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If you were wondering what the modish policy buzzphrase “economic security” means, you’re about to watch the European Commission have a five-year-long turf war over it. On Tuesday, commission president Ursula von der Leyen created a portfolio that combined economic security with trade and subjected it to an overlord for “prosperity and industrial strategy”, scattering responsibility for industrial policy liberally around the new commission.
If von der Leyen really wants to balance open trade and robust growth with supply-chain resilience and geopolitical coherence — the best one-clause definition of economic security I can think of — she might look at Australia. A close US ally with a small open economy on the front line of Chinese political and economic pressure, Australia has had to think about this earlier than most.
The result is not principally notable on the institutional level, where the country in any case has intrinsic advantages over the EU. It’s more that Australia’s economic and securocrat policymakers seem to have absorbed each others’ mindsets and synthesised their approaches rather than operating in a state of permanent tension. It’s closer to John Lennon and Paul McCartney than Noel and Liam Gallagher.
Andrew Shearer, director-general of the Office of National Intelligence, says Canberra started looking at Chinese foreign interference in earnest about 10 years ago and discovered it had been going on for a couple of decades. There followed a process of convincing companies and economic policymakers that Chinese influence operations posed a direct threat to the business climate and growth.
“A few years ago, I wouldn’t have thought I’d be spending so much time with Australian CEOs talking about the risks to their companies,” Shearer told me. “In the past we might have got more pushback, but now they realise we’re not trying to smash their business.”
In contrast to the EU, where national security remains dispersed at the member-state level, Australia has developed a tough centralised foreign direct investment screening law that has restricted Chinese control over rare-earth mining. It also has one of the world’s more stringent laws against foreign interference in politics. This year a Chinese-Australian businessman was sentenced to nearly three years in jail for attempting to influence a politician on China’s behalf.
But the response of industrial and trade policy, although presented in a wrapping of robust interventionism, largely represents a continuity with the country’s liberal economic past.
Australia turned towards free markets in the 1980s and 1990s under the Labor governments of Bob Hawke and Paul Keating. They cut import tariffs, floated the Australian dollar and allowed uncompetitive parts of manufacturing — including the car industry — to die, permitting Australia’s comparative advantage in exporting commodities to flourish.
An economic nationalist of the kind now found roaming in packs round Washington DC might call this a self-defeating move that has made Australia vulnerable to Chinese coercion. Beijing blocked imports of barley, coal, wine and rock lobsters from Australia from 2020 after the then Liberal prime minister Scott Morrison called for an investigation into the origins of Covid-19. Australia is also dependent on imported Chinese-made electric vehicles, with all that implies for the security of personal data and technological self-sufficiency.
But Australia successfully dealt with China’s trade coercion by finding markets elsewhere. It has gone back to serving the Chinese market since restrictions were lifted.
The industrial policy programme recently announced by Anthony Albanese’s Labor government, Made In Australia, is touted as an interventionist move towards boosting resilience. In practice it’s notable for its relative restraint. It’s certainly not a decisive break with the Hawke-Keating inheritance in the way that Bidenomics, with its high tariffs and heavy spending through the Inflation Reduction and Chips acts, is a repudiation of the open trade and fiscal restraint of Bill Clinton and Barack Obama.
Made In Australia doesn’t raise import tariffs. The new government spending involved is less than 1 per cent of one year’s GDP spread over the next decade, compared with the IRA’s estimated nearly 4 per cent. Australia will still import Chinese cars. Steven Kennedy, the most senior civil servant at the Australian Treasury, told me: “Made In Australia is a set of targeted policies designed to combine the climate change transition with promoting economic resilience and national security. It’s not an attempt to bring back manufacturing on a large scale.”
Unlike the EU, where unity is undercut by fans of Beijing such as Hungarian Prime Minister Viktor Orbán, there’s political and institutional consensus behind Australia’s approach to economic security. Australia has a relatively centralised government conducive to co-ordination. “Canberra is a small town,” is a frequent observation. Shearer says he routinely runs intelligence-based security scenarios through the Treasury’s economic models to assess their impact.
Australia’s model has at least one big omission, if you regard climate change as a threat to economic security. The power of the mining industry has helped foster disturbing amounts of climate change denial. Unlike the EU, Canberra abandoned an early attempt at carbon pricing. And of course the resilience of its approach to more increases in US-China geopolitical tension is untested.
But one lesson from Australia’s experience is clear. Economic security is more about having everyone on the same page than in the same building. If the EU wants a coherent response, it first needs to work out what it wants before arranging the personnel and furniture to do it.