Australia is dreaming away Asia Pacific realities

Last year’s events have broken the world order that had prevailed throughout this century. The United States has abandoned any pretense of upholding rules-based trade. 

Its longstanding refusal to allow the filling of vacancies on the World Trade Organization’s Appellate Body has left disputes settlement inoperative.

American trade agreements with Australia and many other countries have been broken with the imposition of across-the-board tariffs. As a result, other economies, such as Canada and the European Union, are now seeking to rebuild trade patterns to work around the US.

At the same time, China’s willingness to exploit its dominant position in critical minerals, renewable energy and other industries has driven efforts to diversify production, notably with respect to solar photovoltaics.

The world is recognizing that reliance on either China or the US is a dangerous mistake.  Australian policy thinking has yet to adjust, still starting from the premise that the world is dominated by two great powers, and that Canberra’s task is to find a balance between them.

Soft power

In reality, neither the US nor China is as dominant as they appear in these discussions. Though they are easily the largest individual countries, between them they only account for approximately 20% of the world’s population and 30% of global economic output.

Washington and Beijing command massive military forces. But so far, this has done them little good. China has refrained from anything more than “gray zone” saber-rattling, and confident predictions of an assault on Taiwan as early as 2026 have largely been forgotten. 

China and the US account for just over a third of Australia’s trade in goods and services. Measures of soft power are even more striking. 

They ranked fourth and fifth among Australian travel destinations in 2024-25, behind Indonesia, New Zealand and Japan. This data, captured in June, only partially accounts for the decline in travel to the US following the re-election of Donald Trump.

The US continues to dominate popular culture in Australia but is declining elsewhere in the region with the rise of rivals like K-Pop music and Bollywood films. China has long punched below its weight in soft power and, despite the fad for Labubu, this seems unlikely to change.

None of this would matter much if, as in the days of the Cold War, Washington and Beijing offered competing economic and social models that others aspired to emulate. 

Broadly speaking, the US has accepted the Chinese Communist Party view of the world – one in which markets are to be exploited and democracy is a weakness. Both countries are now in the process of becoming personal dictatorships. 

Major crisis

Success in business now seems to depend as much on cultivating the right political connections as on market competition. To put it simply, the US and China now offer variant forms of crony capitalism. This is unlikely to change any time soon. 

On all indications, and in the absence of any major crisis, Chinese leader Xi Jinping is effectively president for life. When he passes on, succession is unlikely to be predictable.

As for the US, Trump has already indicated his intention to run for a third term and his determination to ensure that any future election will produce a Republican Party victory. 

He may or may not succeed, but in any case, the country is highly unlikely to return to pre-Trump normality. Responding to these developments, the rest of the world is gradually moving to disengage from Washington and Beijing.

For ASEAN, this disengagement involves the group’s countries no longer acting as entrepots, facilitating the transhipment of goods from China on their way to the US. 

Trump’s tariffs have rendered this model unviable, without offering a satisfactory alternative. The only way forward for ASEAN is through the expansion of trade within the region and with other non-aligned partners.

Unlike its ASEAN neighbors, Australia’s Anthony Albanese government has so far sought to ignore the realities of the world in which the country now lives.

Its central focus is the Australia-United Kingdom-United States, or AUKUS, agreement, signed in 2021 at a moment of high tension with China, and now an icon of domestic politics. 

Global order

AUKUS locks Australia into a world view dominated by the US-China rivalry, with a side order of British Empire nostalgia.

But sooner or later, Canberra must break with great power rivalry and seek a future based on cooperation with other small- and medium-sized countries, which collectively matter more for Australia’s future and for the good of the new global order.

John Quiggin is a Professor of Economics at the University of Queensland.

This edited article is republished from East Asia Forum under a Creative Commons license. Read the original article here.

This article is part of an EAF special feature series on 2025 in review and the year ahead.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of China Factor.