The widening conflict involving Iran is causing shipping disruptions that are threatening global fuel supplies. But this is only the latest reminder that economic vulnerability is strategic vulnerability. It reinforces that markets are now arenas of geostrategic competition. Currencies, contracts and supply chains – once treated as neutral conduits of commerce – have become instruments of state power and, increasingly, triggers of widespread economic shock.
Australia’s economic model is built on openness: global trade, foreign investment and market integration. In 2024–25, China accounted for 29 percent of Australia’s total goods and services exports. In 2024, Australia’s top five export markets accounted for around 60 percent of total exports. Foreign direct investment stands at roughly 45 percent of GDP. And around 60 percent of Australian small and medium-sized manufacturing enterprises rely on imports for more than half their production inputs.
For a middle power such as Australia, openness is a strategic strength. But without deliberate design of Australia’s economic statecraft, it can also become a source of vulnerability. The question, then, is not whether to remain open, but how to preserve the economic openness that underpins prosperity while building the resilience needed to withstand coercion and a more unstable global order.
ASPI’s new report, Markets as the New Frontline: fusing Australia’s economic statecraft, argues the answer lies not in acquiring new tools but in integrating those we already have into a coherent national capability. Trade restrictions, financial pressure, investment screening and export controls are routinely deployed to shape behaviour, impose costs and test alliances without crossing traditional conflict thresholds. The absence of a fused strategy for how Australia responds to these tactics – across both government and industry – is becoming less of a constraint, and more a point of systemic exposure as dependencies are increasingly weaponised.
China’s trade restrictions on Australian exports between 2021 and 2023 – affecting coal, barley and wine – demonstrated how economic pressure could signal political dissatisfaction while remaining below formal sanction thresholds, costing Australia more than A$20 billion in lost exports. Russia’s manipulation of gas supplies to Europe showed how control over strategic resources could impose enormous costs while shaping political calculations, adding close to 400 billion euros (A$665 billion) to Europe’s energy import bill in 2022 alone. Meanwhile, the United States, the European Union and Japan have all expanded export controls, industrial policy and investment screening as instruments of broader competition.
The use of markets for geopolitical ends is embedded across the international system.
None of this signals the collapse of the global economic order. Western capital markets remain deep and attractive. But the assumption that markets operate separately from geopolitical rivalry is untenable. Economic interdependence brings prosperity but also generates leverage. The increasingly complex challenge for policymakers is managing both realities simultaneously.
Australia already has many of the tools needed to navigate this. Sanction regimes, export controls, foreign investment screening and critical infrastructure protections are well established. Supply-chain resilience initiatives have expanded. Intelligence support for economic analysis is growing. But these capabilities tend to operate in parallel, rather than as a fused system able to be deployed at speed and concurrently on various fronts.
Economic security challenges typically emerge gradually and below crisis thresholds, meaning they are addressed within individual portfolios rather than through a coordinated strategic framework. This means policy responses risk becoming reactive and fragmented. The cumulative effects of decisions across trade, investment, technology and supply chains can be missed.
The report addresses this gap. Its central recommendation is institutional: Australia should adopt a National Economic Security Strategy as a Cabinet-endorsed integration framework. Rather than securitising markets or retreating from international engagement, the objective is to provide clarity and focus around who decides what; under which thresholds; and with what trade-offs between resilience, efficiency and market confidence.
Such a strategy would identify where economic dependencies are strategically significant, clarify conditions under which the government should intervene and when market mechanisms remain the better solution, and establish clearer processes for coordinating responses across portfolios. Critically, it wouldn’t require a large new bureaucracy.
The capability already exists across the Treasury; the intelligence community; and government departments including Foreign Affairs and Trade, Home Affairs, and Industry. The task is to integrate these functions more effectively, ensuring economic analysis, security assessment and policy decisions are fused earlier in the decision-making process.
Closer partnership with industry is equally essential. Firms hold the most granular understanding of supply-chain vulnerabilities. Effective statecraft requires that knowledge to flow into government decision-making before pressure materialises.
International partners are already moving in this direction. The US has embedded economic tools in its national security strategy. The EU has developed coercion-response mechanisms. Japan has enacted legislation to protect critical technologies and supply chains. Canadian Prime Minister Mark Carney, visiting Australia in March, called for closer middle-power cooperation in response to the same pressures. These differing models all recognise that economic security is a strategic function requiring coordination at the centre of government.
Security and prosperity are mutually constitutive. Australia’s security depends on the strength of its economy; sustained growth depends on a stable strategic environment. Protecting one requires protecting the other.
Australia’s ‘strategy at the centre, execution at the edge’ principle remains sound. But to operate at speed, act in anticipation and respond across multiple fronts at once, Australia needs an empowered fusion architecture – one better enabled to align priorities; manage escalation; and integrate economic, industrial, cyber and security instruments into a coherent national posture. Without it, even well-designed policies risk working at cross-purposes, arriving too late to shape outcomes, or resulting in dulled influence.
Markets are the frontlines of strategic competition and the foundation of Australia’s national power. The task now is to engage them with greater strategic clarity, sharper and fused statecraft, and a stronger sense of national purpose.
