Indian Prime Minister Narendra Modi appears in New Delhi with Australian Prime Minister Malcolm Turnbull on April 10, 2017.
Turnbull visited India from April 9 to April 12. Photo: AFP / Money Sharma
Indian Prime Minister Narendra Modi appears in New Delhi with Australian Prime Minister Malcolm Turnbull on April 10, 2017. Turnbull visited India from April 9 to April 12. Photo: AFP / Money Sharma

More boots on the ground in Afghanistan will add pressure to  Australia’s multilateral trade agenda in Asia. Australia’s sustained military involvement in Afghanistan is going to show that its global security and Asian trade agendas are inconveniently at odds.

In other words, it’s getting harder than ever for Australia to keep the lucky status quo of being able to trade extensively with China under US security patronage.

The thorny security situation in Afghanistan leaves Australia with serious trade and investment concerns, as its economic diplomacy agenda is largely dependent on peaceful, stable and secure multilateral trade and investment cooperation in Asia.

Since May 2013, China and India have been negotiating the Regional Comprehensive Economic Partnership (RCEP), which is in essence a mega free-trade agreement among the 10 members of the Association of Southeast Asian Nations and the six countries with which ASEAN has existing FTAs, and also including Australia, Japan, South Korea and New Zealand.

If the RCEP is accomplished, it will be the first economic partnership between India and China, and the world’s largest free-trade agreement, covering a population of 3.5 billion and about 40% of world trade volume. After the Trans-Pacific Partnership debacle earlier this year, Australia is intensifying efforts for the timely conclusion of the RCEP negotiations. Australia’s endgame is to consolidate its regional trade and investment position of strength, and shelter it from a possible US retreat in the Asia-Pacific region.

After a promising start, in the past year the RCEP negotiations have stalled mainly because of India’s resistance to eliminating tariffs on imported goods from China, as India’s trade deficit with China already exceeds US$50 billion. Now nearly two years past the initial deadline for completion, the RCEP negotiations are entering a crucial stage, as the 20th round in South Korea in October will be at the chief-negotiators level.

Beside safeguarding the mega-regional trade agreement, Australia’s economic diplomacy “sees much merit” in exploiting the vast commercial opportunities attached to China’s new Silk Road, as it provides a global context for China’s growing economic links with Australia.

In fact, Australian and Chinese business bodies are promoting the Belt and Road Initiative (BRI) as a significant opportunity for the Australian economy, particularly when it comes to reviving the sluggish growth in northern Australia, as the Chinese leadership has expressly called for alignment of the BRI with Australia’s northern development plan.

To complicate the regional economic-diplomacy chessboard further, on August 21 US President Donald Trump announced an integrated strategy of continued diplomatic, economic and military engagement in Afghanistan and South Asia, suggesting that Pakistan’s status as a US ally is at risk if it doesn’t help crack down on Islamist militants.

To add more pressure on Pakistan, Trump emphasized the need to develop further his country’s strategic partnership with India. Trump’s request for India to play a larger economic role in Afghanistan is in essence an exhortation to share the expenses of war in return for the trade benefits it currently enjoys in the US.

This does not mean India will rush into the Afghan war or use hard power in South Asia on behalf of the US, as New Delhi is not entirely pleased with Trump’s quid pro quo of security for trade. Indeed, a recent commentary by Tara Kartha, former director of the Indian National Security Council Secretariat, articulates the Indian government’s perspective that Trump’s “halfway-house strategy does not address underlying Indian concerns”, namely the “China factor”, the “somewhat mixed message to Pakistan”, and “promoting a trade corridor through Iran”.

The new US state of play throws another thorn into the Asian geo-economic arena. Under US pressure, Pakistan will find it more appealing to align with China’s push for trade and investment influence across Central and South Asia at India’s expense, and thus further exacerbate the economic side of India’s “China factor”.

On the military side, the border standoff between Indian and Chinese troops on the Doklam Plateau in the Himalayas is much more than about Beijing’s bid to counter India’s influence in tiny Bhutan. As India and China row back from war, it becomes clear that the two Asian powers are flexing their muscles in a marginal dispute to test each other’s appetite for diplomatic, economic and military aggravation in the race to regional leadership.

In fact, Indian and Chinese media have already been talking of a looming trade war after New Delhi imposed anti-dumping duties on 93 Chinese products in response to the Bhutan affair.

Perhaps unwittingly, with the new strategy in Afghanistan and South Asia that puts pressure on Pakistan and India, the Trump administration is stirring further geopolitical tensions across the whole continent.

Diplomatically, there could hardly be a more challenging time than this to strike a multilateral trade deal in Asia. The unprecedented level of geo-economic complexity and security variables at play in Afghanistan, not to mention in the Korean Peninsula and in the South China Sea, leaves the field open to multiple scenarios.

In regard to trade and investment cooperation in Southeast Asia, at the very least it appears that India will keep the lid on the RCEP negotiations for quite a while longer and obstruct China’s BRI implementation. Worse still, an emboldened India goaded by the US and a frustrated China may escalate their geo-economic clash between New Delhi and Beijing into a full-blown trade war that risks stunting business investment and economic growth across the whole continent and beyond, up to the shores of northern Australia.

Giovanni Di Lieto

Dr Giovanni Di Lieto teaches international trade law in the International Business program at Monash University in Melbourne, Australia, and engages in expert analysis on the geopolitics of trade and investment for media, industry and government outlets. His professional career developed as a commercial law practitioner in Italy, and then as a global value chain specialist across the US, Europe and China.