Commentary on Political Economy

Monday, 6 February 2023


Balloon goes up on US-Sino relations, but what about Australia’s China mania?

We’ll learn more about the China-US balloon incident in the days to come, but one key lesson is clear already: the relationship between the two great powers is extremely brittle.

Trust between the capitals is so low that the balloon only had to show up and it immediately crashed a much-anticipated trip to Beijing by US Secretary of State Antony Blinken.

Illustration: Andrew Dyson

Illustration: Andrew DysonCREDIT:

Its purpose was to build a “floor for the relationship” in the words of US President Joe Biden. The floor was meant to stop the relationship from spiralling down towards conflict.

That’ll have to wait now. When a US fighter-bomber shot down the balloon, an indignant China said it was “reserving the right to take further actions in response”. Beijing says it was a simple weather balloon; the Pentagon says it was a surveillance craft.

The political reaction in the US also shows us why Blinken had no choice but to postpone his trip. The Republicans hit Biden with fierce accusations of weakness in the face of provocation.

Why? Because he didn’t order it shot down the moment it was first detected. “We should not have let the People’s Republic of China make a mockery of our airspace,” said the Republican leader in the US Senate, Mitch McConnell.

The remnants of the large balloon drift above the Atlantic Ocean, with a US fighter jet and its contrail seen below it.

The remnants of the large balloon drift above the Atlantic Ocean, with a US fighter jet and its contrail seen below it.CREDIT:AP

In recent years, the two sides of American politics have entered a competitive bidding process to see which can be tougher on China. The only safe course for a US politician today is to sound even harsher than the last guy who denounced Beijing.

The Wall Street Journal extrapolated from the balloon incident: “Beijing’s ambitions are global, and the US homeland is vulnerable.”

The episode is reminiscent of an incident in the last Cold War, the U2 spy plane crisis of 1960. The Russians shot down a US Air Force U2 surveillance jet over its territory. The event crashed a superpower summit between Dwight Eisenhower and Nikita Khrushchev.

The US initially lied that it was merely a weather surveillance craft. Beijing’s explanation of the balloon today is a direct echo. But when Moscow paraded captured pilot Gary Powers and pieces of wreckage, the lie was exposed. Eisenhower ended up publicly accepting responsibility but refused to apologise.

China claims ownership of a second balloon flying over South America.

“It was a humiliation for Eisenhower and dashed his hopes for a breakthrough in the Cold War at the end of his presidency,” writes historian Richard Aldous. Indeed, the Cold War only got worse.

The Sino-American relationship today is not as tense as the US-Soviet Cold War relationship of 1960. But it’s heading in the same direction.

In just the first five weeks of this new year, consider three developments.

One. The US last week negotiated a deal with Japan and the Netherlands for the three nations to cut off supply to China of machines for making cutting-edge computer microchips. The purpose is to create a high-tech advantage over China and to lock China out.

US Secretary Of State Antony Blinken’s proposed visit to Beijing has been postponed.

US Secretary Of State Antony Blinken’s proposed visit to Beijing has been postponed.CREDIT:AP

Two. The new leader of American ally South Korea – conservative President Yoon Suk-yeol – last month suggested that his country could go nuclear: “It’s possible that the problem gets worse and our country will introduce tactical nuclear weapons or build them on our own. If that’s the case, we can have our own nuclear weapons pretty quickly, given our scientific and technological capabilities.” Seven in 10 South Koreans support this idea. Yoon’s remark was aimed at the threat from North Korea but immediately drew condemnation from Beijing.

Three. Last week another American ally, the Philippines, agreed to allow US forces access to four more of its military bases, in addition to the existing five. The aim was to deter any Chinese aggression against Taiwan, said the Philippines ambassador to Washington, Jose Romualdez: “If China makes a move on Taiwan militarily, we’ll be affected – and all ASEAN region, but mostly us, Japan and South Korea.”

The spheres of influence are hardening. Beijing is building an estimated 300 new nuclear missile silos and expanding its navy at breakneck speed.

Interestingly, Australia’s business community doesn’t seem to have noticed, even though China’s arbitrary trade sanctions on more than $20 billion worth of Australian products remain in place.

Sure, the Albanese government is pursuing a “stabilisation” of the relationship with Beijing. And on Monday Trade Minister Don Farrell said that he and his Chinese counterpart had “agreed to enhance dialogue at all levels, including between officials, as a pathway towards the timely and full resumption of trade”.

But it would be a serious error to think that it will be “business as usual”. The Australian Financial Review on Friday carried the page-one headline: “CEOs march to China as hostilities ease.” It listed some of the corporate chiefs, investors and university bosses “flocking to China”.

A December survey by AustCham of 160 Australian companies doing business with China showed 66 per cent planning to increase their investment there.

Is it wilful myopia or a case study in short-termism? In the very same day’s issue of the AFR, another headline said: “AUKUS ‘fuelling military tensions’: China.”

Australian chief executives are flocking to China even as Australia’s government prepares to announce a bracing new defence program and the details for building a fleet of nuclear-powered submarines under the AUKUS pact.

In 1950, the US geopolitical analyst James Burnham wrote a book with a chapter headed: “The Suicidal Mania of American Business.” Is that the fever possessing these Australian business people, a suicidal mania?

Australia speaks of “stabilisation”, but this is a temporary expedient. It’s impossible to “stabilise” a relationship with a great power whose entire strategy is to destabilise the existing world order so it can build its own.

Foreign Affairs Minister Penny Wong said on Monday: “In times gone past, we could separate the economic and the strategic so we could have our strategic relationship with the US [and] we could have our economic relationship with China. These days the strategy and the economics come together.”

And strategy takes precedence. Business people who think otherwise are living in a fool’s paradise.

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