Dom Dwyer | Australian Foreign Policy Fellow
In the aftermath of the Cold War, the world was animated by the belief that interdependence would make us all safer. Faith in that view sustained a decades-long, cooperative effort to enshrine a world system based on the free-flow of goods, ideas, and people. But now, the liberal consensus is unravelling. The COVID-19 pandemic has revealed that interdependence has a flipside: over-reliance. With global production lines grinding to a halt, many countries have found themselves unable to source critical goods, such as medical supplies. Predictably, empty shelves have spurred many to question why production was ever off-shored in the first place.
It would be wrong, though, to hold COVID-19 fully responsible for the retreat from internationalism. The backlash was bubbling away well before the pandemic, with Brexit and the election of President Donald Trump now tired examples of the raise-the-drawbridge mindset resurgent in global politics.
Still, the pandemic has accelerated the world’s inward turn.
We see it in the ubiquitous talk of ‘supply-chain resilience’, for instance. The innocuous-sounding term has been popularised in official-speak, invoked by governments eager to localise production and avoid the risks of exposure to world markets. Industrial policy is back in vogue, too. Even centre-right governments—once married to free-market fundamentalism—now flirt with subsidies, tariffs, and picked winners.
But the gravest manifestation of de-globalisation is in the United States’ (US) effort to decouple from China. It’s hardly an exaggeration to say that a fault-line could open beneath Australia’s feet, bifurcating the world economy into blocs dominated by its two most important partners. The fracture is happening fastest in tech, with US’ purges of companies like Huawei threatening to split the digital world into rival ‘Splinternets’.
Strangely, Australia seems to have embraced the ‘de-global’ moment. Its rhetoric still champions open systems, but actions betray words. Australian policymakers are shifting focus to ‘supply-chain security’ and ‘sovereign industrial capability’; to pipedreams of a manufacturing revival; and to stricter rules on immigration and foreign investment. And while advocates of our own ‘decoupling’ have had little effect on government policy, they are increasingly welcomed to the mainstream of commentary.
To be clear, Australia should rethink how to protect its interests in an interconnected world. It would be wrong to ignore the vulnerabilities to which we’ve been exposed—especially economic coercion and political interference.
But the speed with which we’ve come to doubt the promise of liberalism should make us wonder whether we’re throwing the baby out with the bathwater. We should ask ourselves whether the new approach really amounts to a paradigm shift, or just a knee-jerk reaction to hyper-globalism, without a coherent alternative with which to chart the path ahead.
It’s not clear, for instance, how Australia could undo its enmeshment in global supply chains. We will always be dependent on foreign suppliers for critical goods, given that our only meaningful comparative advantage is as an exporter of primary materials. The Government’s $1.3 billion fund to support manufacturers may boost businesses that have carved out a high-tech niche, but Australia could never revive manufacturing on a mass scale, and thereby reduce reliance on world markets.
Nor, can we expect to click our fingers and re-route supply chains through friendlier countries, preferably those who won’t weaponise trade. Supply chains are extremely ‘sticky’—they’re hard to shift, by nature of the costs of building the necessary infrastructure along a different route. The US has had some success forcing its companies to relocate out of China, but only by imposing significant tariffs. China, of course, has responded in kind, hurting the US as much, if not more, than it’s suffered.
An all-out pursuit of ‘decoupling’ would therefore be self-defeating. Realistically, China is the only country that could ever consume our exports in the volume required to keep our economy afloat. Whether we like it or not, our economic fates are linked; resisting that fact through tariffs and taxes will only invite a vicious cycle of retaliatory protectionism.
Australia cannot, in other words, afford to turn its back on the world. As tempting as it is to retreat into the shell of protectionism, it’ll only make us poorer, lonelier, and less safe.
And yet, that doesn’t mean we have to accept the international status quo and all its warts. Our foreign policy thinking should have the bandwidth to recognise both the benefits of interconnectedness, especially in trade, and the security risks of external dependence. The point is to optimise trade-offs, not close the door on the good as well as the bad.
For instance, it’s true that trade liberalisation harms certain industries. But rather than spurn trade entirely, and deny the wider community its aggregate benefits, we should structure deals to insulate the sectors most vulnerable to job destruction.
Rather than try to re-engineer our supply chains, driving up consumer prices in the process, we should build up strategic reserves of critical supplies such as fuel and facemasks. That way, we can continue buying them from the cheapest source while we can, and still have confidence in a buffer of supply for when crises inevitably hit.
All this is to say, we can and should pursue a mode of global engagement that reaps the benefits of openness while defending the national interest. Deglobalisation, however alluring, achieves neither.
Dom Dwyer is the Australian Foreign Policy Fellow for Young Australians in International Affairs.