Over the last eight years, as China’s posturing in Asia became increasingly aggressive, many criticized US President Barack Obama for failing to stand up to the Asian giant. It was on Obama’s watch, after all, that China captured the disputed Scarborough Shoal from the Philippines and built seven artificial islands in the South China Sea, on which it then deployed heavy weapons—all without incurring any international costs.

Many expect Obama’s tough-talking successor, Donald Trump, to change all of this. He is not off to a good start.

During the campaign, Trump threatened to retaliate against China for ‘raping’ America on trade, to impose massive tariffs on Chinese imports, and to label China a currency manipulator on ‘day one.’ Soon after his victory, Trump took a congratulatory phone call from the president of Taiwan, thereby breaking with nearly 40 years of diplomatic orthodoxy. Trump then took the matter a step further, publicly suggesting that he would use the ‘One China’ policy as a bargaining chip in bilateral negotiations over contentious economic and security issues—from import taxes to North Korea.

But Trump backed down. Chinese President Xi Jinping made it clear that he would not so much as talk to Trump on the phone without assurance that the US president would pledge fidelity to the One China policy. The call happened, and Trump did exactly what Xi wanted, ostensibly without extracting anything in return. If China now perceives Trump to be all bark and no bite, he will undoubtedly find it harder to secure concessions from China on trade and security issues.

Trump is not the only figure in his administration to stake out a bold position on China, and then retreat meekly. During his Senate confirmation process, US Secretary of State Rex Tillerson declared that the US should ‘send China a clear signal’ by denying it access to its artificial islands in the South China Sea. China’s expansionism in the region, Tillerson asserted, was ‘akin to Russia’s taking Crimea’ from Ukraine—an implicit criticism of Obama for allowing the two developments.

But Tillerson, like his new boss, soon backed down. The US, he now claims, merely needs to be ‘capable’ of restricting China’s access to the South China Sea islands, in the event of a contingency.

And yet China’s behavior merits stronger US action now. The country is attempting to upend the status quo not only in the South China Sea, but also in the East China Sea and the Himalayas. It is working to create a large sphere of influence through its ‘one belt, one road’ initiative. And it is reengineering transboundary river flows. All of this is intended to achieve Chinese leaders’ goal of re-establishing the country’s mythical ‘Middle Kingdom’ status.

Flawed US policy has opened the way for these efforts, in part by helping to turn China into an export juggernaut. The problem isn’t that China has a strong economy, but rather that it abuses free-trade rules to subsidize its exports and impede imports, in order to shield domestic jobs and industry. Today, China sells $4 worth of goods to the US for every $1 in imports.

Just as the US inadvertently saddled the world with the jihadist scourge by training Afghan mujahideen—the anti-Soviet fighting force out of which al-Qaeda evolved—it unintentionally created a rules-violating monster by aiding China’s economic rise. And it sustained its China-friendly trade policy even as China’s abuses became bolder and more obvious.

It is ironic that China, which has quietly waged a trade war for years, has responded to Trump’s threats to impose punitive tariffs by warning—notably, at this year’s World Economic Forum Annual Meeting in Davos—of the risks of protectionism and trade wars. But not everyone is falling for China’s story. A growing number of countries are recognizing that reciprocity should guide their relations with China.

Trump himself may yet challenge China. When he agreed to abide by the One China policy, he said that he had done so at Xi’s request, suggesting that his commitment to the policy should not be taken for granted.

Moreover, even without defying the One China policy, Trump has ample room to apply pressure. He could start by highlighting increasing Chinese repression in Tibet. He could also expand political, commercial, and military contacts with Taiwan, where the One China policy has had the paradoxical effect of deepening people’s sense of national identity and strengthening their determination to maintain autonomy.

In any case, as China continues to pursue its hegemonic ambitions, Trump will have little choice but to pivot toward Asia—substantively, not just rhetorically, as Obama did. To constrain China and bring stability to Asia, he will have to work closely with friends. His efforts to establish a personal connection with Japanese Prime Minister Shinzo Abe—the first foreign leader he hosted at Mar-a-Lago, his ‘Winter White House’—and the high priority his administration is assigning to relations with India and South Korea are positive signs.

By failing to provide strategic heft to his Asia pivot, Obama left it unhinged. Trump has the opportunity—and the responsibility—to change this. If he doesn’t, China will continue to challenge US allies and interests, with serious potential consequences for Asia and the world.

Last October, British Prime Minister Theresa May shocked many when she disparaged the idea of global citizenship. ‘If you believe you’re a citizen of the world,’ she said, ‘you’re a citizen of nowhere.’

Her statement was met with derision and alarm in the financial media and among liberal commentators. ‘The most useful form of citizenship these days,’ one analyst lectured her, ‘is one dedicated not only to the wellbeing of a Berkshire parish, say, but to the planet.’ The Economist called it an ‘illiberal’ turn. A scholar accused her of repudiating Enlightenment values and warned of ‘echoes of 1933’ in her speech.

I know what a ‘global citizen’ looks like: I see a perfect specimen every time I pass a mirror. I grew up in one country, live in another, and carry the passports of both. I write on global economics, and my work takes me to far-flung places. I spend more time traveling in other countries than I do within either country that claims me as a citizen.

Most of my close colleagues at work are similarly foreign-born. I devour international news, while my local paper remains unopened most weeks. In sports, I have no clue how my home teams are doing, but I am a devoted fan of a football team on the other side of the Atlantic.

And yet May’s statement strikes a chord. It contains an essential truth—the disregard of which says much about how we—the world’s financial, political, and technocratic elite —distanced ourselves from our compatriots and lost their trust.

Start first with the actual meaning of the word ‘citizen.’ The Oxford English Dictionary defines it as ‘a legally recognised subject or national of a state or commonwealth.’ Hence citizenship presumes an established polity—’a state or commonwealth’—of which one is a member. Countries have such polities; the world does not.

Proponents of global citizenship quickly concede that they do not have a literal meaning in mind. They are thinking figuratively. Technological revolutions in communications and economic globalization have brought citizens of different countries together, they argue. The world has shrunk, and we must act bearing the global implications in mind. And besides, we all carry multiple, overlapping identities. Global citizenship does not—and need not—crowd out parochial or national responsibilities.

All well and good. But what do global citizens really do?

Real citizenship entails interacting and deliberating with other citizens in a shared political community. It means holding decision-makers to account and participating in politics to shape the policy outcomes. In the process, my ideas about desirable ends and means are confronted with and tested against those of my fellow citizens.

Global citizens do not have similar rights or responsibilities. No one is accountable to them, and there is no one to whom they must justify themselves. At best, they form communities with like-minded individuals from other countries. Their counterparts are not citizens everywhere but self-designated ‘global citizens’ in other countries.

Of course, global citizens have access to their domestic political systems to push their ideas through. But political representatives are elected to advance the interests of the people who put them in office. National governments are meant to look out for national interests, and rightly so. This does not exclude the possibility that constituents might act with enlightened self-interest, by taking into account the consequences of domestic action for others.

But what happens when the welfare of local residents comes into conflict with the well-being of foreigners—as it often does? Isn’t disregard of their compatriots in such situations precisely what gives so-called cosmopolitan elites their bad name?

Global citizens worry that the interests of the global commons may be harmed when each government pursues its own narrow interest. This is certainly a concern with issues that truly concern the global commons, such as climate change or pandemics. But in most economic areas—taxes, trade policy, financial stability, fiscal and monetary management—what makes sense from a global perspective also makes sense from a domestic perspective. Economics teaches that countries should maintain open economic borders, sound prudential regulation and full-employment policies, not because these are good for other countries, but because they serve to enlarge the domestic economic pie.

Of course, policy failures—for example, protectionism—do occur in all of these areas. But these reflect poor domestic governance, not a lack of cosmopolitanism. They result either from policy elites’ inability to convince domestic constituencies of the benefits of the alternative, or from their unwillingness to make adjustments to ensure that everyone does indeed benefit.

Hiding behind cosmopolitanism in such instances—when pushing for trade agreements, for example—is a poor substitute for winning policy battles on their merits. And it devalues the currency of cosmopolitanism when we truly need it, as we do in the fight against global warming.

Few have expounded on the tension between our various identities—local, national, global—as insightfully as the philosopher Kwame Anthony Appiah. In this age of ‘planetary challenges and interconnection between countries,’ he wrote in response to May’s statement, ‘the need has never been greater for a sense of a shared human fate.’ It is hard to disagree.

Yet cosmopolitans often come across like the character from Fyodor Dostoyevsky’s The Brothers Karamazov who discovers that the more he loves humanity in general, the less he loves people in particular. Global citizens should be wary that their lofty goals do not turn into an excuse for shirking their duties toward their compatriots.

We have to live in the world we have, with all its political divisions, and not the world we wish we had. The best way to serve global interests is to live up to our responsibilities within the political institutions that matter: those that exist.

According to an old joke, Americans need good peripheral vision to be able to find Australia on a map. When we attract attention, as often as not it’s for some natural calamity (floods, bushfires, shark attacks), our sporting endeavours or for our charms as a travel destination. Those days are over.

Last week’s telephone clash between Donald Trump and Malcolm Turnbull didn’t just make global headlines. It also raised Australia’s profile in Washington to a point not seen since 1942–45 when our combat troops served under General Douglas MacArthur and scores of US air and naval bases and army camps were stationed Down Under.

The consensus is that the US president emerged from the call worse for wear. Certainly, Trump’s tantrum—not to mention the media leak and late-night tweet—was no way to treat a close ally.

The episode has raised questions about Australia’s relationship with the US. Some, such as the Greens, have used the drama to revive calls to jettison the alliance. Others say that in the Trump era Canberra should exercise greater strategic self-reliance.

In the US, Trump found a receptive audience during last year’s election campaign whenever he questioned Washington’s penchant for subsidising allies’ defence. But Australia’s obviously no Luxembourg. We’re the only ally to have joined America in the foxhole in every major war in the past century: both world wars, Korea, Vietnam, the Gulf War, Afghanistan, and Iraq in 2003 and since 2014.

Indeed, notwithstanding disagreements over the Suez crisis in 1956, Indonesia’s annexation of West Papua in 1962 and the US bombing in Hanoi in Christmas 1972, Canberra has been one of America’s most dependable and loyal allies in the world.

Thus did Harold Holt in 1966 pledge to go ‘All The Way With LBJ’, while John Gorton promised a possibly bemused Richard Nixon that Australia would ‘Go a-Waltzing Matilda With You.’ In the aftermath of September 11, John Howard committed Australia to being a ‘100 per cent’ ally, providing strong support to the widely unpopular US-led invasion of Iraq.

To be fair, Australian governments have usually acted out of conviction as well as expediency. From our perspective, the advantages of the alliance are obvious: favourable access to intelligence, procuring military technology and platforms, and the all-important security insurance policy.

It’s against this background that Trump’s conduct should be recognised. If his administration is serious about checking China’s growing power, it’ll need reliable allies to conduct freedom-of-navigation patrols through the South China Sea. But that will be become more difficult whoever is prime minister.

For more than a decade, Australia has had a great debate about what China means for the alliance. For Washington and Canberra, China’s dramatic rise means different things. For the US, its main significance is the emergence of a potent strategic rival; for us, it’s the opportunity for a rewarding trade and commercial partnership. China is Australia’s largest trading partner, and are enthusiastically welcoming its further engagement in the region. In 2014 Canberra rebuffed Washington’s request to reject membership in the Beijing-led Asian Infrastructure and Investment Bank.

Meanwhile, this is a hard time to love America. According to a Lowy Institute poll last year, 45% of Australians agreed that ‘Australia should distance itself from the United States if it elects a president like Donald Trump.’ In the Trump era, the phrase “special relationship” has never seemed more absurd.

None of this, however, means that Australia is faced with a hard, stark choice between Washington and Beijing—not, at least, unless one or the other of them insists that such a choice be made. But it does mean that we must learn to play what Owen Harries and I have argued is a more demanding diplomatic game than ever before, one that will on occasion involve the difficult feat of riding two horses simultaneously.

The upshot is that in the Trump era Australia will become more qualified and cautious in our support for what Menzies called ‘our great and powerful friend.’ There’s nothing wrong with that: we’re a proud, independent nation with a distinct sense of our own values and traditions. Australia and the US get along best when both recognise that their policies toward each other rest upon respective perceptions of national interest.

The Prime Minister’s Office will be keen to downplay the significance of last weekend’s phone call between Malcolm Turnbull and US President Donald Trump, but both the call and the fact that it leaked in such detail, are extraordinary and unparalleled in the history of the Australian–American alliance.

According to the report from The Washington Post, Trump’s call with Turnbull came at the end of a long session of calls with leaders from countries including France, Germany and Russia. In a description that’s surely unprecedented in such company, Trump complained to Turnbull that theirs was ‘the worst call by far.’

The crux of their disagreement was allegedly the refugee deal negotiated by Canberra in the dying days of the Obama administration, which has been under a cloud since Trump’s election last November. Branding it the ‘worst deal ever’ Trump complained that he was going to ‘get killed politically’ over it and, at one point, reportedly accused the PM over seeking to export the ‘next Boston bombers.’

The report tells us little about Turnbull’s side of the conversation beyond suggesting that they move on to discuss other issues of pressing importance, at which point the President reportedly moved to end the call. While the status of the deal itself remains unclear, Trump has reportedly stated that it’s his ‘intention’ honour the agreement. Based on that combination of words and subsequent White House statements, that all seems highly uncertain If Trump does honour the deal, he will surely expect a quid pro quo. As counterintuitive as it seems, Turnbull may be better off dropping the deal himself, thus removing Trump’s leverage. Whatever the outcome, it’s clear that involving an issue as politically charged as asylum seekers in our key alliance relationship was ill advised.

What does all this mean for the ANZUS alliance? First, it’s potentially damaging to the way the alliance is perceived here in Australia. Traditionally the Australian public continue their support for ANZUS even when they disapprove of a particular president (George W. Bush, for example) but the latest revelations break new ground; managing the domestic fallout will be challenging. A strong alliance requires public support, which shouldn’t be taken for granted. The ALP have already taken a strong anti-Trump line. It may be that the temptation to morph that into an anti-ANZUS line and to capitalise on the perception of a bullied Prime Minister is too great for the Opposition to pass up.

Second, the call demonstrates two very different approaches from Canberra and Washington. Turnbull, in his public statements and in traditional Canberra style, has appealed to the rich shared history between Australia and the US, as well as the common values of both countries. Trump, on the other hand, is taking a purely transactional approach. A long history of shared exploits on the battlefield cuts little ice with the Donald. ‘What have you done for me lately?’ is his core concern.

The dynamic isn’t unprecedented. The history of the alliance is a history of Australian sentimentalism versus American pragmatism. Robert Menzies discovered that when Jack Kennedy told him to expect no US assistance should he find himself in a war with Indonesia in the early 1960s. John Howard discovered it when he launched his intervention in East Timor with the expectation that US boots on the ground would be forthcoming. However, no Australian leader has received quite this treatment from an American president—not even Whitlam during his infamous feud with Nixon.

This episode is a reminder that Trump’s personal diplomacy—if it can be called “diplomacy”—is of a different ilk. In his Wednesday address to the National Press Club Turnbull attempted to present himself to the electorate as an outsider by claiming that he’s ‘no political animal.’ It now appears that Trump gave him an example of how a real outsider does business. Turnbull, like Trump, is a businessman and it may be that as a businessman he discovers the key to managing his relationship with Trump. And manage it he must. For better or worse, the leader-to-leader relationship is seen as a gauge of the health of the broader alliance. Over 70 years we have seen the relationship prosper under the mutual affection of Holt and Johnston, Howard and Bush and falter under the animosity of Whitlam and Nixon.

Much of this can be superficial—the photo above of Gillard and Obama handpassing a Sherrin footy in the Oval Office comes to mind. The alliance is, in theory at least, bigger than any two leaders. It’s buttressed by agreements and protocols that will last far longer than any political tenure. However, ANZUS has always been dominated by the interaction between the leaders. They set the tone that flows downwards to their respective governments and the interaction between them influences the public’s perception of the alliance, especially here in Australia.

Trump appears to be a president who places more importance on personal relationships than most. He’s as susceptible to charm as he is sensitive to criticism. As many commentators have noted, he has little time for abstract concepts, perhaps not even for the international order under which Australia has done so well. Trump’s concerns are immediate and blatantly self-interested. It’s to that self-interest that Turnbull should appeal, rather than to the more abstract concept of shared values and history.

The weekend’s exchange should be a warning for Canberra that the days of the cheap and easy alliance are over. The future that we’ve been warned about is here. While an alliance in which the US demands more is challenging to Canberra, it’s also an opportunity for us to reassess exactly what we seek from ANZUS and what we’re prepared to invest to secure that.

Early in his legal career, Turnbull represented Kerry Packer, another billionaire businessman noted for his abrasive style. By his own account, the young Turnbull dealt with an often fiery Packer firmly but with a cool head. An older Prime Minister Turnbull well may need to draw on that coolness now.

The new US President has taken a very hands-on approach to defence procurement, particularly in the case of the F-35 Joint Strike Fighter. On December 21, then-President-elect Trump met with the CEO of Lockheed Martin, Marillyn Hewson, after a casual tweet wiped billions off the company’s stock market value. Days later, Trump again took to Twitter to announce that he’d asked Boeing to propose a ‘comparable’ Super Hornet-based alternative to the F-35 (though analysts were quick to point out that the term was an oxymoron), and Lockheed’s share price suffered again—as did defence analysts worldwide.

President Trump’s latest claim is that he’s managed to shave US$600 million off the price of the next batch of F-35s; LRIP-10, or the tenth ‘low rate initial production’ order of F-35s. And for a program that only a month ago was being described as being ‘out of control’ and ‘not very good’, mirabile dictu, apparently the F-35’s now ‘a great plane’ and the program is ‘in good shape’. If only that sort of program management skill could be bottled.

But (like many others who’ve been watching the program closely) we don’t think this is the Lazarus-like recovery it’s being touted as. On December 20, the day before then President-elect Trump met with Lockheed Martin’s CEO, the head of the F-35 Joint Program Office, Lt. General Chris Bogdan said that LRIP-10 aircraft would likely be ‘somewhere on the order of 6-7% [cheaper] per aeroplane, per variant’.

That hasn’t been lost on Defence commentators, who’ve already established that the LRIP-10 cost reductions announced by General Bogdan on December 20 would amount to roughly $600m in savings. It appears that President Trump is claiming credit (paywalled) for something that was going to happen anyway.

Mind you, a 6-7% percent cost reduction is still impressive, regardless of how it happened. And it’s consistent with a program that’s starting to hit its stride. As we’ve covered here on The Strategist, costs for all three F-35 variants have been coming down steadily, consistent with industry standard practice, for the past few years (F-35A here; B & C here). LRIP-9 aircraft reportedly cost 3.7% less on average than LRIP-8 aircraft, which were in turn 3.5% less than LRIP-7 aircraft.

Once the design and development is completed, the most important determining factors in reducing tactical aircraft production costs (or, for that matter, any manufactured good) are economies of scale, and refining the production methodology to reduce inefficiencies. Economies of scale work for inputs to production; buying larger quantities of materials and components generally allows for more efficient ordering, and provides leverage to help drive down prices. LRIP-10 numbers are more than 50% higher than LRIP-9.

Improvements to the production methodology are often called the ‘learning effect‘. By working out new ways of doing things, and as the work force becomes more practiced at the hands-on elements of construction, each new aircraft is produced slightly more efficiently than the last, resulting in a gradual cost saving per aircraft which can result in big cumulative savings across the production run.

We need to separate out two different eras of F-35 price variations—something the Trump Administration seems to have been badly advised on. The comments about an ‘out of control’ program aren’t actually that far from the mark, but only if we’re talking about the period 2002–2010. The F-35 program has missed the cost that was initially promised by a wide margin. In fact, for the first eight years of its existence the program was something of a poster child for cost overruns and schedule delays. And it underperformed in part because it failed to reach the planned economy of scale for inputs. Rather than the projected 75-80% commonality of parts  across the three aircraft variants, in February last year General Bogdan put the number at around 20-25%. And schedule delays and deferred production numbers slowed production to the point where learning effects were badly compromised.

But that was then and this is now. The 2011 program restructure and management overhaul completely changed the picture. As our latest analysis showed, prices have been falling and production numbers increasing for the past few years. The chart above shows the recent USAF budget figures for the F-35A model, and shows that prices have been tracking close to the industry standard learning curve since 2014.

We can use the learning curve and the numbers of aircraft to be produced in the various LRIP lots to calculate the expected annual percentage price reductions. For the period 2017–19, during which components for the LRIP 10 aircraft will be purchased and assembled, we get an average figure of 6.7%. That’s entirely consistent with the number quoted by General Bogdan back in December—and in fact was probably the basis of his estimate. So it seems that President Trump isn’t claiming credit for something that happened a month ago. Rather, he’s taking retrospective credit for program improvements made over five years ago.