Trade, trust and tensions: Australia’s foreign policy crossroads in an election year
Faced with opportunities and challenges with its longstanding partner, the US, as well as increasing difficulties to “cooperate where we can, disagree where we must” with China, Australia needs more than ever to strengthen defence, trade and diplomatic ties across the Indo-Pacific region. Researcher Genevieve Donnellon-May explains.
As Australians head to vote in the federal election on 3 May, questions of sovereignty, economic security and regional alignment are once again in the spotlight. Foreign policy — typically marked by bipartisan consensus — is drawing unusual attention, with China emerging as a key issue for parties, policymakers and voters alike.
The contest between the ruling centre-left Labor Party and the conservative Liberal Party (the opposition party) will help shape how Australia navigates an increasingly volatile Indo-Pacific. While their approaches to foreign policy differ in emphasis and tone — especially on China — both face the same strategic dilemma: how to safeguard national interests amid intensifying great power rivalry.
Australia’s current China policy
Australia’s China policy remains defined by a mix of strategic competition and economic interdependence. Trade and investment with China is central to Australia’s future prosperity. In 2023, China bought A$219 billion (US$145 billion) of Australian exports, nearly one-third of Australia’s total global exports. China also remains Australia’s top overseas market for agriculture, resources (such as iron ore and coal) and services.
Australia’s approach to China is increasingly shaped by growing partisan divides.
However, relations have been strained in the past decade or so due to a multitude of factors including Canberra’s banning of Chinese technology giant Huawei from Australian 5G networks, foreign interference concerns and calls for a Covid-19 inquiry, while Beijing’s retaliatory economic coercion marked a sharp downturn.
The arrival of the Anthony Albanese government in 2022 signalled a shift. A stabilisation of bilateral ties followed, with Prime Minister Albanese visiting Beijing in 2023. Australia also suspended two World Trade Organisation cases against China over unfair practices. In 2024, China lifted the remaining tariffs on Australian exports.
How Australian political parties view China
Australia’s approach to China is increasingly shaped by growing partisan divides. While the Labor government under Anthony Albanese has pursued a pragmatic path of diplomatic stabilisation and cautious engagement, the opposition Liberal Party — currently under Peter Dutton’s leadership — is adopting a more hawkish posture.
A Dutton-led government could mark a significant shift in tone, potentially unravelling recent diplomatic gains and reintroducing the risk of economic coercion from Beijing. Such a shift could also isolate Australia within a region where many states are actively seeking a geopolitical middle ground between the world’s two powers.
... only 17% percent of Australians trust China to act responsibly in the world, while most Australians are concerned that China will become a military threat in the next 20 years and remain deeply sceptical of its intentions.
Public opinion further complicates policymaking. According to the Lowy Institute’s 2024, only 17% percent of Australians trust China to act responsibly in the world, while most Australians are concerned that China will become a military threat in the next 20 years and remain deeply sceptical of its intentions. This ambivalence shapes domestic debates, giving politicians less room to manoeuvre on China policy without triggering voter backlash.
Broader regional developments and (national) security incidents continue to influence Australia’s perception of and relations with China. Recent reports of Chinese naval vessels operating near southern Australian waters, and allegations of sonar attacks injuring Australian Navy divers in the South China Sea, have sparked concern. Chinese live-fire exercises in the Tasman Sea without prior warning earlier this year caused significant commercial flight disruptions.
Such incidents like these, alongside longstanding areas of disagreement like Taiwan reinforce Canberra’s growing caution — both at the strategic and public level.
US-Australia relations: cooperation and challenges
The US remains Australia’s most important strategic partner and has been for decades. Defence and intelligence cooperation are deeply embedded, and shared democratic values continue to anchor the relationship, which remains crucial to security.
Despite talk of Australia’s place in the “Asian century” and acknowledgement that Australia’s prosperity is already closely tied to Asia – over 65% of its two-way trade is with the region and more than 80% of Australian exports (goods and services) go to Asia – federal government policy responses to global geopolitical and geoeconomic shifts indicate that Canberra continues to double down on its security alliance with the US.
Nonetheless, areas of difference between the US and Australia remain. Two key issues stand out. The first is AUKUS — the controversial trilateral security agreement between Australia, the US and the UK — widely seen as a strategic counterbalance to growing Chinese assertiveness and influence in the Indo-Pacific.
... Australia’s ability to fund such military capabilities rely on strong Sino-Australian trade.
A major part of the deal involved the US and UK helping Australia acquire nuclear-propulsion submarines. Announced in 2021, the agreement saw Canberra abruptly cancel a A$90 billion submarine deal with France in favour of acquiring at least three second-hand Virginia-class nuclear submarines from the US by the 2030s, with plans to build a new fleet of British-designed SSN-AUKUS submarines in South Australia. Estimated to cost between A$268-368 billion, the project represents one of the most significant defence investments in Australian history. Of this amount, Australia has already paid US$500 million to Washington.
As others point out, Beijing views AUKUS as proof that Australia lacks an independent foreign policy. Ironically, Australia’s ability to fund such military capabilities rely on strong Sino-Australian trade.
Despite bipartisan support in parliament, AUKUS has generated public debate at home. Critics raise a multitude of concerns ranging from the erosion of Australia’s national sovereignty and foreign policy autonomy to the deal’s lack of transparency. High-profile figures including former prime ministers from the Labor and Liberal parties — Paul Keating and Malcolm Turnbull — and strategic studies professor Hugh White have voiced strong opposition to AUKUS. Turnbull notably warned that it leaves Australia beholden to an increasingly unpredictable ally.
Although Canberra has not imposed reciprocal tariffs, the episode provoked bipartisan criticism amid concerns about the natural reliability of an increasingly transactional and national White House.
The second issue is the recent imposition of “Liberation Day” tariffs by Washington on 180 countries and regions in April. Despite the two countries’ free trade agreement in place which favours Washington, the US introduced a blanket 10% tariff on all Australian exports.
While significantly lower than tariffs levied on regional partners like South Korea and Japan (25%) or Cambodia (49%), the move marked a sharp break from the alliance’s economic foundations. The Albanese government’s push for exemptions was rejected.
Although Canberra has not imposed reciprocal tariffs, the episode provoked bipartisan criticism amid concerns about the natural reliability of an increasingly transactional and national White House. Opposition Leader Peter Dutton, who had previously described President Donald Trump as “big thinker and a deal maker”, reversed course under public pressure and proposed using Australia’s defence ties as leverage over Washington.
In the wake of the tariffs, Beijing extended an offer for coordinated opposition against the US. The Albanese government firmly rejected this offer.
US-China tensions and implications for Australia
As US-China strategic rivalry deepens, Australia faces intensifying pressure to navigate its longstanding dual dependency: security guaranteed by the US, and economic prosperity rooted in trade with China — its largest trading partner and the dominant regional power.
The diplomatic balancing act — to “cooperate where we can, disagree where we must” is becoming harder to maintain in an increasingly polarised Indo-Pacific...
This systemic competition between two great powers places Australia in a difficult position. As a middle power with a small population and an export-driven economy, it has long relied on the US for defence while benefiting from China-led regional economic integration. The diplomatic balancing act — to “cooperate where we can, disagree where we must” is becoming harder to maintain in an increasingly polarised Indo-Pacific, further heightening Australia’s growing “fear of abandonment,” as described by the late Australian public servant and diplomat Allan Gyngell. This fear has haunted Australian foreign policy for decades — and now, it feels closer than ever.
What does this mean for Australia?
Amid rising geopolitical tensions and economic uncertainty, Australia must forge ahead to more independently advance its national interests in the Indo-Pacific. This entails strengthening defence, trade, and diplomatic ties across the region — not simply as a hedge against great power rivalry, but as part of a broader strategy for long-term regional integration and resilience.
Powers such as Japan, India, and South Korea will remain key partners. These countries share strategic concerns over regional stability and China’s assertiveness, while also offering pathways for cooperation across sectors like technology, defence, and economic development. Deepening these ties can help Australia diversify its trade relationships and build collective resilience in an increasingly multipolar Asia.
Canberra must also make full use of existing frameworks like the Invested: Australia’s Southeast Asia Economic Strategy to 2040 and the India Economic Strategy to 2035. Both prioritise sectoral partnerships and shared norms, positioning Australia as a more embedded and trusted partner in the region.
Australia has an opportunity to further its influence by helping neighbours address non-traditional security threats — from climate change and pandemics to food and energy insecurity. It can also collaborate on emerging technologies such as AI, cybersecurity, and digital infrastructure, strengthening its role amid the Fourth Industrial Revolution.
With Asia projected to account for over half of the global gross domestic product by 2050, Australia’s economic future lies firmly in the region. The question now is not whether to engage, but how deeply and independently it can do so while balancing its US alliance with a more agile and regionally attuned strategy.
