Repositioning Australian foreign policy

Date: 15 July 2025

Anthony Albanese’s visit to China is one step in the necessary recalibration of Australia’s foreign and strategic policy, but much more will be required if we are to succeed in what is already a very different and much tougher world.

In particular, we will have to face up to two large challenges. First, have we the strategic imagination to bury the notion that Australia is incapable of defending itself and secondly, what role are we prepared to play in constraining China’s ambition to be the hegemon of the region?

The salad days of Australian foreign policy are over. In the eight decades since the Second World War, we have had the enormous benefit of an alliance with the global hegemon, the wisdom to pursue policies which opened up our economy and made us richer, and the luck of good timing to take advantage of the Chinese economic miracle. But we can no longer have our cake and eat it. When the facts change, so must policy.

It would be a mistake to assume that the drama of the Trump presidency is the long-term new normal of US policy. More likely than not, Trump’s presidency will be judged by history as venal, incoherent and driven by a penchant for manufactured drama.

But his naked transactionalism is a salutary reminder that the US, like all countries, will only ever act in its own interests and that does not include guaranteeing the security of an ally in all circumstances.

The US alliance holds many benefits for Australia, but we cannot expect it to be a stronger guardian of our security than ourselves. Nor will we find security in mistaken notions of forwards defence, acting as a junior partner to the US in battles far from our shore.

Our security will only be found through defence self-reliance, taking advantage of our continental geography and buttressed by the technology, intelligence and deterrent value of an alliance with the United States.

But defence self-reliance does not come cheap. It will require a significant uplift in our defence budget – not to meet some arbitrary percentage of gross domestic product but to fund the force structure that we need for the defence of Australia. Nuclear submarines distort both the cost and focus of that force structure. If walking away from AUKUS is a bridge too far for the Australian government, the US might yet save us from ourselves by adding conditions which no Australian government could accept.

A properly funded defence budget is, however, only part of what we need.

We must also face up to the consequences of China’s ambition to become the hegemon of the region. China does not pose a direct military threat to Australia. It is not our enemy. But for as long as it retains its one-party authoritarian character, it is not in our interests to see it emerge as the predominant power in the region.

We do not want to see the re-emergence of the Middle Kingdom where hierarchy was harmony, and all states pre-emptively conceded the paramountcy of China’s interests.

We cannot change the character of the Chinese system, but we can constrain China’s actions through the construction of a regional balance of power which can credibly impose limits on how far China is able to go in asserting its ambitions in ways that defy international law and norms when it comes to respecting the sovereignty of nations. As China’s power grows, so does the urgency of constraining it.

Australia should contribute to constructing this constraining balance of power. That requires acquiring a credible deterrent capability as well as working with like-minded countries who share our concerns about the emergence of a Chinese hegemony; not in an Asian NATO, which is unrealistic in a region where most countries simply do not want to choose between the US and China, but in a looser structure.

The US will remain the keystone in such a balance, but its overarching objective should be to constrain China, not to save US primacy. This will need careful management with the US, which, notwithstanding all the talk about Trump’s attachment to spheres of influence, shows no sign of having given up the retention of global primacy as its animating strategic objective.

Navigating a bipolar world

It is tantalising to think of this new balance of power as a precursor to a multipolar world. The reality however is that for the next several decades, we will be living in a largely bipolar world dominated by a competing US and China.

The gap in economic size and strategic weight between the US and China on the one hand and the next tier of major powers, such as India or even the European Union, will be huge.

Navigating a bipolar world while holding on to both the US alliance and the Chinese market will test Australian policy as never before. Strengthening our relationships with key Asian partners such as Japan, Indonesia and India will give us more room to manoeuvre. So too will building up our economic resilience through the economic reforms we need to retain a high standard of living and fund our defence capability.

The Australian community senses that the strategic ground is shifting beneath our feet. They see in the Trump administration a very different and worrying America. They also do not want to see an unconstrained China.

The prime minister is right to tread carefully in such a world, focussing on Australia’s interests, careful about the prospects of rushing to a deal with a mercurial Trump administration and recognising that, however large our economic interests in China, our strategic interests are incompatible.