China or the US? Australia’s tricky balancing act

Canberra treads a fine line as rivalry intensifies – forging ahead with AUKUS submarines and alliances while managing trade with Beijing. Major military deals, Taiwan Strait tensions and domestic debates highlight Australia’s bid to safeguard interests without taking sides.

Caught in a Great-Power Crossfire

Australia enters 2025 navigating perhaps “the toughest strategic environment [it] has encountered in over 70 years,” as Defence Minister Richard Marles put itcsis.org. The Indo-Pacific has grown more volatile since 2023, with China’s rise and U.S.–China tensions pulling Australia in opposing directions. Canberra’s challenge is profound: its largest trading partner is China, but its primary security ally is the United States – a dilemma sharpened by spiking geopolitical frictions. Two-way trade between Australia and China, having rebounded from a recent freeze, still tops $300 billion and could grow to $400 billion annually by some estimatesthediplomat.com. Yet China’s military assertiveness, from the South China Sea to the Taiwan Strait, fuels anxiety in Canberra. Simultaneously, Washington is urging allies to tighten strategic tech and defense ties, drawing Australia deeper into initiatives like the AUKUS security pact. Australian policymakers insist they will “stabilise ties with China, without compromising” core interestsdfat.gov.au – a tightrope act requiring careful calibration of diplomacy, defense, and domestic consensus.

AUKUS: Big Subs, Big Bets and Bumps in the Road

One pillar of Australia’s response to a changing strategic landscape has been the AUKUS partnership with the U.S. and U.K., unveiled in 2021, which promises Australia a fleet of nuclear-powered submarines and closer cooperation on advanced military technology. In March 2023, the three allies mapped out an ambitious submarine deal: Australia will buy at least three U.S. Virginia-class submarines in the 2030s, then begin building a new “SSN-AUKUS” model with British designs and American technology by the 2040stheguardian.com. Canberra has already approved A$13.6 billion (≈$9 billion) in initial submarine spending, with the latest budget allocating A$2.6 billion for AUKUS projects in 2024–25theguardian.comtheguardian.com. Critical infrastructure is being expanded at home – from new shipyard facilities in South Australia to upgrades at Western Australian ports that will soon host rotational deployments of U.S. and U.K. submarines as early as 2027abc.net.au.

Australian officials hail AUKUS as a game-changer that will deliver cutting-edge capabilities. The pact has already prompted historic regulatory changes to speed implementation. In late 2023, the U.S. Congress agreed to waive certain export controls for AUKUS partners and cleared the conditional sale of the nuclear subs – provided it “does not result in the degradation” of America’s own undersea fleetcorrs.com.au. By 2024, Australia’s parliament also passed laws like the Australian Naval Nuclear Power Safety Act to oversee nuclear tech and a Defence Trade Controls reform to create an AUKUS “license-free” environment for sharing sensitive defense techcorrs.com.aucorrs.com.au. These steps underpin AUKUS’s second pillar: joint development of advanced capabilities (from AI and cyber to hypersonic missiles).

Not all has been smooth sailing. The sheer scale – an estimated $368 billion price tag over decades – and complexity of the submarine program have spurred debateabc.net.au. An independent report for the U.S. Congress in late 2024 questioned whether Australia had rigorously weighed more cost-effective options, even suggesting it could “abandon its $368 billion AUKUS push” in favor of alternatives like long-range bombersabc.net.auabc.net.au. Domestic critics, including some opposition lawmakers and the Greens, warn the deal may be a “surrender” of Australian interests or a drain on resourcesabc.net.auabc.net.au. Canberra’s commitment remains firm – AUKUS officials insist the project is on track – but skepticism lingers over timelines and the risk of overreliance on U.S. tech. Still, with legislation and funding ramping up, Australia in 2025 is doubling down on AUKUS as the cornerstone of its long-term deterrent, even as it navigates the political ripples of such a historic defense bet.

Taiwan Tensions Test Australia’s Resolve

Tensions over Taiwan have surged to their highest in years, posing an acute dilemma for Australia’s strategic calculus. Beijing’s military pressure on the self-ruled island – which China claims as its territory – has intensified through 2024 into 2025. In early 2025, Chinese naval task forces conducted unprecedented live-fire drills in the Tasman Sea, alarmingly close to Australia and New Zealand. The exercises were announced with scant notice, forcing airlines to reroute flights between Sydney and Aucklandreuters.comreuters.com. Australian Defence Minister Richard Marles voiced concern that Beijing’s “inadequate notice” was “disconcerting” and posed risks to civil aviationreuters.com. New Zealand, which shadowed the Chinese flotilla, confirmed that warships fired live rounds in international waters just east of Australiareuters.comreuters.com. Such displays of reach – widely seen as a signal of Chinese displeasure over AUKUS and regional alignment – have underscored for Australians that a conflict over Taiwan could quickly hit home.

In the Taiwan Strait itself, the drumbeat of military drills and harsh rhetoric shows no sign of abating. After Taiwan’s January 2024 elections returned a China-skeptical government, Beijing staged large-scale war games around the island. In one episode, China’s Eastern Theatre Command deployed ships and aircraft to practise blockades and strikes on Taiwan, even releasing a propaganda video that insulted Taiwan’s newly elected president as a “parasite”reuters.comreuters.com. Taipei dispatched fighters and naval vessels in response and condemned Beijing as a “troublemaker”reuters.com. Each flare-up tightens the screws on Canberra: as a close U.S. ally, would Australia become embroiled if war erupted over Taiwan? While no formal commitment compels Australia to fight, the integration of Australian and U.S. forces under pacts like AUKUS could narrow Canberra’s room to maneuverthediplomat.com.

So far, Australian leaders have calibrated their words carefully. Foreign Minister Penny Wong has repeatedly stressed the importance of “peace and stability across the Taiwan Strait” and opposition to any unilateral status quo changeen.mofa.gov.tw. In a March 2024 dialogue with China’s Wang Yi, Wong conveyed “serious concern” over China’s “unsafe conduct” at sea near Taiwanen.mofa.gov.tw. Prime Minister Anthony Albanese, during a groundbreaking visit to Beijing in late 2023, likewise affirmed Australia’s desire to see the Taiwan issue resolved peacefullyen.mofa.gov.tw. These statements align Australia with U.S. and Japanese calls for restraint, even as Canberra avoids explicitly outlining how it would respond to a war. Still, the shadow of a Taiwan contingency is influencing Australian strategy. A major Defence Strategic Review in 2023 warned of the prospect of conflict “from the North Asian littorals to the Pacific” and shifted Australia’s defense posture toward “deterrence by denial” – acquiring longer-range missiles, expanding northern bases and hardening its forces for high-intensity warfarecsis.orgcsis.org. In essence, while praying diplomacy prevails in the Taiwan Strait, Australia is preparing for the worst.

Beijing’s Economic Charm and Challenge: BRI and Trade Shifts

As security anxieties grow, Australia is also weighing changes in China’s economic statecraft – notably the evolution of Xi Jinping’s Belt and Road Initiative (BRI). The BRI marked its 10th anniversary in 2023, and China used the occasion to recalibrate the massive infrastructure program. After a decade of splashy megaprojects – and mounting debt troubles in partner nations – Beijing has started adopting a “small and beautiful” approach, focusing on smaller, more targeted projects in sectors like green energy and high-techasiapacific.caasiapacific.ca. New BRI investments are pivoting toward middle-income countries and more sustainable financing, a tacit admission that the old model led to unsustainable debts. In fact, a U.S. study found that 80% of China’s government loans under BRI have gone to countries already in debt distresswilsoncenter.org. Amid this rethink, some participants are getting cold feet. Italy, the only G7 economy in the BRI, decided in late 2023 to withdraw from the initiative – citing disappointing benefits and strategic concernscsis.org. Rome’s exit (formalized in 2024) was an international blow to BRI’s prestige, even if China downplayed it.

In Australia’s own backyard, China’s infrastructure push remains vigorous, but increasingly contested. Several Pacific Island nations have inked BRI-related deals or welcomed Chinese investment – Solomon Islands, for instance, has seen an influx of Chinese funding after switching diplomatic recognition from Taipei to Beijing in 2019reuters.comreuters.com. Australian and U.S. officials worry that unsustainable Chinese loans could translate into political leverage or even footholds for the PLA in the Pacific. In response, Canberra is redoubling its development outreach: the Australian government rolled out a new Pacific infrastructure and aid package and clinched security agreements with countries like Papua New Guinea, Vanuatu and Fiji to reinforce itself as the region’s “partner of choice.” In December 2024, Albanese announced a A$190 million program to train and expand Solomon Islands’ police forces – pointedly stating Australia was the Solomons’ “security partner of choice” – after the islands’ leader struck a controversial security pact with China in 2022reuters.comreuters.com. The message was clear: Canberra will not cede influence in its neighborhood, even as Beijing writes big checks under BRI’s banner.

Meanwhile, the economic chill that defined Australia–China relations in 2020–2021 has thawed markedly. After years of trade sanctions on Australian exports – a Chinese pressure tactic during a diplomatic rift – Beijing reversed course and lifted virtually all restrictions by early 2024. Tariffs and bans on products from coal and barley to lobsters and timber were peeled back. Most dramatically, China ended its 218% tariffs on Australian wine in March 2024, formally **“lifting” the duties that had wiped out Australia’s biggest wine export market for three yearsreuters.comreuters.com. Chinese officials acknowledged the market had “changed” and such tariffs were “no longer necessary”reuters.com. The Albanese government welcomed the development as “long-awaited relief” for exportersreuters.comreuters.com and swiftly called on Beijing to remove the few remaining curbs (such as on some beef and seafood). By late 2024, China’s premier Li Qiang even proclaimed the bilateral relationship was “back on track,” highlighting the flurry of high-level contacts: Albanese’s Beijing visit in November 2023 – the first Australian PM trip in seven years – and Premier Li’s reciprocal visit to Australia in 2024dfat.gov.au. The détente on trade has bolstered Australia’s confidence that it can engage with China economically even as strategic differences persist. Canberra’s official stance is one of “patient diplomacy” with Beijing – re-engaging on areas of mutual interest like trade, climate and education – while being “clear” about issues like the South China Sea and Taiwan where Australian values or regional stability are at stakedfat.gov.audfat.gov.au.

Washington’s Economic Overtures and Pressures

On the other side of the ledger, U.S. economic and trade policies are also reshaping Australia’s alignment choices. Under President Joe Biden – and continuing even with the prospect of a new Trump administration – Washington has leaned into industrial policy and alliance-centric trade arrangements to counter China. A centerpiece is the Inflation Reduction Act (IRA) of 2022, a $370 billion splash of green tech subsidies and “Made in America” incentives. Allies initially fretted the IRA would disadvantage their industries, but Australia found opportunity in it. In May 2023, during a Quad summit, President Biden and PM Albanese signed a landmark Climate, Critical Minerals and Clean Energy Compact. This deal paves the way for Australian suppliers of lithium, rare earths and other critical minerals to be treated as domestic suppliers under the U.S. Defense Production Actreuters.comreuters.com. Given that Australia produces roughly half the world’s lithium and is rich in battery metals, the agreement was hailed as “an enormous opportunity” by Albanesereuters.comreuters.com. It aligns Australia with U.S. efforts to diversify supply chains away from China, which dominates processing of these minerals. By effectively integrating Australia into the IRA’s supply chain framework, Washington is bolstering its clean-tech arsenal and binding a key ally closer. Australian mining firms stand to gain from U.S. investments and offtake deals, while Canberra gains reassurance that the alliance addresses economic security, not just defense.

Trade tensions with China, however, continue to simmer on the U.S. side, and Australia cannot avoid the ripple effects. The tariffs that Donald Trump slapped on hundreds of billions in Chinese goods remain largely in place, and bipartisan U.S. skepticism of Beijing has, if anything, hardened. U.S. export controls on sensitive technology – such as cutting-edge semiconductors – have tightened further, with new rules in 2023 restricting China’s access to advanced AI chips and chipmaking equipment. Australia has generally supported these moves in principle (it banned Huawei from 5G networks back in 2018 and shares U.S. concerns on tech security), though its direct trade with China in such high-tech goods is limited. More immediately relevant are U.S. efforts to present an economic alternative for Indo-Pacific partners. Australia has joined the U.S.-led Indo-Pacific Economic Framework (IPEF) launched in 2022, which by late 2023 delivered its first agreements on supply-chain resilience and clean economy standards. While IPEF is not a traditional free trade deal – it offers no tariff relief – it signals U.S. commitment to remain economically engaged in Asia. For Australia, being in IPEF and other U.S.-backed arrangements is a way to hedge bets: deepen ties with the U.S. and regional peers without severing the lucrative trade with China.

Yet a wildcard emerged with the U.S. political shifts. The return of Donald Trump to the White House (a possibility that loomed over 2024) sparked jitters in Canberra about a more protectionist and transactional American stance. A late-2024 poll showed 48% of Australian voters wanted a review of the AUKUS deal and submarine plans if Trump won, reflecting worries about hitching Australia’s wagon to an unpredictable superpowertheguardian.comtheguardian.com. Many Australians recall the turbulence of the Trump era – trade wars, open skepticism of alliances – and fear a replay could force Australia into even tougher choices. The prevailing view in Canberra’s establishment, however, is that the alliance with the U.S. is indispensable, even if particular U.S. leaders are unpredictable. Indeed, Australian officials quietly intensified outreach to both Democratic and Republican figures in Washington to shore up bipartisan support for AUKUS and regional commitments. Economic alignment – through critical minerals deals, tech partnerships, and joint infrastructure financing for the Pacific – is part of ensuring the U.S. remains invested in Australia’s security. In short, U.S. policy is pulling Australia closer, but Australians also want assurance that the partnership will remain steady no matter who occupies the Oval Office.

Alliances and Exercises: Australia Boosts Regional Posture

Beyond economics, Australia has been bolstering its diplomatic and defense posture through multilateral forums and military cooperation. A key platform is the Quad – the coalition of Australia, the U.S., Japan, and India that has gained momentum as a counterweight to China’s regional influence. While the Quad pointedly isn’t a formal alliance, its activities have grown in scope. The four nations’ navies now drill together regularly: in August 2023, Australia hosted Exercise Malabar off its east coast for the first time, with warships from India, Japan and the U.S. joining in complex maneuversnavy.gov.auen.wikipedia.org. It was the 27th iteration of Malabar (a series once exclusive to India-U.S.), and symbolically significant – a show of unity literally in Australia’s watersnavy.gov.auen.wikipedia.org. Australian officials described the exercises as enhancing interoperability for “a free and open Indo-Pacific,” echoing the Quad’s mantra. The following year, in 2024, India led a Malabar exercise in the Indian Ocean with Australian vessels in attendancecpf.navy.mil, underscoring that the maritime partnership now goes both ways. Meanwhile, Australia’s largest bilateral war games with the U.S., Exercise Talisman Sabre, hit a new peak in 2023: 30,000 personnel from 13 nations (including all Quad members, plus partners like Britain, France, and even Germany) converged on Australia’s north for high-intensity trainingcpf.navy.mildefense.gov. Fighter jets roared over Queensland and amphibious troops stormed beaches in what was the biggest warfighting exercise ever on Australian soil, reflecting a collective effort to deter aggression in the Indo-Pacific.

Diplomatically, Australia is also weaving tighter links with regional democracies. In Southeast Asia, Albanese’s government elevated ties with key ASEAN members – striking a comprehensive strategic partnership with Vietnam, a defense cooperation pact with Indonesia, and deeper security collaboration with the Philippines (which invited Australia to join maritime patrols in the West Philippine Sea). In fact, Australia, the U.S., Japan, and the Philippines conducted their first-ever joint naval drills in the South China Sea in 2023dfat.gov.au, a signal to Beijing that its maritime claims will be contested via a coalition of like-minded states. Australia’s embrace of the Quad and a network of mini-lateral deals (such as the trilateral security cooperation with Japan and the U.S., or cyber-security initiatives with India) marks an evolution from its earlier, more cautious regional posture. The country is clearly preparing to play a more assertive role in Indo-Pacific security, working alongside allies to present a united front.

At the same time, Australian leaders emphasize that these steps are stabilizing, not stoking, regional security. In speeches, officials describe a vision of “collective deterrence” – strengthening the capabilities of Australia and its partners so no rival thinks it could coerce or dominate others. They point out Australia’s increased participation in humanitarian and disaster-relief exercises, and initiatives like the ASEAN-Australia Comprehensive Strategic Partnership launched in 2023, to show Australia’s engagement isn’t only about hard power. Still, there is no mistaking that defense spending is on the rise after years of neglect. Both major parties now pledge to hike the defense budget toward 2.3–2.5% of GDP over the coming decadecsis.orgabc.net.au. Long-range strike missiles are being fast-tracked, new Apache attack helicopters and missile destroyers are on order, and talk has even emerged about developing an Australian missile manufacturing industry in concert with the U.S. All these moves indicate Australia is aligning its military might more closely with the U.S. and its allies, preparing together for potential crises – from a clash in the Taiwan Strait to a Grey Zone standoff in the Pacific.

Minds and Voices at Home: Public Opinion and Political Debate

Australia’s high-wire foreign policy balancing act has not been lost on its public – and the domestic conversation about China and the U.S. has shifted significantly since 2023. After a period of fiery anti-China rhetoric under the previous government, the current Albanese Labor government opted for a more measured tone, seeking to “depoliticize” China policythediplomat.com. This approach has largely held bipartisan until recently. With a federal election approaching in 2025, cracks are appearing: the opposition (Liberal-National Coalition) accuses Labor of being too soft on Beijing, warning of “growing strategic threats,” while Labor touts its success in stabilizing the China relationship without sacrificing national securitythediplomat.comthediplomat.com. Still, the differences are nuanced – more about rhetoric than fundamental goals. Notably, both sides agree on the U.S. alliance and even on expanding trade with China. Opposition leader Peter Dutton, a noted China hawk, surprised some by saying he’d “love to see” Australia–China trade “increase two-fold” if possiblethediplomat.com. It’s a reminder that Australia’s prosperity is deeply entwined with China, a point not lost on voters.

Public sentiment reflects this ambivalence. On one hand, Australians have grown warier of Beijing’s intentions after years of diplomatic spats and news of foreign interference plots. Surveys show 64% of Australians remain concerned about the relationship with China, though this is down from earlier highsabc.net.auabc.net.au. Trust in China’s government is low, yet a majority also believe it’s possible to maintain good relations with both China and the U.S. simultaneouslyabc.net.auabc.net.au. There is broad recognition that China brings economic benefits – “jobs for Australians,” as one think-tank poll noted – even as there’s unease about security risksabc.net.auabc.net.au. This nuanced view has led to robust debate in media and academia about how Australia can avoid an either-or choice. James Laurenceson, director of the Australia-China Relations Institute, observes that Australians “understand the complexity” of the China relationship and appreciate the nuance of balancing tiesabc.net.auabc.net.au. At the same time, the public is also waking up to new defense realities. A Vote Compass poll in 2025 found 52.9% of respondents believe Australia should spend more on its military, up sharply from 42% just a few years priorabc.net.auabc.net.au. This jump suggests growing public acknowledgment of potential threats – perhaps influenced by daily headlines of Taiwan tensions and AUKUS debates.

Even Australia’s diverse ethnic Chinese community has become a focal point in the domestic narrative. Both major parties are, for the first time, carefully calibrating their messages to avoid demonising China in ways that alienate Australian-Chinese votersthediplomat.comthediplomat.com. This is a lesson from the strident rhetoric of 2020–21, which sparked a backlash. Now, terms like “Cold War” are generally avoided by officials, replaced with talk of “competition without catastrophe.” The Albanese government has framed its policy as “calm, pragmatic”, reinforcing deterrence while keeping dialogue openthediplomat.com. Whether this balance can hold is a key question. If global events take a darker turn – say, a military crisis over Taiwan or a sharp economic downturn blamed on China – domestic pressure could mount on Canberra to pick a clearer side. For now, however, the Australian public supports a hedging strategy. Polls show 61% believe Australia can have a good relationship with both great powers at onceabc.net.au. It’s a cautiously optimistic belief that Australia’s leaders are more than happy to nurture.

Walking the Tightrope

As 2025 unfolds, Australia’s foreign policy is a study in balance: submarines from the West, iron ore to the East; reinforcing alliances yet avoiding outright enmity. Canberra has managed a remarkable pivot in recent years – resetting ties with Beijing to reopen trade flowsdfat.gov.au, even as it deepens defense integration with Washington to prepare for an uncertain future. The AUKUS pact is moving forward, bringing Australia into an exclusive club of nuclear-submarine nations, and the country is investing heavily in new tech and regional partnerships to deter conflict. Yet officials from Prime Minister Albanese down stress that Australia’s ideal outcome is not having to choose sides. They champion an “open and rules-based Indo-Pacific” where no country – not even a superpower – dictates terms. To that end, Australia supports U.S. engagement in Asia and speaks up against Beijing’s coercion, but it also keeps lines open to China and encourages dialogue between the superpowersdfat.gov.audfat.gov.au. In a recent joint statement, Albanese and Foreign Minister Wong perhaps best summarized the strategy: Australia will cooperate with China where it can, disagree where it must, and always act in the national interest.

How long Canberra can maintain this delicate balancing act may depend on forces far beyond its control. A flare-up in the Taiwan Strait, an economic shock from a U.S.–China decoupling, or a drastic change in U.S. leadership could all narrow Australia’s options. Already, the “hedging space” is shrinking as strategic competition heats upthediplomat.com. But if any country is experienced at navigating between great powers, it is Australia – a middle power that has juggled alliances and interests since the Cold War. For now, Australia is determined to chart its own course – one that threads a path between the dragon and the eagle, aiming to secure its future in a region defined by both. The world will be watching in 2025 to see if Canberra’s careful diplomacy and strengthened defenses can indeed keep it steady on the tightrope of the U.S.–China rivalry without tipping over.