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In 2014, China denied market access to several Hong Kong artists who had supported their home city’s democracy movement. Chinese state media commented: ‘You can’t eat at our table and knock over our rice pot!’

Such rhetoric wasn’t quite about table manners. Rather, it summarised the implied terms and conditions for entry into the Chinese economy. If a private entity or a sovereign state challenges what China perceives as its “core interests”, then China might sometimes “sanction” it by restricting its access to the Chinese market. While such a sanction usually won’t cause long-term damage (PDF) to another country’s domestic industry (because a market will often correct itself), it can create turbulence that lasts for several years—especially if the other country relies on China for export trade.

There’s a list of countries that China considers at particular times to be unworthy of eating at its table. In early December 2016, China imposed additional customs charges on exporters from Mongolia, following the Dalai Lama’s visit to that country. In November 2016, China banned various films and entertainers from South Korea, and this was recently observed to have intensified into a wider ban against Korean entertainment programs on Chinese media. In response to criticisms, a Chinese official reportedly commented that Korea ‘needs to firstly solve the THAAD problem’. After Taiwan elected a new president in January 2016, China was observed to start restricting its own tourists from visiting Taiwan. Since 2012, China intermittently restricted banana imports from the Philippines, apparently in response to the latter’s position on the South China Sea. Empirical research (PDF) has further suggested a ‘Dalai Lama effect’: if a country’s head of State meets with the Tibetan spiritual leader, then its exports to China will be reduced by 8–17% percent in the next two years.

The extent of Australia’s export dependence on China makes it potentially vulnerable to such manoeuvres. In 2015, 30.2% of Australian goods exports and 14.9% of service exports were destined for China (PDF). Such dependence is even stronger than Australia’s dependence on the United Kingdom market before the UK decided to join the European Economic Community (for example in 1960-61, 23.9 percent of Australian goods exports were destined for the UK (PDF)). Further, the major Australian exports (iron ores, education, tourism, etc.) aren’t indispensable to China and can be sourced from elsewhere.

In contrast, China’s reliance on the Australian market is insignificant: only 1.8% of Chinese exports (goods and services) were destined for Australia in 2015. Nevertheless, Australia is the second-largest host country of Chinese investment (as of 2015), and 49% of such investments were from Chinese state owned enterprises (PDF).

While it’s generally accepted that international trade can promote peace, a proviso is that the trading parties must be economically interdependent. In the absence of such interdependence, trade can become an instrument capable of generating conflict instead of peace.

Australia’s dependence on the Chinese market provides leverage for China’s political aspirations, and that vulnerability is understood within China. In July 2016, Chinese state media commented, in the context of Australia’s position concerning its ‘biggest trading partner’ in the South China Sea, that Australia is an ‘ideal target for China to warn and strike’.

Australia’s options to counterbalance such manoeuvres are limited. Since access to the Australian market is of less importance to China, a ‘tit-for-tat’ strategy that similarly limits China’s market access to Australia will be ineffective. A complaint to the World Trade Organization might succeed, but the legal process can take two years to complete.

Australia might, in a way similar to its sanction regime against Russia, limit certain commercial activities of the entities established in Australia by Chinese investors, especially those with strong ties with the Chinese government. However, such a move may invite China to adopt similar measures, and endanger Australian investment in China.

Australia might adopt collective countermeasures (PDF) in collaboration with other countries, especially those who share Australia’s position on a specific international issue. Examples of such measures include the sanctions against Russia during the Ukraine crisis by Australia, the European Union, Japan and the United States; and the sanctions (PDF) against Argentina during the Falklands crisis by Australia, Canada, the European Community, New Zealand, the UK and the US. While Australia’s positive international image might place it in a good position to call for such collaborations, it’s unsafe to assume that a Chinese sanction can attract the sympathy similar to those concerning the armed conflicts in Ukraine or the Falklands. The recent tension on the US–Australia relationship further questions whether an international collaboration can be easily achieved.

To solve the root of this problem, Australia needs to address its dependence on the Chinese market. Whereas artificially restricting its trade with China would be unwise, Australia needs to cultivate greater trade interdependence with China, and to diversify its trade relations by negotiating further trade deals with other economies. Now is an opportune time, since trade agreements are currently being reconsidered internationally following Brexit and the Trump election. In this connection, much can be learnt from Australia’s own trading history: recall that China has only become Australia’s biggest trading partner since 2009.

It’s not too late for Australia to adjust its trade approach now. But before that can be achieved, Australia must carefully balance the needs of its two masters: its trade relations on one hand, and its values and security interests on the other.

If there is one thing at which China’s leaders truly excel, it is the use of economic tools to advance their country’s geostrategic interests. Through its $1 trillion ‘one belt, one road’ initiative, China is supporting infrastructure projects in strategically located developing countries, often by extending huge loans to their governments. As a result, countries are becoming ensnared in a debt trap that leaves them vulnerable to China’s influence.

Of course, extending loans for infrastructure projects is not inherently bad. But the projects that China is supporting are often intended not to support the local economy, but to facilitate Chinese access to natural resources, or to open the market for low-cost and shoddy Chinese goods. In many cases, China even sends its own construction workers, minimizing the number of local jobs that are created.

Several of the projects that have been completed are now bleeding money. For example, Sri Lanka’s Mattala Rajapaksa International Airport, which opened in 2013 near Hambantota, has been dubbed the world’s emptiest. Likewise, Hambantota’s Magampura Mahinda Rajapaksa Port remains largely idle, as does the multibillion-dollar Gwadar port in Pakistan. For China, however, these projects are operating exactly as needed: Chinese attack submarines have twice docked at Sri Lankan ports, and two Chinese warships were recently pressed into service for Gwadar port security.

In a sense, it is even better for China that the projects don’t do well. After all, the heavier the debt burden on smaller countries, the greater China’s own leverage becomes. Already, China has used its clout to push Cambodia, Laos, Myanmar, and Thailand to block a united ASEAN stand against China’s aggressive pursuit of its territorial claims in the South China Sea.

Moreover, some countries, overwhelmed by their debts to China, are being forced to sell to it stakes in Chinese-financed projects or hand over their management to Chinese state-owned firms. In financially risky countries, China now demands majority ownership up front. For example, China clinched a deal with Nepal this month to build another largely Chinese-owned dam there, with its state-run China Three Gorges Corporation taking a 75% stake.

As if that were not enough, China is taking steps to ensure that countries will not be able to escape their debts. In exchange for rescheduling repayment, China is requiring countries to award it contracts for additional projects, thereby making their debt crises interminable. Last October, China canceled $90 million of Cambodia’s debt, only to secure major new contracts.

Some developing economies are regretting their decision to accept Chinese loans. Protests have erupted over widespread joblessness, purportedly caused by Chinese dumping of goods, which is killing off local manufacturing, and exacerbated by China’s import of workers for its own projects.

New governments in several countries, from Nigeria to Sri Lanka, have ordered investigations into alleged Chinese bribery of the previous leadership. Last month, China’s acting ambassador to Pakistan, Zhao Lijian, was involved in a Twitter spat with Pakistani journalists over accusations of project-related corruption and the use of Chinese convicts as laborers in Pakistan (not a new practice for China). Zhao described the accusations as ‘nonsense.’

In retrospect, China’s designs might seem obvious. But the decision by many developing countries to accept Chinese loans was, in many ways, understandable. Neglected by institutional investors, they had major unmet infrastructure needs. So when China showed up, promising benevolent investment and easy credit, they were all in. It became clear only later that China’s real objectives were commercial penetration and strategic leverage; by then, it was too late, and countries were trapped in a vicious cycle.

Sri Lanka is Exhibit A. Though small, the country is strategically located between China’s eastern ports and the Mediterranean. Chinese President Xi Jinping has called it vital to the completion of the maritime Silk Road.

China began investing heavily in Sri Lanka during the quasi-autocratic nine-year rule of President Mahinda Rajapaksa, and China shielded Rajapaksa at the United Nations from allegations of war crimes. China quickly became Sri Lanka’s leading investor and lender, and its second-largest trading partner, giving it substantial diplomatic leverage.

It was smooth sailing for China, until Rajapaksa was unexpectedly defeated in the early 2015 election by Maithripala Sirisena, who had campaigned on the promise to extricate Sri Lanka from the Chinese debt trap. True to his word, he suspended work on major Chinese projects.

But it was too late: Sri Lanka’s government was already on the brink of default. So, as a Chinese state mouthpiece crowed, Sri Lanka had no choice but ‘to turn around and embrace China again.’ Sirisena, in need of more time to repay old loans, as well as fresh credit, acquiesced to a series of Chinese demands, restarting suspended initiatives, like the $1.4 billion Colombo Port City, and awarding China new projects.

Sirisena also recently agreed to sell an 80% stake in the Hambantota port to China for about $1.1 billion. According to China’s ambassador to Sri Lanka, Yi Xianliang, the sale of stakes in other projects is also under discussion, in order to help Sri Lanka ‘solve its finance problems.’ Now, Rajapaksa is accusing Sirisena of granting China undue concessions.

By integrating its foreign, economic, and security policies, China is advancing its goal of fashioning a hegemonic sphere of trade, communication, transportation, and security links. If states are saddled with onerous levels of debt as a result, their financial woes only aid China’s neocolonial designs. Countries that are not yet ensnared in China’s debt trap should take note—and take whatever steps they can to avoid it.

It’s 20 January, Inauguration Day in the United States, and nobody now doubts that we’re destined to live in what the Chinese would call ‘interesting times’. The new president’s campaign rhetoric strongly intimated that under his self-proclaimed ‘America First’ posture, traditional American strategy and alliance politics would undergo a major change. And what’s already clear is that his approach to dealing with allies and adversaries will be based less on their traditional roles in US foreign policy and more on how he and his foreign and security policy team view other countries’ willingness to adjust their policies to conform with a markedly different set of US economic and strategic priorities.

As part of Trump’s revised posture, there appears to be a greater readiness to embed US power and policy within a more multipolar international power structure—albeit with less emphasis on the importance of international institutions to US policy interests. He’s already criticised the United Nations for ‘not living up to its potential and…causing problems rather than solving them.’ Still, notwithstanding reports of Russian cyber-meddling in the American electoral process assisting Trump’s campaign victory, the president-elect’s desire to seek accommodation with Russia (over likely opposition from key congressional Republicans), suggests nothing less than a radical adjustment to America’s position in the world.

The incoming administration’s geopolitical outlook on the Asia–Pacific is no less seminal. Trump’s musings over the utility of the US’s longstanding ‘one China’ policy as the core principle for governing Sino–American relations, and his equally controversial acceptance of a phone call from Taiwanese President Tsai Ing-wen, strongly signalled that no concrete ‘grand bargain’ would be immediately engineered between his government and the People’s Republic of China. That point has also been underscored in the confirmation testimony of his Secretary-of-State designee, Rex Tillerson, who warned that China must stop its island-building in the South China Sea. He further asserted that the US would seek support from its regional security allies to ensure that China doesn’t employ what reclaimed islands it has constructed to disrupt the flow of maritime trade through the region.

Indeed, the president-elect’s cabinet and national security choices point to the adoption of a US foreign policy management style more comparable with that of the business world than with one driven by classic geopolitics. In this context, Trump’s campaign threat to slap substantial tariffs on Chinese exports to the US in retaliation for what he viewed to be Chinese currency manipulation, and his appointment of Peter Navarro, a strong critic of China’s trade and security policies, as director of the White House’s National Trade Council, underscored the contrast in the incoming president’s perspectives of China and Russia. Trump has jettisoned President Barack Obama’s promotion of the multilateral Trans-Pacific Partnership (TPP) agreement as a basis for underwriting US trading and commercial interests in Asia. Perhaps most fundamentally, the president-elect’s view of how US policy should be managed within the broader international relations and global security arena seems to be shaped by his self-anointed image of being a proven ‘winner’ in the international corporate environment and his confidence that this background would be readily adaptable to managing an emerging and highly complicated world order.

Mira Rapp-Hooper, from the Center for a New American Security, has recently intimated that if Trump and his advisers are determined to stake out a US policy towards Asia in which its regional alliances and traditional approaches to order-building lose their traditional centrality, it may take months for the new administration to fashion an Asia–Pacific strategy. Or, as likely, ‘[g]iven Trump’s devotion to unpredictability, he might not craft such a strategy at all’. The incoming administration could ‘instead pick and choose from a neo-Jacksonian, unilateralist buffet, deciding what “America first” means as circumstances change.’

Those are valuable insights. But I’d argue that the new president will enjoy neither the luxury of time nor the unbridled freedom to choose from a menu of diverse and possibly disparate policy options, such as the above observation implies. Instead, he’ll be compelled by events and trends in the Asia–Pacific that are unfolding at breakneck speed, and by his own country’s resource constraints, to think and act quickly and coherently if acute regional instability is to be avoided.

Two key factors that will test the new administration’s ability to combine the old with the new in whatever Asia–Pacific policy positions it pursues are:

• the ongoing and expanded North Korean nuclear threat
• the transition of US alliance politics and multilateralism in Southeast Asia and Australia, potentially leading to a substantial power vacuum subject to Chinese exploitation.

Failure to deal in good time with either of those emerging challenges could substantially erode the Trump administration’s foreign policy credibility and permanently undercut the US’s national security interests in the Asia–Pacific.

Over the longer term, it may well be the case that, confronted with resurgent US power, China, Russia or both may be inclined to pursue a ‘grand bargain’ with a ‘greater America’, Japan, India and the ASEAN members for long-term regional order-building. But that scenario seems a distant prospect in 2017, as Trump will apparently be preoccupied with repairing US domestic infrastructure and further resuscitating the US’s economic growth. Still, the outlook’s not entirely bleak. While Trump postulates an ‘America first’ posture, that hardly represents an ‘Asia last’ prescription. Above all else, Trump’s history is shaped by his reputation in the business world for hard but fluid bargaining to derive optimal results for interest-based objectives.

Welcome to The Strategist Six, a feature that provides a glimpse into the thinking of prominent academics, government officials, military officers, reporters and interesting individuals from around the world.

1. Now that China is overtly throwing its weight around, is it fair to say that Washington missed its window to negotiate meaningful compromise or concessions with Beijing?

China has been throwing its weight around for many centuries and will continue to do so in the future, especially if its leaders believe they can flout rules with impunity. Officials in Beijing naturally like to exploit opportunities, and in the past decade those opportunities have included the Global Financial Crisis, the incomplete and overly uni-dimensional US pivot to Asia, and the lack of unity among China’s neighbours.

No doubt opportunities were missed by many parties. But given enduring conflicts of interests and sharply divergent domestic politics, Washington and Beijing have managed well enough. A broad array of issues, from North Korea and cyber space to maritime tensions and climate change, have witnessed varying degrees of cooperation.

To suggest that Washington “missed” a window of opportunity exaggerates the potential for some type of unifying grand bargain. President-elect Trump has called for China to abide by the rules in order to achieve a real win-win and new-type-of-major-power relationship. That won’t be at the expense of allies and partners, but it will enhance America’s negotiating leverage as well as better protect US security and prosperity than recent policy has been able to.

2. Chinese President Xi Jinping has sought to consolidate his personal authority and tighten his grip on the CCP. To what extent does this reflect power or fragility?

It reflects both. Our liberal internationalist mindsets would like to persuade us that Xi is garnering titles out of desperation and weakness or, at best, to gain sufficient purchase to effect more significant reforms. While that may be true to a point, I suspect it’s equally likely that the CCP believes the best way to preserve single-party rule is to keep ahead of the democratic wave brought about by economic development, globalisation and information-based technologies. We will be watching Xi’s appointments over the coming year to see who’s tapped as the next head of the PLA Navy, Commerce/Finance Ministries, State Councillor, and as mayors of major cities such as Beijing and Shanghai. President Xi isn’t omnipotent but his appetite for control appears unrestrained.

China’s approach to maritime and territorial sovereignty is matched by its desire to impose authoritarian rules in the media and on the Internet. China is happy to engage in international relations from an advantageous position. From the use of state-owned enterprises to compete with private companies, to a reliance on the Great Firewall of China, to the leveraging of unregulated economic inducement and information warfare, Beijing seeks to control the terms of engagement and the rhythm of negotiation.

3. To what extent has President Obama’s Asia Policy been a success?

I think it would be fair to say the outgoing administration has enjoyed no better than mixed results. I do think the Obama administration crafted an important strategic blueprint for protecting long-term US interests by seeking to reduce the burdens of fighting two protracted insurgencies and harvesting the benefits of the world’s most dynamic region straddling the Indian and Pacific Oceans. The administration also deserves credit for stepping up diplomatic engagement across the Indo–Pacific region, including with Southeast Asia and India.

However, the administration’s policy faltered with respect to implementation. Although intended to be multi-faceted and comprehensive, the rebalance wound up appearing too militaristic in orientation because of the ultimate failure to deliver on economic prosperity. If you want to speak about missed opportunities, it’s much less to do with US–China relations than with early completion of a fairer variant of the Trans-Pacific Partnership accord. Americans should hope that President-elect Trump can find a way to fashion fairer trade agreements with this fast-moving region of opportunity. America’s long-term security and prosperity depend on it.

4. What will become of Obama’s rebalance to the region under President Trump?

President Trump will seek a better deal for the United States, and especially for those many millions of Americans who have felt left behind by the impersonal forces of globalisation and a distant Washington-based policy elite. He’s likely to seek cooperation from strength, to try to establish new understandings among major powers, and to tilt from a largely geostrategic to a more geoeconomic approach to regional and international relations. A geoeconomic approach, something I have written about recently in a CNAS report (PDF), will call for establishing fairer trade deals, a new division of labour and more distributed burden-sharing with allies and partners, and a focus on recapitalising US infrastructure and strengthening our workers and families. A Trump administration’s security policy is likely to be focused on defeating or dealing with threats and adversaries, especially terrorist organisations and rogue-state proliferators such as North Korea. Within all of these goals there’s ample scope to continue a longstanding, bipartisan push for gradually increased strategic engagement with the Indo–Pacific region. Look for President Trump to fully leverage unpredictability to America’s advantage. In short, in some meaningful ways the United States under President Trump may more closely mirror the nationalist, economically-oriented approaches of most Asia–Pacific countries.

5. Should Australia be participating in Freedom of Navigation operations in the South China Sea?

There is ample opportunity for Australia, Japan and other countries to step up their contributions to the provision of regional security, including in the South China Sea. Periodic maritime patrols to reinforce international freedom of the seas are an appropriate and helpful measure to counter the arbitrary use of coercion and force by any power.

President-elect Trump’s recent intervention on the ‘One China’ issue no doubt raises more questions than answers about the era we’re entering, and Taiwan is likely to be in the headlines for some time. However, it’s worth noting that China was increasing pressure on Taiwan before Trump took a phone call from Tsai Ing-wen. The 25 November encirclement of Taiwan by a PLA Air Force bomber, two fighters and a surveillance plane is a harbinger of Beijing’s bid for air and sea control over adjacent seas and beyond. Beijing’s investment in the Philippines in order to obstruct increased US military access further widens the open running room Chinese air and maritime forces want through the Bashi Channel. Building reinforced runways on three artificial islands in the Spratlys is yet another step toward holding Southeast Asia to China’s rules. Thus, notwithstanding their vulnerability to missile attack, de facto air bases in the Spratly Islands put into jeopardy the sovereignty of neighbours and international rule set, including the July judgment issued by the arbitral tribunal.

As important as the security situation is, the incoming Trump administration needs to adopt a more geoeconomic strategy for the region. President-elect Trump is seeking leverage with China to negotiate fairer trade and better security cooperation. Equally important, however, is the need to strengthen economic ties between Australia and the United States, all the more so in the wake of shelving the Trans-Pacific Partnership.

6. What is the biggest threat to security in the region?

Although maritime Asia remains competitive, the most acute security problem in the region remains North Korea. Maintaining deterrence on the Korean Peninsula while fashioning a more comprehensive approach to managing North Korea’s imminent deployment of nuclear-tipped missiles is an urgent problem. The impeachment of Park Geun-hye has thrown the Korean Peninsula into further confusion. Kim Jong-un, perceiving weakness and transition in South Korea and the United States, may well miscalculate with a new provocation designed to win new concessions that instead escalates into conflict.

The Trump administration needs to reinforce deterrence through clear declaratory policy, visible force deployments and crisis management preparation. Beyond this, it will need to seek an immediate root-and-branch review of Washington’s strategy that uses economic, information, diplomatic, and military instruments of policy to send one message to Pyongyang: you may be able to advance nuclear and missile programs, but you won’t be allowed to have your cake and eat it, too. The United States, South Korea and others will ensure that you are contained and penalised heavily unless you forego your quest for nuclear-weapon-state status.

President-elect Trump knows the cold war with North Korea is likely to continue. There’s no clear path to peaceful unification and previous attempts at détente have faltered. A cold war may not be an ideal end state, but for the moment it’s preferable to a hot war.