Asia2025: The big question I’ve always wondered is if relations between the United States and China worsen, where does Australia stand in any tussle?

Michael Wesley is Executive Director of the Lowy Institute for International Policy. He recently delivered a lecture on Australia’s China policy at Sydney University.

I thought I’d discuss where Australian and US policy differ.

Michael Wesley, you say that our most important trading partner is our closest ally’s strategic competitor, namely talking about China and the United States.

What difficulties do you think this is going to throw up in the next few years for Australia, and other countries? I’ve been looking at Brazil, as well as countries in the Asia Pacific region.

MW: Look, one of the things we need to acknowledge is that the United States and China are going to be strategic competitors for some time.

Basically the United States has a view of its role in the Asia Pacific region which is then incompatible with the role that China wants the United States to play. And this sets up a whole range of issues over which the United States and China will come into conflict, not necessarily armed conflict, but diplomatic standoffs and so on over the years ahead.

Asia2025: So how do we navigate those stormy waters, you know, during this difficult time? We’re talking about if there are problems with climate change or there’s a trade war, you know, so many issues that could come up between these powers.

What do you think? Where is Australia heading on this?

MW: I don’t think we can muddle through this. We’ve got to make some very clear choices. There are two very clear choices that are out there in the debate at the moment.

One of these is that we should not compromise our relationship with the United States and we should not compromise our values. And therefore the implication of that is that we will have a fairly cold and antagonistic relationship with China.

On the other side there are those who say that we should just acknowledge that China is the power of the future and that we should start to make compromises in our relationship with the United States in our values and various other things and simply accommodate the rise of China.

I don’t accept either of those. I think that we can still hang on to our values, we can still hang on to our relationship with the United States. But we can do everything within our power to moderate the strategic competition between the United States and China.

Asia2025: And how do you moderate that strategic competition because at some levels it’s pretty fierce?

MW: Well one of the things we need to do is to take seriously and urge the Americans to take seriously China’s legitimate concerns about the strategic order in the Asia Pacific region.

The strategic order in this region is underpinned by a system of bilateral United States alliances, US-Japan, US-South Korea, US-Philippines, US-Thailand and US Australia. They’re coming up to 60 years old and actually the overwhelming strategic rationale for those being set up vanished 20 years ago.

So I think it’s time to start looking at the structure of Asia Pacific security architecture in a comprehensive way and to start to think about re-designing that, not scrapping it, not replacing it with something else, but redesigning it so that it removes some of the real structural antagonisms between the US based security order and a rising China.

Asia2025: But is that likely to come from the United States? We had Admiral Keating, the head of PACOM, talking about US and China in the Pacific and we also had a recent article by Peter Hartcher talking about a new Chinese weapon that had the US Navy in a panic.

The rhetoric out of the United States doesn’t seem to be ‘oh we’re willing to sort of compromise with China’.

MW: Well look, Australia has always been a country that has had ideas about how to change international architectures for the better. We certainly have a Prime Minister at the moment that has a lot of ideas about changing international architectures and institutions for the better.

And I think this is something that we need to start talking to the Americans about. And it may take a little bit of time to convince them that there needs to be a change in the framework as a whole. But I think it’s something that we need to start doing.

Asia2025: I spoke with John Lee about the failed Lynas bid and obviously there was Rio Tinto this year.

Do you think the Chinese are starting to view Western rhetoric about engaging China economically as being subject to certain conditions?

MW: Oh very much so.

I think, my impression is that the Chinese say that ... or the Chinese are starting to think, A, that the world is a bit of a rich boy’s club in which all of the institutions are designed to serve the wealthy counties and the powerful countries, that all of the economic flows seem to favour those same wealthy countries, and that all of the good resources have already been stitched up by the wealthy and the powerful.

The other thing that I think they’re starting to think is that in general terms, Western countries say to China, you have to engage with the world, you have to become a responsible stakeholder, and so on and so forth.

But when it comes to the specifics of China going out and becoming a major international investor and so on, suddenly all of these fears are raised and China is rebuffed. Now whether that’s the case or not, I think that’s starting to become a very prominent perception in Beijing.

Asia2025: Well if you look at the G20, there were the proposals that were floated and a pressure on China to reduce its trade surplus and not rely so much on exports. Now that affects China’s growth. And the new era of the G20 that was talked about is relying on China’s currency to appreciate and the US dollar to fall, helping US exports.

But effectively China would see this pretty much as a sort of a lose-lose situation for them wouldn’t they? I mean if this is the new era of the G20, doesn’t that really put China in a very difficult position?

MW: I think we need to take with a grain of salt what China will take out of this G20 meeting. The West has been giving China advice and making demands and making forceful suggestions as to how China should order its economy for a very long time now. And rarely does China take that advice.

And the proof of the pudding for the Chinese is that China hasn’t taken Western advice about liberalising its capital account, about floating its currency and so on and so forth, and China still continues to go from economic strength to economic strength.

So why would China start taking Western demands and Western advice now? I would be very sceptical as to whether China will actually meekly go back and institute what it’s been called to do in the G20 after the Pittsburgh meeting.

Asia2025: But what about the increased moves of protectionism both by the EU and the United States, not just the tire provision but the climate change provision which the Senate’s going to be voting on in the Unites States that sees tariffs on countries that do not reduce emissions.

I mean, that’s going to be difficult for China. How does China deal with that? That is going to affect them isn’t it?

MW: Well I think it will, but again, does China want to get into the situation where it’s forced to make changes to its macro-economic policies by other countries’ pressure? I think if you look at the track record of what China has done in terms of its economy over the years, it is not inclined to start taking advice that it doesn’t agree with and certainly not taking advice that is imposed on it through draconian measures.

I’d be very surprised if these sorts of tariff barriers encourage China to make big changes in its economy.

Asia2025: If Kevin Rudd is navigating a difficult course the best way he can, why then do we have Australia with one of its largest trading partners, allowing visits such a Rebiya Kadeer in Melbourne or the Dalai Lama who’s due here at the end of the year? Surely that’s somewhat inflammatory, no?

MW: Well it is inflammatory but we are a democratic country, we are a sovereign country, we have the right to make assessments of everyone who applies to come here and if they are not deemed to be a security risk then as a democracy I think we should give them the right to come here.

And China needs to realise that just as other countries respect China’s sovereignty and respect China’s right to determine who is a security threat and who is not, that China needs to respect other countries’ rights.

Asia2025: Michael Wesley, are you worried about Chinese defence aspirations and defence capability in the Pacific?

MW: No, I’m not. I mean, China is a rising economic power and if there’s one historical rule that seems to occur again and again it’s that as countries get richer, they acquire better and better military capabilities.

This is something that is going to be a reality in the future. And it’s not only China. I mean India is building its armed forces at a great rate. Indonesia as it continues to be economically successful, it will also. Vietnam, Korea, Japan is already very powerful militarily. I don’t think there’s anything particularly to be worried about in the Chinese military build up.

Asia2025: But let’s say things do deteriorate between the United States and China. Let’s say worse case scenario, something happens in the South China Seas, there’s a standoff. What do we do? And this is the question that I always wondered years ago, was okay, China has so much investment in Australia, what does Australia do?

What is the likely scenario situation if you have such economic interdependence with a power that then suddenly relations with your greater strategic power turns hostile? What does Australia do?

MW: I think at the end of the day it will depend on the context of the conflict that breaks out. But my feeling is that at the end of the day Australia would side with the United States. Whether it chose to take part in the hostilities is another question, but I certainly think that for Australia to say to the United States that was in an armed conflict with China, you’re on your own, guys, would really signal the end of the American alliance for us.

That is a huge strategic call for any Australian government to make. It means that Australia would, for the first time in its history, have to look after its security independent of a great power ally. I don’t think either side of politics in Australia would be prepared to make that call and so would probably side with the United States.

Asia2025: But considering there is so much economically at stake and we do have such vested interests in China’s growth and obviously its need for our resources, do you think, the big debate, do you think this economic interdependence will mitigate any possible future tension between the United States and China?

MW: Oh look, very much so. I think that were a serious conflict to break out between the United States and China, it would have devastating effects not only for their economies but for the global economy. So heavily is the global economy dependent on that dynamic relationship between the United States and China that if anything broke that relationship then the world economy would be in serious trouble, as would ours.

So I don’t think we would be in the situation where we sided with the United States and after the conflict the economy would just be as it was before, but we just wouldn’t have engagement with China, I think there would be a major globe-wide economic cataclysm if that occurred.

Asia2025: And that was Michael Wesley, Executive Director of the Lowy Institute for International Policy in Sydney.

You’ve been listening to Asia2025.

I’m Maryann Keady.

Thanks for listening, have a great week.