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Australia dreams away Asia Pacific realities

My contribution to the East Asia Forum special feature on 2025 in review

The events of 2025 have broken the world order that had prevailed throughout this century.

The United States has abandoned any pretence of upholding rules-based trade. Its longstanding refusal to allow the filling of vacancies on the WTO’s Appellate Body has left dispute settlement inoperative, with more than 50 members relying instead on the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a substitute.

US 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 United States.

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 recognising that reliance on either China or the United States is a dangerous mistake. Australian policy thinking has yet to adjust, still starting from the premise that the world is dominated by the two great powers, and that Australia’s task is to find an appropriate balance between them.

In reality, neither the United States 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 per cent of the world’s population and 30 per cent of global economic output.

The United States and China command massive military forces. But so far, this has done them little good. Attempts by the United States to solve problems with military power — most recently by confronting Houthi attacks on shipping in the Red Sea — have proved ineffective. China has wisely refrained from anything more than ‘grey zone’ sabre-rattling, and confident predictions of an assault on Taiwan as early as 2026 have largely been forgotten.

China and the United States account for just over a third of Australia’s trade in goods and services. Measures of soft power are even more striking. The United States and China ranked fourth and fifth among Australian travel destinationsin 2024–25, behind Indonesia, New Zealand and Japan. This data, captured in June 2025, only partially accounts for the decline in travel to the United States following the re-election of Donald Trump.

The United States 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 short-lived fad for Labubu, this seems unlikely to change.

None of this would matter much if, as in the days of the Cold War, the United States and China offered competing economic and social models that others aspired to emulate. Broadly speaking, the United States 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, with success in business depending as much on cultivating the right political connections as on market competition. To put it simply, the United States 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 President Xi Jinping is effectively president for life. When he passes on, succession is unlikely to be orderly or predictable. As for the United States, 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 United States is highly unlikely to return to pre-Trump normality.

Responding to these developments, the rest of the world is gradually moving to disengage from both the United States and China. For ASEAN, this disengagement involves ASEAN countries no longer acting as entrepots, facilitating the transhipment of goods from China on their way to the United States. 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 neighbours, Australia’s Anthony Albanese government has so far sought to ignore the realities of the world in which Australia now lives. Its central focus is the Australia–United Kingdom–United States (AUKUS) agreement, signed in 2021 at a moment of high tension with China, and now an untouchable icon of domestic politics. 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, Australia 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

# contentMap.en
Australia dreams away Asia Pacific realities

My contribution to the East Asia Forum special feature on 2025 in review

The events of 2025 have broken the world order that had prevailed throughout this century.

The United States has abandoned any pretence of upholding rules-based trade. Its longstanding refusal to allow the filling of vacancies on the WTO’s Appellate Body has left dispute settlement inoperative, with more than 50 members relying instead on the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a substitute.

US 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 United States.

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 recognising that reliance on either China or the United States is a dangerous mistake. Australian policy thinking has yet to adjust, still starting from the premise that the world is dominated by the two great powers, and that Australia’s task is to find an appropriate balance between them.

In reality, neither the United States 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 per cent of the world’s population and 30 per cent of global economic output.

The United States and China command massive military forces. But so far, this has done them little good. Attempts by the United States to solve problems with military power — most recently by confronting Houthi attacks on shipping in the Red Sea — have proved ineffective. China has wisely refrained from anything more than ‘grey zone’ sabre-rattling, and confident predictions of an assault on Taiwan as early as 2026 have largely been forgotten.

China and the United States account for just over a third of Australia’s trade in goods and services. Measures of soft power are even more striking. The United States and China ranked fourth and fifth among Australian travel destinationsin 2024–25, behind Indonesia, New Zealand and Japan. This data, captured in June 2025, only partially accounts for the decline in travel to the United States following the re-election of Donald Trump.

The United States 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 short-lived fad for Labubu, this seems unlikely to change.

None of this would matter much if, as in the days of the Cold War, the United States and China offered competing economic and social models that others aspired to emulate. Broadly speaking, the United States 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, with success in business depending as much on cultivating the right political connections as on market competition. To put it simply, the United States 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 President Xi Jinping is effectively president for life. When he passes on, succession is unlikely to be orderly or predictable. As for the United States, 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 United States is highly unlikely to return to pre-Trump normality.

Responding to these developments, the rest of the world is gradually moving to disengage from both the United States and China. For ASEAN, this disengagement involves ASEAN countries no longer acting as entrepots, facilitating the transhipment of goods from China on their way to the United States. 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 neighbours, Australia’s Anthony Albanese government has so far sought to ignore the realities of the world in which Australia now lives. Its central focus is the Australia–United Kingdom–United States (AUKUS) agreement, signed in 2021 at a moment of high tension with China, and now an untouchable icon of domestic politics. 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, Australia 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