DCN AUGUST Edition 2019

trading instrument. This could strengthen
the resolve of non-US-aligned trade
powerhouses to build shadow reserve
portfolios with other currencies. It won’t
be long until these unorthodox accounts
can gradually emerge in the open capital
markets, luring minnow countries with
lower financial costs and more widespread
trading availability.
CONSEQUENCES OF REVERSING US
TRADE DEFICIT
In the short term, a US trade surplus
would quickly repatriate dollars, and thus
make them scarce and over-valued in the
global markets. This is due to the fact that
countries that currently enjoy significant
trade surpluses with the US would have
an incentive to depreciate their currencies
to offset most of their export losses. The
manufacturing countries would then
cover the remaining export shortfall
by pushing up prices, thus triggering a
global credit crunch.
In the medium term, this situation will
make US dollars not only scarce in the
global markets, but also too expensive to
buy for trading and investment purposes.
Hence, over the long term, reversing the
US trade deficit would undermine the US
monetary hegemony, the true pillar of
American influence over the world.
RISE OF CHINA
In historical terms, Trump’s election as US
president in 2016 set in motion a further
departure from the liberal economic order
created in the post-WWII period. Within
the American bloc, this order thrived on
the tacit exchange of security for market
access. With the end of the Cold War and
the emergence of China’s economic power,
the strategic space of liberal democratic
countries such as Australia is now in a
critically evolutionary phase.
The geopolitical hierarchy is splitting
between the US-led security order and the
global trading system that’s challenged
by China’s takeover. Naturally, this is
generating competition between the US
and China, with the liberal middle powers
such as Australia that strive to deal with
China for economic gains without giving
away the American security umbrella on
one hand, and destabilising actors at their
geographical and moral borders at the other
– chiefly Russia, Islamic terrorism, and
the various populist/nationalistic forces.
Trump’s unilateralist foreign policy may
put an abrupt end to this dynamic. On the
other hand, China may soon gradually use
its trade and investment might to push
weaker trading partners away from their
strong bilateral security ties with the US in
exchange for tighter economic cooperation.
US FOREIGN POLICY
This also explains the change of
geographical language in the US foreign
policy, which now talks about the “Indo-
Pacific” region instead of the previously
used “Asia-Pacific”. In other words, this new
language signals the strategic move from
a notionally multipolar Asia-Pacific region
to the US-led Indo-Pacific rim. Trump’s
strategy to contain China’s rise as a global
superpower shows that the securitisation of
Indo-Pacific maritime trade and investment
is meant to offset the US geopolitical retreat
from the Asian core inland.
China may soon gradually use its trade
and investment might to push weaker
trading partners away from their strong
bilateral security ties with the US in
exchange for tighter economic cooperation.
In particular, this explains why the US
administration is ramping up pressure
on India, Japan and Australia to establish
a trade and security cordon around
China’s geopolitical advancement in Asia.
Weaponising trade is the key feature of the
American “surround-and-enforce China”
strategy, so to speak.
Trump’s surround-and-enforce move
supersedes and somehow sublimates his
predecessor Barack Obama’s hedge-andengage
approach, also known as “pivot to
Asia”. To escape the perceived Thucydides
Trap, the US is thus accelerating toward
an Asian balance of power within a new
bipolar order destined to open unsavoury
scenarios for Australia.
HARD QUESTIONS FOR AUSTRALIA
This emerging condition requires a
geopolitical paradigm shift under political,
security and economic perspectives. The
impact of a US-China dual hierarchy on
the world order raises urgent questions.
Strangling this monetary flow with policies that
encourage exports while discouraging imports
puts at risk the role of the US dollar.
First and foremost: does the economic
liberal order ultimately depend on a single
hegemon? Can the US remain a credible
security provider for Australia even under
conditions of geo-economic decline? How
far will China seek to push Australia into
loosening its security ties with the US as it
grows more powerful? If forced to make a
choice, will Australia side with its security
patron or with its largest trade partner?
Can China further develop on the global
stage as a balancing force against populist
and other destabilising actors?
To develop a coherent strategic
outlook that secures stable ground for
prosperity, Australia needs to resist the
temptation to hide these questions in the
too-hard basket.
This article was first published on the Monash
Lens website.
thedcn.com.au August 2019 21