Tag Archive for: Economic security

The surprise of the Independent Intelligence Review: economic security

After copping criticism for not releasing the report for nearly eight months, Prime Minister Anthony Albanese released the Independent Intelligence Review on 28 March. It makes for a heck of a read. The review makes 67 sweeping recommendations to overhaul Australia’s National Intelligence Community (NIC) on everything from legislation to oversight, open-source intelligence and investment.

But hidden in plain sight in the review is a surprising recommendation that Treasury lead a review relating to ‘economic security’.

That’s a surprise because Australia hasn’t really talked about economic security before. There isn’t a federal policy on achieving economic security, our ministers don’t address economic security in press releases, and it remains a bit of a foreign concept in Parliament.

The review doesn’t stop there. Authors Heather Smith and Richard Maude—both well-known figures in Canberra—say their ‘consultations suggest that more holistic and structural changes across the public service are required’. Two more key recommendations were to establish a dedicated economic security unit inside Treasury and embed members of the NIC in economic security policymaking.

One wonders why the government hasn’t done this already.

It’s because Australia’s security has historically been about its military. As an island nation in the Indo-Pacific, we’ve been forced to use our privileged location to achieve political and diplomatic advantage. We’ve had defence white papers for decades calling for more spending, more alliances, more things. Look no further than the 2023 Defence Strategic Review. Australia’s security was said to be linked to our alliance with the United States and achieving force projection, meaning spending billions of dollars on long-range missiles and nuclear-powered submarines.

Now, it seems the government has finally stopped thinking military power alone will cut it in this degrading geopolitical environment.

In his budget speech, Treasurer Jim Chalmers seemed to glibly admit that ‘in these uncertain times, economic security and national security are increasingly intertwined’. His Future Made in Australia Act, passed in December last year, is the first specific mention of economic security by the Commonwealth ever. The National Reconstruction Fund has finally started handing out some of its $15 billion of investment funding.

But we have a lot more work to do.

A 2024 report by the United States Studies Centre shows that Australia is well behind our closest allies. We don’t conduct outbound investment screening, as the US does, or ban investments with entities that could compromise our research and development, as Canada does. Our investment review bodies don’t seem to have actual teeth like the ones in Britain do, and unlike Japan we don’t have an economic security law.

Don’t forget, a former treasurer (advised by our Foreign Investment Review Board) took no action against a 99-year lease given to Chinese company Landbridge to operate the Port of Darwin. That decision is still haunting the corridors in Canberra today.

Australia needs leadership on economic security and it needs it now, or certainly after the election.

We need to beef up our existing legislation to protect Australian investment from both internal and external threats to our economic security. We don’t even need new levers; we just need to use the ones we have. In the past, we have arguably prioritised investment over security, instead of attracting investments that offer both. For those that we deem contrary to foreign policy, our foreign minister already has the power to cancel any foreign agreements—they just haven’t wanted to.

The Foreign Investment Review Board needs to be given the teeth—and, more importantly, the political capital—to make hard decisions about investment in Australia. The current review of the board is a fantastic opportunity change our inbound and outbound investment framework. Making the board independent from Treasury would go a long way to achieving that, as would a broader ability for it to call in and review investments that could pose security risks, rather than await applications.

More broadly, the NIC needs to be integrated not just with Treasury, but with industry and academia, where technological breakthroughs fuelling our economic growth are being made every day. Having a dedicated economic security policy would probably help too. And we can do all of that without resorting to protectionist or xenophobic responses such as banning whole countries from doing business.

Economic security is not a new concept, but we are definitely late to the party. Hopefully, no matter which government is elected in May, economic security doesn’t prove to be just another election buzzword.

Economic security and geostrategic competition: fostering resilience and innovation

Australia and other democracies have once again turned to China to solve their economic problems, while the reliability of the United States as an alliance partner is, erroneously, being called into question.

We risk forgetting lessons of the past when we cling to the long-gone notion of the free market, which Beijing sees as democracies opening themselves to China’s unfair business practices. Economics and security are closely linked: we must build resilience and foster innovation to prevent economic dependencies that weaken our security.

We should be concerned when countries impose tariffs on friendly countries, as the US is doing. It erodes trust, weakens solidarity among like-minded democracies and dangerously risks a tit-for-tat approach of revenge tariffs that will leave us all poorer. This drives inflation while passing costs onto consumers.

But while we need to keep working for a different outcome—as the Australian government is doing—we mustn’t focus on spot fires when the forest is ablaze.

Almost a decade ago, Australia led the world by abandoning an outdated foreign policy of balancing economics and security. We recognised that trade interdependencies didn’t deter conflict and that short-term financial interests should never outweigh security concerns. Balance sounded good in theory but in practice meant trade-offs that left us unsafe.

It was China’s actions that forced the change: having become our largest trading partner, Beijing used our economic reliance as leverage to implement a systemic program of security breaches and threats against us, from cyber intrusions to foreign interference.

Unfortunately, recent trends reveal that security trade-offs weren’t abandoned so much as temporarily paused. Many democracies are responding to immediate cost of living pressures and hoping security threats can be kicked down the road. This is a policy of security crisis delay, not deterrence.

Economic prosperity is needed to pay for security, and security without prosperity leaves us vulnerable to decay. But as is the case for individuals and households alike, assurance comes at a cost. So, the key question that confronts is what is the short-term price—an insurance premium of sorts—that we are willing to pay for long-term confidence of our prosperity and security?

Western countries need to look beyond resilience and risk reduction to embrace a more comprehensive strategy—one equally focused on (shared) innovation and competitiveness, especially in those emerging technologies that will determine future prosperity and security.

Brad Glosserman correctly argues that, in response, the US and its allies have been ‘doing economic security wrong’ by focusing almost exclusively on resilience and risk reduction. This has meant overlooking deterrence, and not prioritising future competitiveness. Partners and allies must define key industries and sectors, and stop choosing cheapest associated supply chain.

They must strengthen resilience by establishing frameworks to protect critical and emerging technologies from intellectual property theft and economic coercion by China. And, as Raquel Garbers argues, enhanced deterrence requires education on what economic warfare is and how it works, and with tools that disincentivise economic activities with hostile states.

Glosserman correctly emphasises the importance of supporting innovation and ‘unlocking innovative potential’. Resilience requires us to move beyond traditional notions of just protecting the economy to an approach that prioritises innovation and technological leadership.

To establish an effective strategy, we must understand what specific policies governments can implement to foster a innovation in critical and emerging technologies. This also requires increased collaboration between the US and its allies, particularly in areas where China has a strong lead.

We need to leverage the strengths of countries such as India, which ASPI’s Critical Technology Tracker has identified as an emerging centre of research excellence, to diversify research partnerships and build a more resilient global innovation network. We must also be wary of the short-term focus of shareholder capitalism and its negative impact on long-term economic security.

We should consider how can we rebalance the capitalist model to prioritise, incentivise and reward long-term investments in innovation and resilience. The prosperity and economic growth needed to best provide national security won’t result from protectionism, but from a long-term strategic approach to emerging technologies.

Doing so, however, will still require us to remember you get what you pay for. Any savings we gain from prioritising cheap supply chains in the present will ultimately be outweighed by higher security costs in the future.

We need to remember that short-term disagreements with friends will pass as they have before. National interests may on occasion come into sharp contest, but strategic alignment will persist. It is systemic and malign challenges that require our collective focus and investment.

Trump’s trade and economic security agenda: what we know so far

President Donald Trump’s trade and economic security team is united and ready to use tariffs, export controls and enhanced sanctions to strengthen the US economy and achieve geostrategic outcomes against US adversaries. Those objectives range from preserving the US technology edge over China to stemming the flow of fentanyl pre-cursors into the United States and forcing a Russia-Ukraine peace.

The team also stands ready to use these tools against US allies and partners for what the administration considers to be the greater good and for addressing trade imbalances, building up US industries, pushing up allies’ defence spending or managing immigration. Australia can take nothing for granted and must take every chance not only to demonstrate how the alliance benefits US security and prosperity but to show that hindering the Australian economy with trade measures would damage US security.

Of the slew of presidential actions and executive orders already issued, the America First Trade Policy memorandum has been one of the more detailed, with stated objectives of promoting investment, productivity, US industrial and technological advantages, defending economic and national security and benefiting US workers. It initiated more than 20 possible trade and economic security measures to address unfair and unbalanced trade.

The only surprise was that decisions on tariffs and other measures, including those relating to China, were delayed until after 1 April, to allow for detailed reviews by the Treasury, Commerce Department and the Office of the US Trade Representative. Detailed reviews are required for the use of some trade measures, those under section 232 of the 1962 Trade Expansion Act and Section 301 of the 1974 Trade Act. But others, such as those under the International Emergency Economic Powers Act of 1974 and section 122 of the 1974 Trade Act, can be imposed by presidential declaration, though sometimes only temporarily.

Trump’s trade and economic security team

For the main roles in the economic and trade team, Trump nominated Scott Bessent, a billionaire hedge fund manager, as treasury secretary; Howard Lutnick, a Wall Street trader and chief executive, as secretary of commerce; and Jamieson Greer as US Trade Representative (USTR). Greer was chief of staff to Robert Lighthizer, Trump’s first-term USTR. The Senate confirmed Bessent’s appointment on 27 January and is likely to approve the other two within days or weeks.

They appear to be in lockstep with Trump on use of tariffs, export controls and sanctions, though the degree and breadth of such measures is not settled. This contrasts with a diversity of views in Trump’s first term.

In his testimony to the Senate Finance Committee on 16 January, Bessent said the administration could raise tariffs for three reasons: to remedy unfair trade practices in a particular sector or exercised by a specific country; to raise revenue; or as a negotiating tool. Bessent strongly defended tariffs, particularly as tools for achieving deals, and emphasised that he expected the Treasury, Commerce Department and the Office of the USTR would deliver a coherent economic security agenda.

Lutnick, whose confirmation hearing before the Senate Commerce Committee is scheduled for 29 January, has actively promoted Trump’s use of tariffs as a tool to force other countries to reduce their tariffs on US goods or to generate revenue for widening domestic manufacturing.

In his testimony in May 2024 to the Congressional US-China Economic and Security Review Commission, Greer advocated expanding economic security policies implemented under the first Trump administration and the administration of president Joe Biden. That included calling for the extension of tariffs on China to include Chinese companies operating in other countries.

Also awaiting confirmation are key members of Trump’s first-term trade team. These including Kevin Hassett, former head of the White House Council of Economic Advisers, nominated as director of the National Economic Council; Russell Vought, former White House budget director and lead in the Heritage Foundation’s Project 2025, nominated to again be Trump’s director of the Office of Management and Budget; Stephen Miran, a former senior economic policy adviser at Treasury, nominated as chair of the Council of Economic Advisers; and Peter Navarro, a former trade adviser and avowed China hawk, nominated as Senior counselor for Trade and Manufacturing. This group will constitute the upper middle management of Treasury, Commerce and the Office of USTR, responsible for executing the agenda.

The America First Trade Policy in detail

According to the memorandum, the Treasury by 1 April must review US trade partners’ exchange rates and recommend ways to counter currency manipulation and other unfair trade practices. In the same time limit, it must assess risks associated with continuing exemption of imports worth less than US$ 800 from duties (currently allowed under de minimis exemption), and it must consider strengthening limits on US investment in national security technologies and products in China. Biden’s Executive Order 14105 of 9 August 2023 imposed those limits.

Also by 1 April, the Commerce Department must investigate the US deficit in merchandise (goods) trade and associated economic and national security implications, and it must recommend remedies, potentially including a global tariff and other section 232 tariffs. The department must also review and improve US anti-dumping and countervailing laws, consider revocation of US-China Permanent Normal Trade Relations and improve US-China reciprocity on intellectual property rights. To improve US economic security, the department will lead a full review of the US industrial and manufacturing base and export control system to assess whether additional barriers are needed to protect the US’s technological edge. The steel and aluminum sectors are listed.

The Office of the United States Trade Representative will have the biggest task. By 1 April, it must complete a wholesale review of countries’ trade practices, US trade agreements and sectoral agreements and propose ways to remedy unfair practices and improve market access and job outcomes for US workers and businesses.

Unsurprisingly, US trade with China is a particular focus. Foreshadowing application of tariffs and other measures, the USTR must review the US-China trade agreement to determine whether China is abiding by the agreement (it’s not, but the US isn’t fully complying, either), consider further section 301 tariffs based on an investigation started during the first Trump Administration and address any unreasonable Chinese actions that burden or restrict US commerce.

Also unsurprising is that there is no reference to consultation with US allies and partners in the America First Trade Policy memorandum. Friends get no free pass—but they never do in US trade policy. Even longtime and trusted US allies such as Australia, which has a trade imbalance that favours the US and is in the US’s primary strategic theatre, must advocate strongly to minimise the impact of foreshadowed measures.

Showing just how turbulent US trade and economic security policy could be until 2029, Trump on 26 January threatened a tariff of 25 percent and later 50 percent on Colombian imports to the US in retaliation for the US ally’s refusal to accept planeloads of its deported nationals. Colombia backed down within hours.

Since his inauguration, Trump has said that Mexico and Canada must do more before 1 February to stop fentanyl and unauthorised migrants entering the US to avoid a 25 percent tariff. China must do more to stop fentanyl to the US, via Mexico and Canada, to avoid a 10 percent import tariff, Trump has said.

In the latest development, on 27 January, Trump told House of Representatives Republicans in Miami he would add tariffs on foreign-produced ‘computer chips, semiconductors and pharmaceuticals to return production’ to the US. He also said he would be ‘placing tariffs on steel, aluminum and copper’.

This is where we are after only seven days. It will be a wild ride.

Hardly an inducement: tourism from China gets up Palau’s nose

China might want to think again about its use of tourism as a means of influencing Palau. The people of the little Western Pacific country believe they’d be better off without swarms of tourists from China on their islands, causing environmental damage and spending their money mostly with Chinese businesses.

Other ill-effects include upward pressure on prices and the locking up of land in China-linked real estate investments, Palauan officials and people involved in tourism said in interviews.

In a leaked letter this year, the president of the country of 18,000 people, Surangel Whipps Jr, told an unidentified US senator that China had offered to ‘fill every hotel room’ and build as many more as Palau wanted.

To Palauans, that sounds more like a threat than a promise. A senior official sums up the general assessment of tourism from China: ‘The negative impacts [are] more than the value of the tourism itself.’

China has already put Palau through a cycle of what it thought was economic inducement and punishment. Last decade, it ramped up tourism numbers to the country but then knocked them down again by revoking Palau’s status as an approved destination, punishing it for continued diplomatic recognition of Taiwan. Arrivals from China peaked at 90,000 in 2015 and slumped to 28,000 in 2019, before the Covid-19 pandemic crushed tourism globally.

Now tourism from China is rising again: 8000 visitors from the country arrived in the five months to May.

There is a sense in Palau that it is just the beginning of resurgence. Businesses and investors connected with China have begun refurbishing Chinese restaurants and hotels in anticipation of a new surge in visitors. In what looked like a deliberate reminder of China’s economic importance ahead of Palauan general elections on 5 November, direct flights from Hong Kong resumed just five weeks ago.

When Americans, Australians and people from most other countries travel to Palau, they stay in Palauan-owned hotels, eat at Palauan restaurants, hire Palauan tour guides and contribute to the Palauan economy.

When tourists from China come, ‘they have these charter flights coming in, where a Chinese company owns a hotel in Palau, owns a tour company in Palau, owns the airplane that’s bringing them into Palau, so all this money that is being made from these tours is not trickling down to the local economy,’ says a former Palauan tour guide who, like other people interviewed for this report, asked not to be named.

One of the interviewees adds, ‘Chinese tour companies bought out entire hotels,’ leading managers to cancel reservations for other tourists. That ‘destroyed the market overnight’ for tourism from elsewhere.

This person also says that when tourists began arriving last decade, Chinese companies began acquiring long leases on prime real estate. (Foreigners can’t buy land outright.)

The senior Palauan official says, ‘One of their methods is they’ll lease property for 99 years and they don’t do anything to it, so they’re basically stalling development for Palau. That’s one of their tactics’ to gain economic and political influence. The result is diminished opportunity for locals to build businesses on suitable land.

Palauans have seen tourism drive inflation and expect that a renewed surge in arrivals from China will do the same again. ‘This kind of mass tourism will tend to push up the price of mass produce and local resources…,’ says the senior official. The price of giant coconut crabs, for example, was US$7 per pound before last decade’s tourism surge, the official says. Now it is US$60 per pound.

While tourists from any country will always include some who care little for protecting the natural environment, Palauans have found that the problem is unusually serious with groups from China.

The former tour guide recalls damage that tourists from China caused to one beautiful attraction, Jellyfish Lake. Some stole protected jellyfish from the lake to eat in their hotel rooms, using drawers as cutting boards. Hotels were forced to replace furniture and remove utensils that could be used for cooking.

Palauans often hear of tourists from China stealing animals from native habitats and bribing guides to look the other way. One interviewee describes instances of people from China taking giant clams for consumption directly from a reef. Another says tourists paid fishermen to bring them turtles, clams, shark fins and even dugongs, all of which are protected.

Then there’s infrastructure and business disruption. During the initial surge ‘they [came] in such big numbers, it overwhelms our sewer systems,’ the former tour guide said. ‘It overwhelms our stores. It overwhelms our tour services.’

Palau’s government has been trying hard to diversify tourism sources. Two weeks ago, Palau signed a deal with Japan for direct flights from Tokyo in 2025. Three days later, Australian airline Qantas agreed to take over direct flights from Brisbane from Air Nauru, aiming to increase frequency.

Palau’s people will welcome that.

Beijing has presumably imagined they would instead welcome another wave of tourism from China. But the behaviour of many of its tourists, the disruption caused by their arrival surges, and the cornering of their spending by operators and hotels connected to China—all these have only helped to galvanise Palauans against Beijing.