Australia’s handling of its relationship with China is a significant achievement in diplomacy and has resulted in the best of all possible outcomes, according to one of the world’s leading experts on geopolitics and authoritarian regimes.
Professor Stephen Kotkin, a senior fellow at the Hoover Institution at Stanford University told the Investment Magazine Fiduciary Investors Symposium in Healesville this month that he credits “the Australian Government, the Prime Minister especially and also his foreign minister, for effectively managing the relationship with China without capitulating”.
Kotkin said Australia has reinvented the relationship “without caving-in to Chinese demands [by] asking for diplomacy, and getting the diplomacy, and putting the relationship back on a footing where it’s not zero-sum, or it’s not incommunicado”.
“I regard that as a significant achievement,” Kotkin said.
“Of course, Australia has the backing of the United States, which gets the Chinese attention. It has the AUKUS deal which, even if it doesn’t end up building all the nuclear submarines is nonetheless a signal that cooperation is deeper and that everybody has everyone else’s back.”
Kotkin said AUKUS was critical for giving Prime Minister Anthony Albanese “the kind of leverage that he could use in going back to Xi Jinping, and saying, let’s figure out how this relationship is going to work”.
He said Australia had opted, from a range of possible relationships, to effectively enter a cold war with China, “where we respect you and you respect us and we have our differences, and you’re not going to curtail our sovereignty, but we want to have a relationship with you”.
“Kudos to Australia, and let’s hope this can be sustained,” Kotkin said.
“I think it’s a good sign. But it’s not solely the government in Australia. It’s the US security alliance, it’s AUKUS, it’s the Quad and it’s all of those other pieces that go into the leverage part.”
Avoiding ‘big trouble’
Kotkin said it was also preferable for the relationship between China and the US to be on a cold war footing.
“This is where if we blow it, if we mishandle it, we’re all in really big trouble, right?” he said.
“For great powers, there are not that many options in managing the relationship. Number one is hot war, which is to be avoided. The destruction is so vast, it’s hard to comprehend. A war between the US and China is a $100 trillion proposition.
“The second option is capitulation, or appeasement. As Winston Churchill pointed out, if you undertake appeasement, you end up getting war anyway but you get shame as well as war. It looks like a good alternative to avoid war, but history shows otherwise.”
The third option, Kotkin said, is Pygmalion, so called for the George Bernard Shaw play of the same name.
“You find the street urchin, you put her through reform school, and you make her a lady, or as we call it, a responsible stakeholder in the international system,” Kotkin said.
The problem is, it’s been tried with both China and Russia and it hasn’t succeeded.
“They want to be a responsible stakeholder in the international order, but their own international order, not ours,” Kotkin said.
“So therefore, if hot war is awful, beyond words, if [appeasement] is no solution, and if Pygmalion is a self-delusion that doesn’t work, you’re left with a cold war, which I’ve been arguing would be the best outcome between the US and China.”
Economics trumps politics
While the relationship between the US and China is possibly the major current geopolitical issue, investors face no shortage of other geopolitical considerations as part of their investment decision-making
However, Kotkin said that even during times of great crisis, the importance of geopolitics can be overstated and that geopolitics, while important, shouldn’t necessarily overtake economics as an investor’s primary concern.
“Normally economists dominate the policy discussions,” Kotkin said.
“People want to know about inflation, interest rates, and all the rest – logically. But then all of a sudden, there comes a moment where everyone discovers that people are not maximizing utility, but instead they’re murdering each other. And so the geopolitics displaces the economics from the stage, and it’s geopolitics 24/7.
“I would just like to caution, however, that the economics remains important. We don’t want to exaggerate the centrality of geopolitics. We don’t want to go from one extreme to the other, where we ignore geopolitics, and then we overplay it. It has an importance; we all understand that. But in the peace and prosperity goal that everyone in that room has, the prosperity also counts a lot. And we don’t want to lose sight that the geopolitics is not everything.”
Kotkin said that irrespective of who starts a war or why it’s being conducted, the ultimate goal is to “not just to win the war or achieve some war aims, but to win the peace in a sustainable long-term fashion”.
Kotkin noted that in the current conflict in the Middle East, for example, “Israel needs peace, not war”.
“It’s Iran that needs war,” Kotkin said. “Iran needs chaos. Iran needs destruction. Iran needs 17-to-25-year-olds in tunnels with Kalashnikovs and rocket-propelled grenades. And so for Israel, they want an end to this as soon as possible and prevention of a repeat.”
However, Kotkin noted that the longer-term transformation of the Middle East, “where Israel is integrated as a partner, which was well underway, will continue even though Iran has attempted to interrupt it”.
Hard choices for Ukraine
Turning to the conflict in Ukraine, Kotkin said there have already been four big wins for Ukraine, but those victories potentially have been put at risk by Ukraine’s refusal to “cut a deal where they don’t regain all of their territory”.
First, Kotkin said, Ukraine successfully defended its sovereignty and existence as an independent state. Second, the invasion of Ukraine revitalised the values of the Western alliance and the non-geographic west, including Japan, South Korea, Taiwan, and Australia. Third, Russia has been humiliated – not by a strategic defeat but by being exposed as incompetent on the battlefield, and Putin being exposed as a murderer.
And fourth, China policy in Europe and the US, Australia and Japan has become more closely aligned, and “the wedge between Europe and America, especially on China policy [has] been lost for the most part – not completely, but significantly”, Kotkin said.
“If you’re a geopolitical strategist, and you achieve those four aims, you would say, let’s consolidate those aims, let’s get them off the table, let’s not keep them in play anymore.
“But instead, the Ukrainians are in the driver’s seat. They’re pursuing the goal of recapturing all their internationally recognised territory, in an attritional war against a much larger country. And so for, for that goal, the other four big victories have been put at risk.”
Kotkin said Ukraine is underequipped compared to the Russian military and is running out of ant-aircraft missiles, munitions for artillery, and troops on the ground.
“And so we need an armistice…sooner rather than later,” he said.
“We need a Korean peninsula-like solution. That would be the best outcome for Ukraine, even if it meant not regaining all of its lost territory. Ukraine will continue, they’ll try another counter-offensive in the spring, but in the meantime, Russia will pummel them all winter.
So there are going to be some hard choices unless Ukraine gets a miracle.”