The gathering storm

Australia in 2025 stands at a perilous crossroads. Once-clear boundaries between economic prosperity and national security have blurred. The collision of severe geoeconomic headwinds with escalating military tensions and rapid and diffused technological advancement demands immediate, unwavering, and bold action.

To do so, Australia must create a strategy focused on building economic independence. This will involve diversifying its economic engagement away from China, forging new partnerships and strengthening existing ones. It must build resilience against crises, secure its supply chains and improve self-reliance, while also introducing economic reforms.

The dominant geoeconomic threat is the intensifying trade war between the United States and China. Australia’s overreliance on China for trade has become a sword of Damocles over our national life. Any severe economic slowdown in China will devastate Australian prosperity overnight, slashing demand for critical exports, such as iron ore and coal. The sheer size of our economic dependence inhibits both word and deed lest the largesse be revoked. The shadow of protectionism and unpredictable economic coercion hangs ominously over our open, trade-dependent economy, threatening to unravel decades of growth and reshape our national interests.

Worse still, the current trade war risks giving way to  real war. Australia’s dependence on the US strategic alliance for national security is increasingly fragile. The Trump administration’s foreign policy shifts have shaken the foundations and reduced national trust in the US. Growing Australian doubts about the US’s security guarantees coincide dangerously with rising nationalist sentiment in our region, leaving us exposed and vulnerable.

Economic coercion has emerged as a ruthless tool of statecraft, linking economic weaknesses directly to national security threats. China’s weaponisation of trade restrictions and sanctions against Australia starkly reveals the catastrophic risks of dependence on a single market or supply chains controlled by hostile powers.

Australia’s economic fragility is laid bare by our narrow export base, too heavily reliant on mining and agriculture. Now ranked 105 out of 132 countries on the Economic Complexity Index—lowest among OECD nations—our economy is shockingly unprepared for global volatility. Since 1995, we have plummeted from 55th place, due to the trap we placed ourselves in through our commodity-dependent economy and its vulnerability to price shocks. Our OECD peers have long since escaped that trap.

Compounding these threats is the global scramble for critical minerals and cutting-edge technologies: resources vital not only for economic growth but for military dominance. Australia’s vast critical mineral reserves represent a strategic lifeline. Yet a failure to capitalise on this advantage has created long-term and self-defeating supply chain vulnerabilities and technological dependencies that fatally undermine our economy and defence capabilities.

Australia faces a significant challenge with its lagging productivity growth, a trend that has persisted for more than a decade and threatens living standards. We are plagued by the increasing dominance of the non-market sector, particularly healthcare and social assistance, where strong employment growth hasn’t been matched by proportional increases in output. This sector’s labour-intensive nature and the difficulty in streamlining processes contribute to a drag on overall productivity.

Furthermore, there’s been a lack of capital deepening, investment in capital and technology that equips workers to be more productive. High population growth, driven by immigration, hasn’t always been matched by sufficient investment in infrastructure, housing and business capital, leading to a lower capital-to-labour ratio. A decline in business dynamism, slower adoption of digital technologies by firms beyond the frontier and, in some cases, lingering effects of global economic shocks and domestic disruptions have compounded this challenge. At the same time, Australia’s innovation strategy has been hindered by several persistent challenges including, for example, a focus on adopting existing technologies rather than developing new ones, and underinvestment in research and commercialisation (government research and development expenditure as a percentage of GDP has declined from 0.56 percent in 2007–2008 to 0.52 percent in 2024–2025).

Australia’s small business sector is facing a concerning decline in its contribution to GDP and employment. Rising operational costs, including energy and rent, coupled with labour shortages and increasingly complex regulatory burdens, are squeezing profitability. Many small businesses struggle with cash flow, access to finance, and keeping up with digital transformation and cybersecurity threats.

Our industrial independence remains an illusion. Despite rhetoric about high technology and advanced manufacturing, Australia has failed to launch decisive, large-scale industrial initiatives with clear targets and substantial investment. Political short-termism and bureaucratic inertia continue to strangle efforts to build resilient domestic industries in strategically vital sectors.

Technological independence and digital resilience are alarmingly neglected. Our dependence on foreign technology platforms exposes us to existential risks related to data security, privacy breaches and geopolitical manipulation. Australia risks being a mere consumer, not a creator, of critical digital technologies, crippling future competitiveness and strategic autonomy. The urgent debate on data localisation and regulating authoritarian-dominated technologies is mired in complacency and lacks the strategic urgency demanded by our security imperatives.

The nation’s skills crisis is undermining productivity and innovation. Sectors such as healthcare, technology, construction and defence are haemorrhaging talent. An ageing workforce and rapid technological change exacerbate this gap. Yet policy responses remain superficial, relying on short-term fixes and temporary migration rather than comprehensive education and vocational reform. Without bold, systemic change to invest in lifelong learning, industry-education partnerships and strategic migration, Australia’s workforce will falter at the worst possible moment.

Australia’s tertiary and vocational education sectors face severe challenges affecting quality and equity. In tertiary education, funding cuts per student and growing reliance on international student fees create financial instability and national security risk. The casualisation of academic staff may threaten teaching quality, while rising student debt deters domestic enrolments. In vocational education, challenges include inconsistent funding models, skills shortages in key industries, and ensuring the quality and relevance of training to meet industry needs.

Crucially, Australia’s national policy frameworks remain fragmented, treating economic and security issues as separate silos. This dangerous disconnect leaves the nation blind to the complex, intertwined forces reshaping global power and commerce. The absence of a clear, unified national geoeconomic strategy, bound to a national security strategy of equal urgency and importance, is a strategic blind spot that exposes Australia to catastrophic disruptions and squanders our economic and security strengths.

Australia’s sovereignty and survival demand an immediate, comprehensive strategy founded on nine pillars. Australia must:

Radically diversify its trade and industrial bases. It must end the perilous overdependence on China and a narrow commodity base. This doesn’t mean foregoing trade with China completely, but it does mean aggressively expanding trade ties with Indonesia, India, the European Union and other likeminded nations. We must truly (and massively) invest in advanced manufacturing, biotechnology and digital industries to build a resilient, complex domestic economy capable of withstanding global shocks.

Forge unbreakable strategic and economic partnerships. Australia must wield its economic and diplomatic tools aggressively to defend its interests and shield itself against the increasing economic and security dominance of authoritarian states such as China. We must build an ironclad coalition for economic and security resilience by maturing and deepening our alliance with the US, and developing geoeconomic and geopolitical alliances with Japan, South Korea, Indonesia and Pacific countries. We should use current trade agreements, investment policies and development aid as weapons of statecraft.

Secure critical supply chains at all costs. Australia must take immediate, decisive steps to guarantee access to critical minerals, energy (including gas and refined and crude petroleum) and essential goods. We should build domestic production and processing power, diversify sourcing and establish strategic reserves and stockpiles. The recently announced Critical Minerals Strategic Reserve must be rapidly expanded and fully funded to cement Australia as a reliable global supplier, and we should use it to build security partnerships that deliver on stability and security in the region.

Build national resilience against all crises.  Australia has to develop a bold, integrated national strategy to withstand economic, technological and security shocks. We should invest in multi-use, resilient infrastructure that safeguards the nation’s lifelines.

Invest in self-reliance. Australia must slash its reliance on fragile external sources of equipment and consumables by boosting domestic defence industries, national infrastructure and the vital services that make our nation function. We should direct focus towards research commercialisation, advanced manufacturing and workforce upskilling.

Promote innovation ecosystems and research excellence. Australia must build robust innovation hubs linking universities, industry and government. We should remove barriers to entrepreneurship, increase access to capital, and dramatically raise research and development spending. This is essential for technological breakthroughs and new industries.

Harness artificial intelligence strategically.  Australia must expand AI adoption to transform productivity and create high-complexity industries. We should develop an Australian chip fabricator for the high-end integrated circuits that will drive the AI revolution.

Reform regulation and build macroeconomic reform. Australia must boost economic dynamism, competition and productivity through regulatory reforms, policy frameworks and investment funding in ways that see true multi-use infrastructure and capabilities being built. We need to implement policies that ease the cost of doing business, reduce red tape and improve access to affordable finance for small businesses. Investing in skills training to address labour shortages among small and medium enterprises is critical, as is providing support for digital adoption and cybersecurity. Furthermore, promoting fair competition can create a more supportive environment for small businesses to thrive and contribute to Australia’s economic prosperity.

Structurally reform the education sector. Australia must mobilise a national effort to elevate science and technology education, vocational training and lifelong learning. We should attract and retain top global talent through targeted skilled migration. Without a coordinated, large-scale approach, Australia risks becoming a third-rate economy. We should develop stability in government funding for higher and vocational education. We should look towards policies that focus on attracting and retaining high-quality educators, reducing financial barriers for students, and strengthening the alignment between education and workforce needs. Greater investment in vocational education infrastructure and quality assurance mechanisms is also essential to enhance its reputation and effectiveness.

Australia’s lack of economic complexity, national security planning and strategic foresight endangers our future. The converging and compounding global crises of the coming decade are not isolated challenges, they are an existential threat demanding a unified, resolute response. By confronting these threats head-on, Australia can not only weather the storm; it can emerge from this decade as a regional power that has secured a prosperous and independent future.

This article was published by The Strategist.