Foreign policy played almost no part in the recent Australian government election, with all issues being local ones. But with its unexpected re-election, the Morrison-led coalition government can now take a longer-term view of Australia’s relationships with Asia and establish policy priorities.

Balancing our relationships with the US, our main security partner since 1941, and China, our largest trading partner, will be one of the main on-going issues the government will continue to wrestle with. This will require consummate diplomacy skills, as the antagonism between the US and China has continued to escalate and shows every sign of worsening.

The contrast of Sydney Harbour hosting three Chinese warships coincidentally on the 30th anniversary of the Tiananmen Square massacre, and the sensitive issue of Chinese technology firms being banned from involvement in supplying Australia’s 5G telecommunications network due to security concerns, add further layers of sensitivity to the mix.

Putting a foot wrong or sending the wrong message could prejudice every import or export business, the flow of trade and the balance of the Australian budget.

The US-China trade conflict is about to enter its second year and US President Donald Trump’s rhetoric is ever more strident. Trump persists in blaming China for taking US jobs (although US companies are to blame, offshoring their operations to China for the benefit of their shareholders). He argues China manipulates its currency to subsidize its exports (when Trump’s own tax cuts and record budget deficits have inflated the US dollar).

Trump’s tariffs will be paid not by China, but by US consumers buying imported goods, while Chinese exporters will have less dollars to buy US products. Meanwhile, the perceived effect of increased tariffs on China’s economy has currency traders marking down the yuan, exacerbating the situation. It is unlikely Trump has read Milton Friedman and Anna Schwartz (The Great Contraction) on how the 1929 Smoot-Hawley Tariff Act, combined with poor monetary policy, turned a regular US recession into the world’s Great Depression.

In December President Trump escalated the trade war with more aggressive trade sanctions, after declaring China was no longer a “partner”, but a “strategic trade rival” seeking to undermine the “US economy, interests and values”. More recently he declared a national emergency to ban leading US tech firms including Intel and Google from dealing with Huawei and other Chinese tech companies, expanding his Cold War to include what is being termed a ‘silicon curtain’ or ‘technology wall’. Earlier the US had banned Huawei and other Chinese suppliers from its 5G network, as had Australia, Japan and Vietnam on the grounds of protecting national security. But as Fairfax columnist Stephen Bartholomeusz commented on May 22, see article here  “…there are those within (Trump’s) administration who seek to use the escalating trade tensions to thwart China’s economic and technological supremacy.”

Trade and national security issues are now inextricably intertwined, further complicating the way we manage relationships with the US and China.

How good is Australian diplomacy?

It is clear that Australia can no longer seek security from the United States while trying to quarantine its economic ties with China. Opposition minister for foreign affairs, Penny Wong, noted in an address to the Lowy Institute just before the May election “It is not simply a matter of a diplomatic reset. Fundamentally, we are in a new phase in the relationship. The idea of an economic-strategic bifurcation was never really accurate, and certainly is not now.”

China-watchers also highlight the intractable ideological differences underlying the deteriorating US-China relationship. Australian National University economist Jane Golley says bluntly the world should abandon its rose-tinted hope that China will evolve into a fully western-style economy. She told an Asia Society briefing in October last year China had relied on its state-owned enterprises to lead its globalisation from the beginning and it was not realistic to expect this would end as it became the world’s largest economy. And she argued the apparent creation of the ‘Indo-Pacific’ to play down China’s hegemonic role in the region was simply “wishful thinking”.

How will Morrison negotiate this minefield? Our smaller Asian neighbours will closely watch Australia, as they have in the past, hoping for signs of leadership. The much repeated Sun Tzu quote about keeping enemies closer than friends comes to mind, though the biggest strategic trap would be to start classing China as an enemy, in the way Donald Trump appears to be heading. For Australian companies trading with China it is heartening to see the increasing trade, cultural, immigration and diplomatic initiatives underway to build closer ties with China. These initiatives have increased under the Morrison government.

Prime Minister Morrison’s single speech on foreign policy ahead of the election (addressing the Asia Society, Sydney, in November), click here  asserted that a Coalition government under his leadership would pursue a foreign policy with other countries based on “values” rather than through a “transactional prism”.  These values included freedom of speech, thought and religion; racial and gender equality; liberal democracy; freedom of association; prosperity through private capital; the rule of law; equality of opportunity; separation of powers and standing by friends who share the same values. Morrison’s focus on “values” echoed the 2017 Foreign Policy White Paper, which put “shared values” at the core of Australia’s pursuit of its international interests. Morrison’s speech also included one of the earliest uses of his now celebrated phrase: “A fair go for those who have a go”.

It is also worth pondering how Morrison’s own values could influence Australia’s actions.

Geoff Kitney wrote in a pre-election article on the Lowy Institute website, see article here: “We haven’t had an ‘evangelistic Christian’ PM before. How powerfully Morrison’s deeply held personal religious beliefs and values would play into the way he does his job, should he retain it, could count for more in the foreign policy field than any other.”

When asked whether his private religious beliefs influence his politics, Morrison’s reported response was: “The Bible is not a policy handbook”. However, Kitney points out that key members of Donald Trump’s administration – including Vice President Mike Pence and Secretary of State Mike Pompeo – are also members of evangelical churches, so Morrison will have a natural affinity with them. Pence and Pompeo are leading the anti-China initiatives.

In the new world of rising tensions between our two major partners the “How-good-is-Australia!” Prime Minister and his team will have to tread a very fine line and guard against any mistaken perceptions taking hold.