The Great Decoupling: Australia’s Fragile Balancing Act
Few generations witness the collapse of the world order that made them rich.
Few generations witness the collapse of the world order that made them rich. Fewer still recognise it as it happens. Lenin’s observation, “there are decades where nothing happens; and there are weeks where decades happen”, has rarely felt more relevant. The international system that secured Australian prosperity—American primacy, globalisation, and a rules-based international order—is breaking apart.
Decoupling as destiny
Nowhere is this fracturing more evident than in the relationship between the United States and China—longtime trading partners turned systemic rivals. Both now seek not just dominance but the right to dictate the terms of a new global order.
China’s rise has become the defining threat in American politics and one of the few issues that unites both parties on Capitol Hill. Secretary of State Marco Rubio’s denunciation of Nixon’s China détente, delivered during his confirmation hearing, sounded less like a critique and more like a eulogy:
“We welcomed the Chinese Communist Party into this global order. They took its benefits but ignored its obligations. Instead, they have lied, cheated, hacked, and stolen their way to superpower status—at our expense.”
Rubio went further, calling the post-war global order as “not just obsolete” but “a weapon being used against us.” In a paradox of history, Beijing and Trump share the belief that the post-war global order is an obstacle to their ambitions. The United States no longer wishes to uphold it; China never accepted its constraints.
In the 1980s, Chinese leader Deng Xiaoping outlined a geopolitical strategy called ‘hide your strength, bide your time’. Deng’s approach, rooted in pragmatism, encouraged China to focus on internal development and avoid confrontation with the United States. The aim was to integrate China into the global order while quietly building the economic and technological capabilities required to overthrow it.
Xi Jinping believes that time has come. Like Trump, he sees the great decoupling not as tragedy but as destiny. Economist Jeffrey Sachs calls this emerging paradigm “manufacturing nationalism”—a new, largely adversarial era of international relations where countries compete to dominate emerging sectors like semiconductors, AI, and renewables.
The fracturing of global power
In the weeks since his return, Trump has made it clear that alliances exist only to serve American interests. His humiliating treatment of the Ukrainian President in the Oval Office was a moment of historical reckoning—one that will be replayed for decades as the symbolic end of the Pax Americana (1945–2024). The United States no longer sees itself as the steward of global stability, but as a sovereigntist power governed by a single, ruthless logic: America first, always.
The Trump Doctrine is not traditional isolationism, but strategic recalibration along three axes:
· Rewrite European security: trade away Ukraine’s future for a Moscow-Washington consensus deal that splits Russia from China.
· Control Middle Eastern energy flows: ensure Chinese energy security remains at the mercy of the US-aligned Gulf States.
· Block Chinese military expansion into the Western Pacific: harden the first island chain, turning Taiwan into an unsinkable aircraft carrier.
The appointment of China hawks like Marco Rubio, Mike Waltz and Elise Stefanik into prominent foreign policy roles confirms the trajectory. This administration is not preparing for episodic competition with Beijing—it is preparing for full-spectrum confrontation.
China’s industrial empire
For its part, China is building an empire of economic dependency. While Beijing lags Washington in critical semiconductor technology, Xi’s signature Made In China 2025 policy has unleashed a green-export juggernaut.
China’s industrial policy—known as grand steerage— relies on massive state subsidies to dominate key sectors like solar panels, heat pumps, and electric vehicles. The aim is not simply competition but market capture: to make Chinese firms indispensable while eroding the industrial capacity of the United States, Germany, Japan, and Korea.
By outcompeting rivals at scale, Chinese state-backed industries don’t just win market share—they create structural dependencies, leaving nations beholden to Chinese supply chains in critical sectors. In response, Australia’s $22.7 billion Future Made in Australia policy feels like a tin whistle trying to drown out an orchestra.
Beijing’s mercantilist tactics to dominate the green economy and the increasingly bellicose neo-imperialism of the world’s two superpowers reminds us that the global order of free trade and open competition we have enjoyed for three generations is fragile. As America and China entrench themselves in a new Cold War, the question for Australia is no longer whether decoupling will happen—but how prepared we are for its consequences.
Australia’s existential dilemma
For three centuries, the global order has been shaped by the Anglo-American ideals we share: representative democracy, human rights, free markets, global maritime security, and (until Trump) globalisation itself.
But history reveals that an American-led world is an anomaly, not the default. From antiquity to the Industrial Revolution, China and India accounted for 50% of global trade. To Beijing, its return to great power status is less a new phenomenon and more a restoration of the natural order.
The contradiction of Australian prosperity is now exposed. Over 81% of our goods and services exports are bound for Asia, but our security and technology ties remain threaded in red, white, and blue. If our Asian trading partners and the Global South align with China, Australian multinationals face the prospect of navigating two rival trading blocs—each with its own rules, costs, and compliance burdens. This won’t just disrupt supply chains; it will weaponise them.
If Trump appears willing to discard the deterrence effects of NATO, the most vital pillar of Western security, can we assume that ANZUS—a far less consequential treaty—will endure? As Washington shifts from economic engagement to coercion of friends and enemies alike, how do we insulate ourselves from the damage?
The assumptions that underpinned Australia’s security and prosperity for generations are collapsing, and our margin for error is shrinking. As the 2024 National Defence Strategy makes clear, Australia must now chart a new course through a world divided. Recommendations include:
Embed deterrence into economic policy: leverage Australia’s role as a critical energy and commodities supplier to shape trade terms that enhance, rather than erode, our strategic position.
Build an Indo-Pacific security network beyond ANZUS: forge deeper bilateral and trilateral security agreements with Asian democracies like Japan, India, Indonesia, and the Philippines, prioritising shared deterrence.
Invest in asymmetric deterrence: expand long-range missile capabilities, autonomous systems, and cyber warfare tools to make Australia costly to attack or ignore.
Secure Australia’s own defence production base: move beyond diversification to domestic capacity-building, ensuring defence supply chain independence.
Bolster energy security: reduce reliance on China-dominated renewables by securing alternative supply chains for critical minerals.
The great decoupling is not a distant storm—it’s here. Australia must master the squall or sink in its wake.