Working paper

Getting tough with your banker: Australia's response to economic dependence on China

International relations Banks and banking Economics Australia China

Influential theories generate diverging expectations over how middle powers will respond to deepening economic dependence upon a rising power. One set of Realist arguments suggests that negative threat perceptions toward the rising power will exacerbate concerns with economic dependence, encouraging balancing behavior against the rising power. An alternative argument is that economic dependence upon the rising power encourages closer alignment, or at least accommodation. To date, scholarship on East Asian responses to China’s rise has failed to fully address this issue, due in part to definitional vagaries on alignment behavior and a failure to distinguish hypothesized causes from states’ policy choices.

This study engages this debate by examining Australia’s strategic response to economic dependence upon China from 2000 through 2011. The results reveal that across the range of domestic, foreign, and security policies, Australia has largely balanced against China rather than accommodating it. At the same time, Australian policymakers pursued closer economic relations with the US and US allies for their positive security externalities. This suggests that in dyads characterized by negative threat perceptions, economic dependence and security alignment are inversely related: greater economic dependence encourages balancing. Conversely, in dyads with close security alignment and low threat perceptions, economic interdependence is seen as complementary to security ties. In assessing the influence of economic dependence upon alignment patterns, it matters very much with whom you trade.


This paper was presented at the Contemporary Challenges of Politics Research Workshop held on 31 October 2011 at the Crowne Plaza Hotel Coogee Beach, Coogee, NSW, Australia.

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