betweenstrategic competitor and strategic threat depending on the issue and the leadership.Power transition theory can account for the tensions between a rising China and a

dominant United States, but is weak when it comes to explaining the impact thesetensions have on third-party states—and the role these smaller states have indetermining the outcome of the transition between powers. Far from being outliers tothe binary struggle, third-party states (such as Australia) can play a significant role inmanaging the transition because their choices contribute to the overall resourcecapacity of the respective powers. Organski believed that such states were unlikely to

79. ‘Australia could be caught in Sino–US crossfire’, Global Times, (16 November 2011).

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move away from their key security relationship because of the costs involved. Thisbelief was, however, formulated during the Cold War period where the externalsecurity guarantor and the external economic security guarantor were the samestate—or at least within the same geopolitical grouping. The rise of China means thatthis is no longer the case for Australia, and for many other countries in the Asia–Pacific.Organski’s theory also suggested that third-party states would not deviate from

their chosen power because of the strategic costs involved, but Australia has shownthis not to be the case. It is able to respond to the transitional tensions by developingrelations with both the dominant state and the rising power. The problem in the caseof Australia’s bilateral relations with China and the United States is that neitherpower can completely guarantee Australia’s security. China provides the economicsecurity for Australian prosperity. The United States provides the strategic umbrellafor Australia’s national security. So Australia seeks to fulfil these needs by trying tobalance both powers, bifurcating its strategic and economic security in order tomaximize its national security.However, the very act of balancing implies that Australia has moved away from

the United States as its sole security guarantor. As Australia seeks to maximize itseconomic ties with China it finds itself drawn more into a China-centric orbit. Thishas led to a degree of alliance drift, where successive Australian federal governmentson both sides of politics have evinced policies that downgrade the strategic ties withthe United States. Both China and the United States respond to this shift by trying toentice Australia towards their respective sides. There is now a near-constant debatewithin Australian policy and public circles as to which power is more important underwhat circumstances. Under these conditions and as a dependent power, the scope forAustralia to make independent policy choices with relatively little cost to its securityis very limited. The questions confronting policy makers in all three countries arehow long can this uneasy status quo be maintained before Australia is forced to makea defining choice? And what happens when it does so?

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Dow

nloa

ded

by [

City

Uni

vers

ity o

f H

ong

Kon

g L

ibra

ry]

at 2

0:55

29

Sept

embe

r 20

15