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  • Writer's pictureCrest Economics

AUKUS - September 2021

The new AUKUS pact is a major play in Australia's bid to become the seventh nation in possession of nuclear-powered submarines. The landmark agreement between Britain, the US and Australia signifies a strengthening of ties between the three countries, of which prime minister Scott Morrison described as a "forever partnership...between the oldest and most trusted of friends."

But this newfound alliance has not been met with the warmest of welcomes around the world. For one, the agreement has provoked the ire of France, following the cancellation of a $37 bn dollar deal with Australia. Foreign minister Le Drian referred to the debacle as a "stab in the back" in a statement noticeably lacking diplomatic restraint, as the polemic from Paris indicates a worrisome breakdown in trust between itself and AUKUS members. The implications of the agreement go beyond the political distrust generated following its inauspicious announcement. France has a large security interest in the Asia-Pacific, with its territories home to over 1.65 million French citizens on islands such as New Caledonia and French Polynesia. Although tensions are high, the out to this situation is clear, with both Biden and Macron open to reconciliation and re-establishing confidence between the two countries. Both leaders are expected to meet at the end of next month, but it will take time before full mutual suspicion can be dispelled.

The larger victim of the deal is China, with AUKUS yet another step taken by foreign powers to curtail its increasing aggression in the Asia-Pacific. The pact has further galvanised the revival in alliance-based geopolitics as a response to growing Chinese economic and military power. An example of such is the Quadrilateral Security Dialogue (QUAD) between Australia, India, Japan and the United States, whose commitment to stronger discourse on a free, open, rules-based Indo-Pacific is a well-mannered phrasing of its intention to curb Chinese power in the region. It's no surprise these agreements have drawn similarities to cold war cliques, with countries, especially the US, becoming increasingly precautionary in their foreign policy approaches. What we're seeing here is a quintessential Thucydides Trap; an emerging China threatening to dethrone the US as the international economic hegemon. With the increasing toxicity of world trade, the new norm could very well be a progressively bifurcated world order. Economically, this can translate into higher protection, prices and uncertainty for consumers and firms. Australia has already felt the impacts of this, as ongoing export restrictions on coal and wine will not be eased any time soon. For other countries outside of this spat, there comes a difficult choice; to choose between economic profitability in China's rich and expanding economy, or to prioritise security. It's evermore apparent that having both is a luxury that cannot be afforded.

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