Building resilience against economic shocks and coercion

Globalisation is the defining feature of the post-Cold War order. For the most part, freer global flows of goods, people, and investment have enriched Australia, culturally and economically.

Connectivity, however, also transmits contagion. The GFC and COVID each bear testament to the way crisis compounds and ripples through a networked world. Increasingly, Australia is being forced to grapple with the security implications of our enmeshment in a globalised economy.

Responding to this challenge does not entail closing ourselves off from the open systems that we helped establish. International trade and foreign investment remain critical to our economic health and competitiveness. Australia will continue to carry the torch of open, rules-based exchange.

But it does require that we work to deepen our resilience against the economic shocks that increasingly cascade through the system in which we are entangled. And part of this must involve restoring sovereign capabilities to supply certain essential goods.

Likewise, Australia must confront the way in which interconnection tends towards over-reliance. The abiding benefit of free trade is that it aligns complementary economies in mutually advantageous relationships of exchange. At the same time, however, alignment can transmute into structural dependencies that generate coercive leverage. Our sovereignty extends only so far as we can resist such pressure. The challenge is that it is evermore exerted, through politicised trade measures and predatory investment practices.

In light of these challenges to our economic security, the strategy identifies a series of actions aimed at deepening our economic resilience and independence. Implementing these initiatives will help safeguard our livelihoods against economic shocks and our sovereignty against economic coercion:

Diversify Australia's trade relationships. Diversifying our economic ties is central to reducing our vulnerability to economic bullying. It will also help insulate Australia from crises that emanate from a given economy that we might otherwise rely on. Australia will therefore aim to pursue Free Trade Agreements that expand our access to new import and export markets, helping us hedge against the risks of overly depending on any one partner. In addition to the FTA with India currently in negotiation, as well as RCEP and the CPTPP, Australia will look to conclude several bilateral FTAs with emerging economic partners, such as Vietnam.

Help Australian firms seize new trading opportunities. To ensure we capitalise fully on access to new markets, Australia will increase funding to Austrade and Export Finance Australia, with the aim of boosting the availability of financial support to Australian producers and businesses seeking to redirect exports.

Develop counter-measures to economic coercion. While diversification will help diminish the leverage any one actor may have over us, it will not obviate the threat of coercive practices. While unsuccessful, the PRC's determined campaign of economic bullying against Australia, in the form of arbitrary and punitive trade measures, instantiates a broader trend of coercive economic statecraft in world affairs. Australia must harden itself against this trend. To do so, we will work with like-minded partners to ensure the WTO's arbitration mechanisms remain effective and fit-for-purpose. Short of that, we will work on developing collective, solidarity-based responses to economic coercion. The aim is to increase the costs of such actions and so deter their application in the first place.

Continue to screen foreign investment flows. While the vast majority of foreign investment is gainful and welcome, over-reliance on certain sources may subject us to coercive leverage. What is more, some states and their proxies seek controlling stakes in vital sectors. Letting this pass would threaten our control over critical resources, particularly in times of crisis. Accordingly, Australia will make full use of the expanded powers available to the Treasurer, as needed and appropriate, in screening foreign investment in strategic sectors.

Strengthen Australia's supply chain security. COVID-related supply crises have exposed the precarity of our dependence on goods sourced overseas. To mitigate the impact of future shocks, Australia will look to develop strategic reserves of certain critical goods, such as fuel and medical supplies. Specifically, we will aim to achieve the 90-day fuel store recommended by the IEA as a matter of urgency. Australia will also harness grants, subsidies, and other incentives to boost sovereign capacity in fuel refining, fertiliser production, medicine development, and diesel exhaust additive production. Relatedly, Australia will invest in restoring certain strategic manufacturing capabilities, particularly in the defence sector. This is expected to require a significant but necessary long-term fiscal outlay.

Establish a national strategic fleet. Our dependence on foreign-flagged ships to convey seaborne trade compounds the risks associated with offshore supply. To shore up Australia's ability to secure seaborne supplies in war or crisis, we will work to restore a merchant navy, comprising up to 20 nationally flagged ships. The aim is to develop a balanced fleet that can variously fulfil cargo, tanker, and vehicle transport roles. Further, given its envisaged prominence as an export, we will assess the benefits of acquiring a hydrogen transport capability as part of the merchant navy fleet.