The uncertain geopolitics of the federal election

| April 9, 2019

Australia zipped through budget week and now zooms off to the May federal election.

The country will get to vote on the budget before the parliament, which means its tax-and-spend promises are written in sand.

What’s chiselled in the budget documents—enduring beyond the election—is a set of geopolitical and geoeconomic judgements about the state of the world.

The geo settings in the budget outlook document and the portfolio statements are always revealing. Look for the caveats and cautions offered, plus the way surprises and shifts are acknowledged or hinted. What are the trends and how blow the winds?

The nods towards surprise from the Defence and Foreign Affairs and Trade departments last week are how things have shifted since their big policy statements—the 2016 defence white paper and the 2017 foreign policy white paper.

DFAT gives the flavour with the ‘strategic direction statement’ in its budget document:

Since the White Paper’s release, many of the international trends identified within it have intensified – rising nationalism and geo-political competition, anti-globalisation and trade protectionism, a shift in power in the Indo-Pacific without precedent in Australia’s modern history, rapid technological advances that are changing the way economies and societies work, and mega trends such as climate change and urbanisation. These trends are testing Australia’s policy settings and demanding new efforts in several areas.

Distil the department’s prognosis, its geo crystal balling, from the second paragraph of the strategic musings:

  • The global environment is more uncertain than any time since the end of World War 2.
  • The Indo-Pacific is in the midst of a major strategic realignment.
  • The world is moving to a new, more multipolar era.
  • Australia and the region face fundamental challenges to long-term prosperity and security.

Add to those points the top-of-mind issue for the era offered by Defence Minister Christopher Pyne in December: ‘The first priority is to manage great power competition in the Indo‑Pacific.’

Such settings mean cash flows to national security. ASPI followed the budget money trails here. As Marcus Hellyer reported, the defence budget continues to deliver as expected, hovering a little over 1.9% of GDP on the long march ‘to the promised land of 2% of GDP’.

Defence’s budget statement refers back to the 2016 white paper forecast of greater strategic uncertainty because of changes in the distribution of power in the Indo-Pacific and globally’. The shift/surprise that’s then singled out is in the South Pacific:

Since the release of the 2016 Defence White Paper, some strategic trends have accelerated – arguably faster than was anticipated when the White Paper was drafted. Defence responded to some of these trends, along with other agencies, in devising new measures under the Pacific Step-Up announced by Government in late 2018.

You don’t have to mention China by name to be talking about China. In the South Pacific, Australia sees its strategic interests directly challenged by China. That’s the pointy end of the Pacific pivot.

The geoeconomic report card from Treasury comes from a relatively sunnier place than the geopolitical climate described by Defence and DFAT.

The international economic outlook pins its hopes to the notion that US President Donald Trump will cut a deal with China, declare victory, and end the trade war:

There have been recent signs that an escalation of trade tensions between the US and China is less likely; however, trade policy uncertainty remains elevated between a number of economies and global trade growth has eased. This uncertain outlook for trade tensions has been weighing on confidence, new export orders and investment intentions. Escalation of tensions would be expected to negatively affect growth in a number of countries including in Australia’s major trading partners. Conversely, a resolution of tensions could result in global growth that is stronger than forecast.

The uncertainty meme keeps recurring. Treasury lists a high degree of uncertainty around the global growth outlook, uncertainty surrounding measures of global confidence, risks around the Italian financial sector, Brexit, and the fact that financial markets now expect monetary policy to remain accommodative or neutral for longer than before.

Australia’s trade, as Treasury notes, is oriented more towards Asia than Europe. So along with the geostrategic winds roiling the Indo-Pacific, there’s a lot of work to be done and money to be made: ‘Growth in Australia’s major trading partners has outpaced global growth over the past decade and this is expected to continue over the forecast horizon as growth in the Asian region remains relatively strong.’

When it lifts its eyes beyond that horizon, Treasury goes to the basics of people, production and productivity:

Over the longer term, unfavourable demographics will constrain potential growth rates in some of the world’s major economies. Slower productivity growth could also limit productive capacity in many countries. Future global productivity growth will depend on the dispersion of technology, the mobility of capital and the degree of openness and competition maintained across economies.

The geo report cards are in. Thanks for that, world. We’ll get back to you after May. Australia is off to enjoy, and endure, a festival of democracy.

This article was published by The Strategist.

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