After months of increasing tension between Iran and the US, on Tuesday the Morrison government committed a warship, surveillance aircraft and about 200 troops to a US-led convoy to protect ships passing through the Strait of Hormuz.
But why is this small passage – just 39km across at its narrowest point – so important to the international oil trade and why has it become the stage for the growing conflict between the two powers?
And, more to the point, where is it?
Click through our interactive below to get everything you need to know about the Strait and the events that led to Australia’s involvement.
Just when we thought Australia was getting serious about shifting priorities away from the Middle East to its own neighbourhood, the prime minister has announced another Middle East step up. Australia has committed a warship, surveillance aircraft and defence personnel to help keep the Strait of Hormuz open for shipping.
Australia has a defence force of about 60,000 full-time uniformed personnel and 25,000 in the reserves. So this commitment of about 2,250 personnel is sustainable, for now, as long as security challenges closer to home don’t rapidly escalate.
This also means the operational tempo of border protection or any of the other ongoing operations is not expected to decrease as a result of this commitment. Some of these elements, notably Operation Manitou, will perform more than one role.
Operation Manitou is the Royal Australian Navy commitment of one warship to the Combined Maritime Forces (with 32 participant nations) that operate in and around the Persian Gulf. Australian warships have been doing this on rotation for the best part of 30 years.
Similarly, the Royal Australian Air Force P8 Poseidon surveillance aircraft have been operating intermittently out of the Persian Gulf for years. The extra defence planning personnel announced likely will be drawn from a pool already assigned to support Australian operations, notably attached to US military headquarters semi-permanently based in and around the Gulf.
To be fair, it is not a token contribution. The warship and P8 are capable platforms that have made a tangible difference in the past in countering piracy, smuggling and related security concerns in the Persian Gulf. And, as the prime minister reminded us, the Gulf is the source of much of Australia’s oil.
So, while not a token contribution in one sense, it is not a significantly onerous addition to what Australia has been contributing there for a long time.
However, in international diplomacy, words matter, and small contributions can have significant effects. No doubt, Australian policymakers were mindful of making a contribution that would satisfy the US after declining Secretary of State Mike Pompeo’s suggestion to base intermediate-range and potentially nuclear-armed ballistic missiles in Australia.
While Australia can sustain this new commitment without a significant surge, there is growing recognition that committing forces to operations in the Middle East detracts from the ability of the ADF to focus on high-priority areas closer to home.
The 2016 Defence White Paper referred to three strategic defence interests. These are: a secure and resilient Australia; a secure nearer region (including the Pacific and Southeast Asia) and a stable Indo-Pacific region; and a rules-based global order.
But China’s increasing illiberalism and regional assertiveness across Southeast Asia and into the South Pacific have generated considerable unease over spreading ourselves too thinly.
My own geostrategic SWOT analysis for Australia points to the need for a more holistic consideration of issues related to looming environmental catastrophe (affecting biodiversity and societal sustainability), a spectrum of governance challenges (such as cyberterrorism and organised crime) and great power contestation.
That paper calls for, among other things, a national institute for net assessment to weigh up how best to respond.
In essence, the prime minister has deftly handled the call for a commitment in solidarity with the United States. But the Strait of Hormuz issue is only one of many looming security challenges. Its emergence at the top of the news pile points to the need for a significant and far-reaching re-examination of our defence and security posture and priorities.
Donald Trump is not the first US President to make an offer of buying Greenland from Denmark – but he might be the last.
Home of some 56,000 people and around 80% covered by ice, Greenland is culturally connected to Europe – but physiographically it is a part of the continent of North America.
The USA has purchased from the icy northern territories before. In 1867, they bought Alaska for US$7.2 million from Russia, who established settlements there in the late eighteenth century.
Then (as now) no local Indigenous people were consulted in the transaction.
A long history of American colonialism
The history of settler colonialism in North America includes numerous land purchases, including with Indigenous peoples, such as the 1737 Walking Purchase which tricked the Delaware Indians out of more than double the amount of land than they expected, purchased only for “goods”.
America has successfully purchased land from other European countries, including over two million square kilometres of North America from France in 1803 in the Louisiana Purchase for US$15 million.
The United States has also purchased Danish colonies before. In 1917, Denmark sold the Danish West Indies (US$25 million) to the United States, which the Americans promptly renamed the United States Virgin Islands. This isn’t even the first time a US president has tried to buy Greenland – President Harry Truman offered to buy it from Denmark in 1946 for $US100 million.
America has also gained territory by force of arms, such as when Spain ceded the Philippines to the USA after the Spanish-American War with the signing of the Treaty of Paris in December 1898. And they have opportunistically annexed territories after they suffered internal political turmoil, such as in the case of the annexation of the Kingdom of Hawaii in 1893 in the years after Queen Liliʻuokalani was overthrown.
A Dano-Norwegian colony
Trump believes he can simply purchase Greenland from Denmark. Put bluntly, this is impossible, although the mistake is perhaps an easy one to make for someone with a colonial era mindset and only a passing familiarity with the region.
For the last two centuries, Greenland has predominately been a Danish colony, and, as the example of Alaska demonstrates, colonies were often sold and exchanged by imperial powers. Truman’s offer in 1946 was when Greenland was a Danish colony.
Leaving aside its Viking past, the colonial period for Greenland began in 1721, when the Danish-Norwegian missionary Hans Egede established a mission and began trading near present-day Nuuk, placing Greenland under joint control of the Dano-Norwegian monarchy. At the end of the Napoleonic Wars in 1815, Greenland became a sole colony under Denmark.
It remained a Danish colony until 1953, after a referendum sparked by Danish discomfort with the United Nations’ oversight of the relationship between Denmark and Greenlanders. Greenland was formally incorporated into the Danish Realm as an autonomous territory without consultation with Greenlanders.
The reality was that Greenland was still a colony in all but name.
Striving for recognition
Greenlanders continued striving for political recognition and autonomy from their former colonisers. The Greenland Home Rule Act in 1979 in was a step towards this autonomy, establishing Greenland’s own parliament and further sovereignty.
In 2008, the country hosted a referendum to support or oppose the Greenland Self-Government Act. Passing with 75% of the vote, it declared Greenlanders are a distinct people within the Danish Realm.
Politically, this placed the Greenlandic parliament on an equal basis with the Danish parliament – although this relationship is not always an easy one. Some aspects of Greenland’s politics are still under Danish control, such as foreign policy, security and international agreements.
But under the current laws, Greenlanders have the right to self-determination, and any agreement to purchase Greenland – no matter who made it – would have to be agreed upon by Greenlanders.
‘Greenland is Greenlandic’
Denmark’s prime minister, Mette Frederiksen, has dismissed Trump’s claims that Denmark essentially owns Greenland, stating that “Greenland is Greenlandic.”
Unlike in the Alaskan purchase of the nineteenth century, the agreement of Greenlanders would be essential for any “large real estate deal” that stripped them of their land and sovereignty.
Kim Kilesen, the Prime Minister of Greenland, has emphatically stated that Greenland is not for sale. And if it was, he would be the one to ask – not Denmark.
Prime Minister Scott Morrison has confirmed that Australia will lend military support to protect shipping in the Middle East.
The commitment has been long expected, with Australia sending a frigate, an aircraft and some headquarters staff as part of a US-led coalition in the Strait of Hormuz, amid deepening tensions between the US and Iran.
So what is this conflict about, what is Australia’s involvement, and what are the risks associated with it?
What is the Strait of Hormuz?
The Strait of Hormuz is a narrow body of ocean connecting the Persian Gulf and the Gulf of Oman. Its width varies, but at its narrowest is 39km. It is the main passage for transporting oil from the Middle East out into the Indian Ocean and beyond; a fifth of the world’s oil is shipped through this strait. This includes 15-16% of crude oil and 25-30% of refined oil that is destined for Australia.
Iran and Oman border the Strait of Hormuz. As the littoral states, they have sovereignty over the waters in the Strait of Hormuz, but that sovereignty is subject to navigational rights enjoyed by all states. Ships from all countries have the right to move continuously and expeditiously through these waters without interference from either of the coastal states.
What is the conflict between Iran and the US about?
In recent weeks, Iran has seized the Stena Impero, a British-flagged commercial tanker, as well as a US drone. It also boarded but released a Liberian-flagged, British-owned vessel. These actions have heightened concerns about navigational rights through the strait and the consequences for global oil supply.
Shipping has previously been threatened within the Persian Gulf and along the Strait of Hormuz, especially during the Iran-Iraq war. This conflict was also known as the Tanker War because of the threats to commercial ships transporting oil out of the Gulf. It resulted in the United States and other neutral states providing naval escorts and conducting convoys to protect shipping.
What is Australia’s involvement?
Australia has announced it will be joining an “International Maritime Security Construct” that is focused on ensuring the freedom of shipping lanes and commercial navigation.
This international presence is intended to respond to incidents and threats as they occur during passage through the strait. The prime minister has announced that Australia’s involvement is limited in terms of time and resources and emphasised the importance of de-escalation.
A legal difficulty for Australia is that this sort of convoy relies on a doctrine that is associated with the law of naval warfare, and so would usually only apply if there is an armed conflict between states. Australia is instead maintaining the view that its warships are also exercising their navigational rights through the Strait of Hormuz.
The new mission is cast as an enhancement of previous contributions to counter-terrorism and counter-piracy operations. However, these operations have been directed at non-state actors, rather than the naval forces of another country. Iran may claim that their presence constitutes an unlawful threat of the use of force.
British Prime Minister Boris Johnson instead decided to join the US-led mission. In joining this effort, Australia has emphasised the importance of its multilateral nature. This matters when it is recalled that the oil tankers concerned are typically flagged to a wide variety of states, are owned by nationals from other states, might be chartered by companies from different states and are frequently crewed by nationals from diverse states.
As a result, far more countries than just Iran, the United States, the United Kingdom and Australia have stakes in these issues.
How does it affect the global oil trade?
The prospect of oil tankers being seized in the Strait of Hormuz will likely increase the insurance premiums on shipping. In addition to seizing ships, Iran has threatened to close the strait.
Concerns also exist that Iranian military forces might hinder passage, or might go so far as mining the strait. Any of these scenarios poses a risk to global oil supply and even the prospect of these actions causes a jump in crude oil prices.
Given that over 90% of the world’s traded goods are carried by ship, every country has a strong reciprocal interest in ensuring freedom of navigation. Iran is using one of the main political tools it has at its disposal to exert pressure in response to current US policies.
Preventing escalation should be the prime concern of all actors and would be the most mutually beneficial outcome.
Australia will commit a frigate, an aircraft and some headquarters staff to an American-led freedom of navigation operation in the Middle East.
Scott Morrison, announcing the long-expected commitment at a Canberra news conference on Wednesday, stressed this was an international mission, but so far the United Kingdom is the only other country to have signed up.
Under questioning, the Chief of the Australian Defence Force, General Angus Campbell, said the operation would be United States-led. But Campbell avoided spelling out in detail the rules of engagement in the event of being involved in an incident, other than referring to legal obligations.
Iran has seized ships in recent months, amid escalating tensions.
This week, an Iranian oil tanker was released after being detained by the British overseas territory of Gibraltar on suspicion of taking oil to Syria. The US tried unsuccessfully to have Gibraltar extend the vessel’s detention.
Morrison said Australia had made very clear both to the US and the UK “that we are here as part of a multinational effort”.
“This is a modest, meaningful and time-limited contribution …to this international effort to ensure we maintain free-flow of commerce and of navigation,” he said.
“Australia will defend our interests, wherever they may be under threat, we will always work closely with our international allies and partners.”
Morrison emphasised that the safety of shipping lanes was vital to Australia’s economic interests.
The government had been concerned over incidents in the Strait of Hormuz, he said. “30% of refined oil destined for Australia travels through the Strait. It is a threat to our economy.”
The Australian contribution will be
a P-8A Poseidon maritime surveillance aircraft for one month before the end of 2019;
an Australian frigate in January 2020 for six months; and
ADF personnel to the International Maritime Security Construct headquarters in Bahrain.
One complication for Australia in finalising the commitment was the fact there was no Australian frigate in the area, with the next deployment not due until January.
Australian ships participate in counter-piracy and counter-terrorism operations in the Middle East.
The Americans were very pressing in their request to Australia to join the force, including in public statements during the recent AUSMIN talks.
Morrison has emphasised Australia wants to see the de-escalation of tensions in the area and separates its commitment to the freedom of navigation operation from America’s other activities in relation to Iran.
After the first Democratic presidential debate on June 25-26, Joe Biden fell in Democratic national presidential polls, and Kamala Harris surged. In the lead-up to the July 30-31 debate, Biden recovered lost support while Harris lost some of her gains.
Since the debate, the biggest movement is clear gains for Elizabeth Warren, while Harris has continued to fall. In the RealClearPolitics national Democratic poll average, Biden currently leads with 30.8%, followed by Warren at 18.0%, Bernie Sanders at 16.8%, Harris at 8.3% and Pete Buttigieg at 6.3%. All other candidates are at 2% or less.
As I wrote previously, four states – Iowa, New Hampshire, Nevada and South Carolina – hold their primaries or caucuses in February 2020, while all other states need to wait until at least March 2020. So early state polls are important.
In the only poll conducted since the second Democratic debate in Iowa, Biden led with 28%, followed by Warren at 19%, Harris at 11%, Sanders at 9% and Buttigieg at 8%. In New Hampshire, there have been two polls since the debate. One has Biden at 21%, Sanders 17%, Warren 14%, Harris 8% and Buttigieg 6%. The other gives Sanders a lead with 21%, followed by Biden at 15%, Warren 12%, Buttigieg 8% and Harris 7%.
In general election polling, Biden has a high single-digit lead over Donald Trump, Sanders a mid single-digit lead, and both Warren and Harris have low single-digit leads. Biden’s perceived electability is crucial in explaining his continued strong polling, as this tweet from analyst Nate Silver says.
For the next Democratic presidential debate, on September 12, the threshold for participation has been increased. As a result there are likely to be far fewer candidates than the 20 in each of the first two debates.
In the FiveThirtyEight poll aggregate, Trump’s ratings are slightly down since these massacres. With all polls, Trump’s ratings are 41.9% approve, 53.6% disapprove, for a net approval of -11.7%. With polls of registered or likely voters, his ratings are 42.6% approve, 53.3% disapprove, for a net approval of -10.7%.
Perhaps due to his anti-immigrant rhetoric, Trump’s net ratings have fallen about 1.5 points since my previous article a month ago, and this trend has continued after the massacres.
In the latest US jobs report, the unemployment rate remained at just 3.7% as 164,000 jobs were added in July. These jobs reports have been good news for Trump. I wrote an old but still relevant article on my personal website last year about how the low US participation rate holds down the unemployment rate compared to Australia.
The question that should be asked about Trump is why, given the strong US economic performance, his net approval is well below zero. FiveThirtyEight has historical data from 12 presidents going back to Harry Truman, and Trump’s net approval is only ahead of Jimmy Carter at this point in their presidencies. If there is an economic downturn before the November 2020 general election, Trump is likely to be far more vulnerable.
An economic downturn could occur due to Trump’s trade war with China, or due to a “no-deal” Brexit in the UK. I wrote for The Poll Bludger on August 2 that the UK parliament is running out of options to prevent no-deal, which PM Boris Johnson’s hard “Leave” cabinet suggests he will pursue. In my previous Poll Bludger article on July 23, I talked about Johnson’s crushing victory (66.4-33.6) in a Conservative members’ ballot.
Trump can still win the 2020 election, despite his low approval ratings, if he is able to either demonise his eventual Democratic opponent, or win the Electoral College despite losing the popular vote, as occurred in 2016. However, recent state by state polling has Trump’s net approval below zero in ten states he carried in 2016, and in some of those states his ratings are well below zero.
If all the states where Trump’s net approval is currently negative were to go to the Democrat, the Democrat would win the presidency by an emphatic 419-119 votes in the Electoral College.
Australian election preference flows and the first Newspoll
On August 2, the Electoral Commission released data on how every minor party’s preferences flowed between the major parties at the May federal election. The Greens, who won 10.4% of the primary vote, flowed heavily to Labor (82.2%), but Clive Palmer’s UAP (3.4% of the vote) flowed at 65.1% to Coalition, and One Nation (3.1% of the vote) was almost identical in its flow (65.2%). Excluding the Greens, UAP and One Nation, Others preferences were 50.7% to Labor.
Analyst Kevin Bonham says there was barely any increase in the Greens preference flow to Labor since 2016. The Greens flow increased in four states, fell slightly in Queensland, and was weaker in SA as more moderate voters returned to the Greens after the collapse of Centre Alliance.
In 2016, One Nation preferences were just 50.4% to the Coalition, so the Coalition’s flow from One Nation increased almost 15%. In 2013, Palmer’s party preferences were 53.7% to the Coalition, so the UAP’s flow to the Coalition improved 11.4%.
Preference shifts advantaged the Coalition by 0.8% on the national two party vote compared to if no preference shifts had occurred. The Coalition’s overall share of minor party preferences (40.4%) was its best since 2001, when the Greens only had 5%.
In the first Newspoll since the election, the Coalition led by 53-47, from primary votes of 44% Coalition, 33% Labor, 11% Greens and 3% One Nation. Scott Morrison’s ratings were 51% satisfied, 36% dissatisfied, for a net approval of +15, a big improvement from +1 in the final pre-election Newspoll that was biased against the Coalition. Anthony Albanese’s initial ratings were 39% satisfied, 36% dissatisfied. Morrison led by 48-31 as better PM.
This poll was conducted July 25-28 from a sample of 1,600. Bonham says there is no indication in The Australian’s report that anything has changed at Newspoll since the election’s poll failure. As I wrote after the election, there was, and still is, a lack of adequate documentation of Newspoll’s methods.
The Spanish Socialists won the April 28 election, but as I wrote on my personal website on August 1, a lack of cooperation between the Socialists and far-left Podemos could mean another election. Also covered: a landslide for former comedian Zelensky’s party in the Ukraine, and the conservatives easily retain their hold over Japan’s upper house.
Prime Minister Scott Morrison has indicated Australia will join a multinational peacekeeping force to protect freedom of navigation in the Gulf, but at this stage he has not indicated what form Australian participation might take.
Speaking to reporters after a conversation overnight with newly-installed British Prime Minister Boris Johnson, Morrison said Australia was “looking very carefully at an international, multinational initiative” to provide a peacekeeping role.
But given recent experience of Australia too hastily joining an American-led Iraq invasion of 2003, with disastrous consequences, Morrison and his advisers need to ask some hard questions – and set clear limits on any Australian involvement.
It is not clear the extent to which the prime minister and his team have interrogated the risks involved before acceding to an American request for some form of military contribution to policing one of the world’s most strategically important waterways.
Options include sending a warship or warships to join peacekeeping patrols under American command, or stationing surveillance aircraft in the region to monitor ship movements through the Strait of Hormuz.
The operative words in the above paragraph are “American command”.
Any peacekeeping mission might be presented as a multinational exercise, but in effect the preponderance of American power, including an aircraft carrier battle group, means Americans would be in command.
In the Iraq invasion of 2003, Australians operated under broad American oversight, as did the British at considerable cost to Prime Minister Tony Blair’s reputation.
This is not an argument against Australian involvement in protecting a vital sea lane through which passes one-third of the world’s seaborne tradeable oil every day. Rather, it is to make the case for extreme caution.
Morrison and his team need to ask themselves whether there is a risk of being drawn into an American exercise in regime change in Iran. What might be the limits on Australia’s involvement should hostilities broke out in the Gulf?
What would be the rules of engagement? What might be an exit strategy?
What, for example, would be Australia’s response if a warship involved in a peacekeeping exercise was damaged – or sunk – in a hostile act? This includes hitting a mine bobbing in the Gulf waterway, or a limpet mine stuck on the side of a vessel.
What would Australia’s response be in the case of a surveillance aircraft or drone being shot down if it strayed into Iranian airspace?
In other words, there are multiple possibilities of conflict escalating given the concentration of firepower that is planned for the Gulf.
The aim of any international mission to which Australia attaches itself should be to de-escalate tensions in the world’s most volatile region. A military presence cannot – and should not – be detached from a political imperative.
That imperative is to draw Iran back into discussions on a revitalised Joint Comprehensive Plan of Action. Under this 2015 plan, the Iranians agreed to freeze their nuclear program under International Atomic Energy Agency (IAEA) supervision.
Iran was complying with that agreement before US President Donald Trump recklessly abrogated it in 2018 and re-applied sanctions. These have brought Iran’s economy to its knees.
Trump’s abandonment of the JCPOA against the wishes of the other signatories, including the permanent members of the United Nations Security Council plus Germany, was as inexplicable as it was damaging.
Now, the world is facing a crisis in the Gulf of American making, and one that Washington is asking its allies to police.
Morrison has been equivocal about the JCPOA. He would be well advised to reiterate Australia’s backing for the agreement as a signal to the Americans that Australia stands with its allies in its support of international obligations.
These cannot – and should not – be ripped up at the whim of a president who seems to have been motivated largely by a desire to undo the useful work of his predecessor.
Not to put too fine a point on it, this has been an act of self-harm to American interests and those of its allies. It is a crisis that need not have occurred.
Viewed from the distance of Canberra, Morrison and his advisers might have difficulty fully comprehending the risks involved in a potential escalation of tensions in the Gulf.
In a useful paper, the International Crisis Group warns of the dangers of an escalation of hostilities due to a mistake or accident in a highly charged environment.
As Iran Project Director Ali Vaez puts it:
Just as in Europe in 1914 a single incident has the potential of sparking a military confrontation that could, in turn, engulf the entire region.
What should be kept in mind in all of this is that it is not simply stresses in the Gulf itself that are threatening stability, but a host of other Middle East flashpoints. These include ongoing conflicts in Syria and Yemen, and heightened tensions between Iran and a Sunni majority led by Saudi Arabia.
Then there is the drumbeat on Capitol Hill. Hawkish Republican lawmakers agitate for pre-emptive strikes against Iran in the mistaken belief such an exercise would be clinical and short-lived.
Further destabilisation of the entire region would result, and possibly all-out war.
The ICG is urging America to redouble its efforts to establish a dialogue with Iran to bring about a resumption of negotiations on a revised JCPOA. This would require Washington making a down payment in good faith by easing sanctions on Iran’s oil exports.
It is not clear the Trump administration would be willing or able to make these concessions.
Morrison could do worse than argue the case for “redo” of the JCPOA when he is in Washington next month on a state visit.
Scott Morrison has flagged the government is working with the United States and Britain on details for an Australian role in helping safeguard shipping passages in the Middle East.
Morrison told a news conference in Townsville on Thursday he had spoken to British Prime Minister Boris Johnson on Wednesday night and “indicated to him that we were looking very carefully at our participation in this initiative”.
Morrison stressed it would be a multinational operation.
This is not a unilateral initiative by any one country, and it is about safe shipping lanes, it is about deescalating tensions and making sure that the current situation does not worsen.
He said the government had not “made any decisions on this yet. We want to be fully satisfied about the operational arrangements that are in place”. It was very early days and it would be a while before things came together.
In practice though, the government has obviously agreed in principle, subject to satisfactory arrangements being worked out. Its role is somewhat complicated, however, by the fact it does not have a ship in the region.
The US’s request for Australian assistance was discussed at the weekend AUSMIN talks.
Morrison said there were other countries which were in a similar position to Australia – “engaging before making any full decisions”.
He stressed the maritime issue “should be clearly divorced from the broader issues that relate to Iran and the JCPOA [Joint Comprehensive Plan of Action – the nuclear deal that the US pulled out of last year].
“That’s a separate issue. This is about safe shipping lanes and ensuring that we can restore at least some stability to what is a very unstable part of the world at the moment,” Morrison said.
“There has been a very disturbing series of events that we’ve seen in the Straits of Hormuz, and freedom of navigation and safe shipping lanes is very important to the global economy and that is a matter that is as important in that part of the world as it is in many other parts of the world.”
China hits back at Liberal chair of security committee
The Chinese authorities have accused Liberal MP Andrew Hastie of “Cold-War mentality and ideological bias”, after he drew on the example of France’s “catastrophic” failure to comprehend the threat of a rising Nazi Germany in an article warning about the dangers from a rising China.
The West once believed that economic liberalisation would naturally lead to democratisation in China. This was our Maginot Line. It would keep us safe, just as the French believed their series of steel and concrete forts would guard them against the German advance in 1940. But their thinking failed catastrophically. The French had failed to appreciate the evolution of mobile warfare. Like the French, Australia has failed to see how mobile our authoritarian neighbour has become.
Even worse, we ignore the role that ideology plays in China’s actions across the Indo-Pacific region. We keep using our own categories to understand its actions, such as its motivations for building ports and roads, rather than those used by the Chinese Communist Party.
The West has made this mistake before. Commentators once believed Stalin’s decisions were the rational actions of a realist great power.
Hastie referred to action Australia had taken such as foreign espionage legislation and more closely monitoring infrastructure.
But “right now our greatest vulnerability lies not in our infrastructure, but in our thinking. That intellectual failure makes us institutionally weak. If we don’t understand the challenge ahead for our civil society, in our parliaments, in our universities, in our private enterprises, in our charities — our little platoons — then choices will be made for us. Our sovereignty, our freedoms, will be diminished.”
A spokesperson for the Chinese embassy said in a statement:
We strongly deplore the Australian federal MP Andrew Hastie’s rhetoric on “China threat” which lays bare his Cold-War mentality and ideological bias. It goes against the world trend of peace, cooperation and development. It is detrimental to China-Australian relations.
History has proven and will continue to prove that China’s peaceful development is an opportunity, not a threat to the world.
We urge certain Australian politicians to take off their “colored lens” and view China’s development path in an objective and rational way. They should make efforts to promote mutual trust between China and Australia, instead of doing the opposite.
Morrison played down the Hastie comments, noting he was a backbencher not a minister.
We will continue to work to have a cooperative arrangement with China. Of course, there is much to be gained from that relationship, particularly from the trade side, but let’s not forget that relationship is far broader than just the economic one.
But equally, our relationship with the United States is a very special one indeed and there is a deep connection on values and that’s of no surprise to anyone.
So we believe we can continue to manage these relationships together, but I don’t think anyone is in any way unaware of the challenges that present there.
When US President Donald Trump announced via Twitter on Friday that he was slapping tariffs on an extra US$300 billion of China’s exports, it was widely expected that China’s currency would slide against the US dollar.
The RMB/USD exchange rate is tightly managed by the People’s Bank of China. The rate is permitted to move only 2% away from a midpoint fixed by the bank each day.
Although in its official statement the bank attributed the slide mainly to changes in demand and supply, the slide would not have happened had the bank not allowed it. In the past it spent as much as US$107 billion in a single month defending the renminbi.
It is more reasonable to believe that the devaluation was a deliberate decision taken to offset the effect of the punitive tariffs.
By making China’s exports cheaper in US dollars it will neutralise the effect of Trump’s decision to impose tariffs that would make them more expensive.
But it will have far-reaching implications, so far-reaching as to suggest that Beijing has run out of alternatives.
In part, China is hurting itself…
The exchange rate – the external price of money – affects almost everything, including inflation in China itself, which will receive a boost as imports to China become more expensive.
Chinese inflation is already on the rise due to disruptions in supply of food staples such as pigs.
There isn’t much the People’s Bank of China can do to restrain inflation. Pushing up interest rates might choke the economy given that China’s GDP just posted its smallest quarterly gain since 1992.
It would also make it even more difficult for already heavily indebted state-owned enterprises and local governments to make payments on their debt.
If the Chinese think the currency is going to continue to fall they’ll attempt to take their money out of the country while it still has buying power.
Although the People’s Bank of China has demonstrated its capacity to control capital flight, it has increasingly had to do it using harsh measures that harm legitimate trade and investment.
The devaluation will essentially act as tax on net importers, which in China are households. This means it will work against China’s goal of rebalancing the economy away from investment to private consumption.
…and endangering global recovery
An RMB that breaches seven is also bad news for the global economy. It means weaker demand from China, which will depress global economic growth.
In that way it can be thought of as spreading the cost of US tariffs onto China’s trading partners, which are themselves likely to devalue in something of a currency war. The Australian dollar has fallen through 68 US cents, a low not seen since the global financial crisis.
Asian economies are also likely to devalue, among them South Korea, Vietnam, Thailand and Indonesia. The European Central Bank has also signalled rate cuts and other measures to bring down its exchange rate as has the Bank of Japan.
Other nations will devalue…
The US Fed itself will be under pressure to cut rates further in what the Pacific Investment Management Company has warned
could lead to a “full-blown currency war with direct intervention by the US and other major governments/central banks to weaken their currencies”.
On Tuesday Australia’s Reserve Bank signalled its willingness to cut interest rate again, although in our case the drop in the Australian dollar might have made it nervous. It would prefer a controlled rather than unpredictable decline in the dollar.
John Connally Jr, Richard Nixon’s treasury secretary, once said in 1971 that the US dollar was “our currency, but your problem”. He meant that the rest of the world had to live with whatever the US did for its own reasons.
…meaning none of them will win
As the currency of the world’s second largest economy increasingly moves to the centre of global trade, China is able to say much the same thing. But an international currency war could hurt China as well by endangering the still not complete international recovery from the global financial crisis.
The People’s Bank of China has tried to reassure the world that it “has experience, confidence and capacity to maintain renminbi exchange rate at a reasonably stable equilibrium”.
It might do more for confidence if it wound down its control, as have other countries, relying less on manipulating the exchange rate for strategic reasons.
The federal government is expected soon to approve a commitment in response to the United States’ request for allies to help protect shipping as tensions with Iran remain high.
Speaking at a joint news conference after the AUSMIN talks, Defence Minister Linda Reynolds on Sunday said the government was giving the request “very serious consideration”.
Although Reynolds said no decision had yet been made, it would be highly unlikely the request would not receive a favourable answer.
Meanwhile, on Sunday it was reported that Iran state TV said the country’s naval forces had seized another foreign tanker and that seven sailors had been detained. The Iranians said the vessel, carrying 700,000 litres of fuel, was smuggling the fuel to Persian Gulf Arab states.
It is not clear what form Australian assistance would take.
Prime Minister Scott Morrison has previously said, when talking about a possible request, “it’s not unheard of to have Australian frigates in that part of the world engaged in maritime operations”.
However Australia does not currently have a ship in the region. An alternative would be to help with aircraft.
Reynolds said the Australian government’s position was very clear.
“We are deeply concerned by the heightened tensions in the region and we strongly condemn the attacks on shipping in the Gulf of Oman,” she said.
“The request that the United States has made is a very serious one and it is a very complex one. That’s why we are currently giving this request very serious consideration.”
US secretary of State Mike Pompeo told the news conference that the US had been very clear that the purpose of the proposed operations had been twofold.
“First of all, to promote the principle of freedom of navigation and freedom of commence through all waterways.
“Number two, is to prevent any provocative actions by Iran that might lead to some misunderstanding or miscalculation that could lead to a conflict.
“When we first advanced this idea several weeks ago, we had good response from some of our allies and partners. We continue to develop that idea,” he said.
The AUSMIN talks were attended by Foreign Minister Marise Payne, Reynolds, Pompeo and US Defence Secretary Mark Esper.
Esper also met Morrison on Sunday afternoon and Morrison had Pompeo to dinner on Sunday night.