Tensions Between the US and China Are Rising

You can always tell when an Australian Prime Minister is about to jet off overseas.

They look just a little bit more shiny than usual. So fresh and squeaky clean, you can almost smell it — just like a baby coming out of the bath.

The hair receives a quick trim. There are fresh shirts and suits, straight from the tailor.

When asked about the trip, the PM pouts and postures. With just a hint of hubris, they outline the important meetings ahead.

While their plane ascends over the Pacific Ocean, their mind fills with expectations. Will the trip be a success? And will they get the full ‘treatment’, including the requisite photo opportunity?

Lulling off to sleep, they dream about walking the corridors of real power, inhaling the exalted air.

Oh, how good it feels to matter.

In the ocean thousands of feet below them, atolls and archipelagoes stretch out in every direction. Tiny islands, some so remote, even their cartographer would struggle to remember them.

Some of the most isolated groups on Earth inhabit this vast expanse of ocean. A mish-mash of historical ties to empires come and gone, their plight the last thing on the PM’s mind.

Not for them to expect a visit by an Australian Prime Minister. Nor perhaps even a lowly parliamentary secretary. The closest they will get is watching the jet stream way up high in the sky.

But boy, how things are about to change.

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US Vice President accuses China of stealing

If you need to sell your soul to become a politician, then APEC takes this one step further. World leaders attending the summit also have to lose any remnants of pride.

They know the joke is on them, as they pose in the host nation’s traditional dress. From ponchos, guayabera and batik shirts, to ankle-length hanboks.

Despite the funny attire, though, APEC is anything but a joke. The 21 member economies represent 40% of the world’s population, and 55% of global GDP.

If you want to ruffle some feathers, this is the place to do it.

Rather than Trump, though, it was Vice President Mike Pence who caused upset in PNG. Pence accused China of continuing to steal intellectual property — despite previously agreeing not to. He also accused China of circumventing WTO rules.

Pence also upped the ante, taking the spat beyond the usual economic squabble. After a private meeting with the Chinese President, he said:

There are differences today. They begin with trade practices, with tariffs and quotas, forced technology transfers, the theft of intellectual property. It goes beyond that to freedom of navigation in the seas, concerns about human rights.’

Clearly, the conflict between these two world superpowers is ratcheting higher. All eyes will be on Buenos Aires, where the G20 meeting will kick off in less than 10 days.

For global trade, this conflict between China and the US is the only game in town.

Europe is too busy keeping the EU afloat. And the UK is stuck helplessly in the mire with Brexit. The only other major player, Russia, is a fraction of its former self.

Russia’s economy is barely one-tenth the size of the US’. And what happens after Putin’s reign comes to an end is anyone’s guess. 

Australia is stuck in the middle

Even if tensions remain in check at the G20, it’s only a matter of time before they again simmer.

The 20 other countries at the APEC meeting enjoyed China’s discomfort just a little too much. It seemed they were rubbing China’s nose in it.

I guess it’s easy to be brave when the US has your back. But who’s to say that when Trump is gone, we might not have another Obama?

For Australia, everything now becomes much more tricky — particularly after Pence’s announcement that PNG has invited both the US and Australia to redevelop, and expand, the naval base on Manus Island.

We don’t know if Australian naval ships will dock there permanently, nor if they will take part in freedom of navigation exercises in the South China Sea.

Having been a key target of the refugee industry, Manus now takes on a completely different profile.

If it’s true that ‘geography is destiny’ — as American kids learn in school — Australia is clearly right in the middle. As our biggest trading partner, China could simply turn off the Australian tap if it chooses.

It also means that Australian Prime Ministers might need to think more about their own backyard. More so than trying to mix it on the world stage.

Helping fund the roll out of electricity and fiber optic internet for PNG is clearly good for relations. But if China wasn’t in town, would it even be on the agenda?

I doubt it.

Likewise, building security cooperation and training police officers in Vanuatu. All of a sudden, small Pacific nations have become much more important.

The problem for Australia is that its spending capacity is but a fraction of China’s. When it comes to writing big cheques, Australia simply cannot compete with China. And that means getting out and getting on with some good old fashioned diplomacy.

It’s only the start of the trade war between China and the US. And what’s more, it’s only part of a much bigger game: the battle for supremacy between East and West.

Australia does not have the luxury of choosing between the two nations. It clearly needs both. A hint of bi-partisanship might finally be in the air in Canberra.

And that means that our parliament might get back to debating things that matter, rather than just the next populist cause.

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Matt Hibbard,
Editor, Options Trader

Money Morning Australia