Defence spending boom as we line up China

url

As reported last week, the Coalition has ear-marked tens-of-billions of taxpayer dollars to local defence manufacturing, including a $10 billion to $15 billion-program for 1,000 locally produced armoured vehicles, as well as locally designed and built submarines for around $40 billion.

Today, The Australian provides further context, reporting have emerged that the Government is about to launch a new defence White Paper, targeting a near-doubling of the nation’s defence budget to $50 billion within a decade, with defence spending’s share of GDP also targeted to increase to 2% of GDP from 1.6% currently.

To put this defense spending surge into  context, find attached a superb speech (and below if you prefer) by publishing legend Max Suich delivered last night at the Australian Institute of International Affairs probing Australia’s long term strategies for North Asia.

The main points include:

  • Australia is betting on a Japanese alliance much more strongly than the US is
  • we’re repeating Vietnam era blunders
  • the TPP and boosted allied defense spending are US strategic initiatives as Chinese power overwhelms US reach
  • Chinese economic reprisals are likely
  • nobody is talking about any of it

I suggest you read it.

China v. Japan US Oz_ (2).pdf by George Scott

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

Latest posts by Houses and Holes (see all)

Comments

  1. What happens when those 1,000 armoured vehicles (made with Chinese steel) and the very “modern” subs that Australia will build run out of fuel in two weeks due to blockades?

    Up periscope !!

    • You have that the wrong way around – China is the one vulnerable to blockades. After all, in 2013, China became the world largest importer of oil and a substantial amount of their oil passes right through the Thai-Indo straits. That’s why we bought the quiet (yes, they are quiet) shallow water Collins Class subs, which are most suited to shooting oil tankers rather than other subs, together with a JSF with OOS torpedo capability.

      • Interesting point but it sort of ignores the growing role of ASW in shaping future marine conflicts.
        There are a lot of fixed hydrophone arrays being deployed in relatively shallow waters. Add the effect of long PN sequence active sonar from multiple sources and just being “quite” wont be nearly enough to remain hidden.

      • Right, so they’re importing their Tar sands oil from Canada via Thailand ?

        Interesting.

        Can you share some of the information regarding Chinas huge investment around the monsoon bay with Afghanistan, Iran, Pakistan and all the central STANS along with huge deals with Russia ?

        Do they carry oil from Russia through Thailand as well ?

        Astonishing post “casewithscience” – literally, incredible.

        And while we are here lets talk about Chinas massive fleet of subs they too have been building – including Nuclear.

        It just amazes me when people mock and joke about China, who just landed a rover on the moon, have a fleet of like for like US drones, their own domestic JSF, building their second carrier, and have the industrial capacity to send a tsunami of war heavy machinery ten times over any nation as they west de-industrialises.

        Their long range anti-carrier missiles are equal to the Russians, neither of which the west including the US has any defence against, nothing. This literally removes the US force projection capability from the entire region down to PNG – exactly the reason why the US is building their bases in NT and WA.

        This is before we mention the fact that their army is a hundred times bigger than anything else on earth – since the entire nation is a military organisation.

      • Leviathan +1.4B – H5N1 etc

        China’s current assertiveness militarily and through diplomatic/economic pressuring is a testing of the waters – one toe at a time. Playing the long game to take their rightful place in the Celestial Kingdom – it is obvious that their only concern is for attainment of “China” and “Chinese”. However much Others think they may be able to talk them into playing nice and sharing, we are all just pawns on the board. Play at everyone’s risk…

      • A lot of people are not good at picking up satire, mentioning the non-existent JSF should have clued them in 😛

      • @Leviathan

        The fantasy about Chinese oil imports from “Tar sands oil from Canada” should be put down. If Keystone gets up, it will be a moot point. That oil is going to Europe via Houston. Canada and the US aren’t even in the top 10 current oil imports to China. Those countries are (by supply):

        1. Saudi Arabia
        2. Angola
        3. Iran
        4. Oman
        5. Russia
        6. Iraq
        7. Sudan
        8. Kazakstan
        9. Venezuela
        10. Kuwait

        I note the Trans-Siberian and Kazak pipelines are not likely to be able to increase capacity in the event of increased demand.

        As I said, about 60% of Chinese oil imports pass between Thailand and Singapore. Imports make up about 45% of Chinese oil consumption.

        I stand by the thesis, China can’t maintain a conventional war in the West Pacific without risking the same fate as Germany in WW2.

  2. Like right wing governments anywhere, they have a massive hard-on for spending on defence hardware….

    No money for Medicare or Science etc. etc….

    • Colbert was hillarious on this last night.

      Planes that get built to keep jobs in certain congressional districts. The planes are never flown, just transported to Arizona where they’re left to rust in boneyards.

  3. This looks familiar. Where we already saw this?

    G W Bush policies:

    0. Protect our borders!!! Let foreign crooks buy our land and our citizenship
    1. Lower taxes and spend more on military
    2. Talk about surplus and push debt up
    3. Reduce welfare and pensions and give rich people tax breaks
    4. Make sure banks do well – deregulate them
    5. House prices up, up and up
    6. Let domestic industry die (all except military complex)
    7. Help private health care insurance companies
    8. Support “free” trade agreements
    9. Deny climate change
    10. Let oil companies destroy environment – shale fracturing
    11. Anti-Abortion policies
    12. Anti-Euthanasia policies
    13. Stop gay marriage
    14. Prevent stem cell research
    15. More standardised testing – less education
    16. More religion

    OMG !

    • After hearing that crack’n’sack wax job Brandis bleat on about Snowden the traitor (while refusing to provide evidence) and the wax figurine from the haunted house of horrors Bishop(rick) call the settltements in the West Bank “not illegal” I’m thoroughly convinced we have a bunch of neo-cons in charge!!
      And I was so sick or Ruddilard (like everyone else) I misjudged just how vapid this incarnation of Tory politics is.

    • Not trying to be nit-picky (I don’t actually blue, red, or green), but I’m pretty sure that the Libs are only against embryonic stem cell research, not adult stem cells (and the like)…

      My 2c

      • The same was the case with G W Bush, he was only against usage of embryonic stem cells.
        problem is that embryonic stem cells are the easiest and the most promising ones.

        Any ban on usage of embryonic stem cells is step back in research.

  4. The bad thing is that this is just more money being spent on unproductive things. We should build infrastructure not tanks :S It’s just another layer on the massive cake of bad fiscal policy.

    Anyway, f**k it, this is what Australia keeps voting for. May our fall be epic.

    • defence spending is very “productive” for their military complex mates, plus it fits nicely into neo-liberal ideological narrative

      • It also provides a massive boost to ancillary technologies that ultimately have civilian applications (see – the internet).

      • @caseinscience Oh please so once every 50 years something DoD does is then taken to heart by business and actually becomes successful and that’s a good trade of?
        BTW DArpa only “invented” the wire-level protocol not the servers and not the upstream protocols we use today.

        I’m so sick of the internet used as justification for wars of empire!

      • C’mon Mig,

        DARPA were instrumental in the development of TCP/IP.

        if we didn’t have those protocols, the internet just wouldn’t exist.

        The ‘upstream’ (and I’m assuming here that you mean ‘higher layer’) protocols all take advantage of the services offered by the TCP, which in turn uses the services of the IP layer to be able to function at all.

        You may not like it, but without the invevestment (and interest) of the US military in developing an internetworking protocol, there would be no internet.

      • @DrBob you’re quite right and I don’t think I argued otherwise — and i don’t really have that much of an issue with defense research per se as long as its not just endless amounts of our money for their blowing up innocent people purposes (plus fat bank accounts).

        They gave us radar/sonar then 50 years later “internet” almost time for the next — not worth the price of admission IMHO.

        Drones btw .mil adopted from the amateurs so its not all one way with .mil either.

        EDIT: I’ll you an example, the military did not invent the automobile but you don’t hear anyone saying you have to keep the auto industry around because of the benefits it will bring to defense.

      • “but you don’t hear anyone saying you have to keep the auto industry around because of the benefits it will bring to defense.”

        HnH was arguing this exact point as to why we need to keep the auto industry in Australia.

  5. Well that’s going to create a budget black hole you could drive a tank through!

    The $Billion question is – where is the money going to come from?

    I think the upcoming May budget is going to be very interesting.

  6. Armoured vehicles at $10m each?! Sure we could purchase something off the shelf much more in line with what our future needs will be.

    I have no issue re-aligning our strategic & trade policy along political/ideological grounds however – the sooner We stop feeding the dragon, the better for everyone in the region in the long run; short-term, impaired “economics” be damned.

  7. This is all rather disappointing.

    We have many natural obstacles to our north as it is, why not use that to our advantage…

    I’m thinking Croc’s with fricken laserbeams on their heads…

    • Excellent. The premise for a new horror Aussie flick. Chinese army invade north and is defended by giant crocs with lasers.

      Sure to be global hit.

    • interested partyMEMBER

      haha..fantastic idea.
      The catch is you have just taken out the tourism industry north of the tropic of capricorn….LOL.
      bigger than a fish kill..dead tourists all over the joint with laser burns.

  8. Thanks. Interesting view raising more questions than it answers (and one hopes questions being addressed by those around the new DWP) but quite correct to emphasise the importance of regional relationships and the prospect of conflict whilst tethered to the US.

    I would assume economic interests play a more prominent role than suggested by Suich but in the playroom of defence and military gaming may occasionally be sidelined (at least in theory) but remain a key component of the national interest.

    • Great point, I keep looking at our very narrow export focus and wondering if our defense experts need DFAT to deliver quick reality reset.

      The discussion could be real short, something along the lines of:
      If China fails we’re @#$%ed!

      It really does not matter how much we culturally identify ourselves with the US, because Australia is fast becoming a Chinese Steel industry subsidiary, at least China’s where all our income growth, over the last 10 years, has come from. To be successful in any business you must become that which delivers your growth. Not to put to fine a point on it, but this means Australia must become what China wants us to become, I’ve got a queasy feeling that this ain’t what the US and Japan want.

      • but this means Australia must become what China wants us to become, I’ve got a queasy feeling that this ain’t what the US and Japan want.

        It’s fair to say at the present our stategic interests lie with the US, and pacific alliance partners, and our economic inteersts lie with China.

        A universal maxim of national interest is “Rarely do the strategic and economic interest diverge. if they do, they will converge before too long”.

        It doesn’t take a lot of thought to figure out which interest takes precedence.

        The white paper, which is the context of this thread however is pap. Some think tank pulling the strings of fear to get more funding.

        The world has been a bit unstable for the last 3 years, and Ukraine is the most recent. Here’s how you get some donations off bogan boomers in their twilight years.

      • @Rusty ahhh Rusty an informed and well articulated position as one would expect but

        The world has been a bit unstable for the last 3 years, and Ukraine is the most recent. Here’s how you get some donations off bogan boomers in their twilight year

        Was the Pièce de résistance, Cheers.

      • dumb_non_economist

        CB,

        I don’t think we’re ready yet for a new “partner”. Our relationship is more like a women with a disinterested partner who has been there for a long time and is psychologically dependent on him. She’s not going to leave him for a newer and younger man who looks like he could be more trouble in the long term; better the devil you know!

        We’ll be with the US for quite a while yet, regardless where we may be better of economically.

    • interested partyMEMBER

      3d,
      with all due respect, can I amend you comment?
      “and the prospect of conflict whilst tethered to the US.”
      This should read ” and the guarantee of conflict whilst tethered to the US”
      More accurate I believe.

      • No mention of a guarantee of China provoked conflict throughout the region as long as we all remain tethered to it?

        @ China-Bob – so the preferences of the people of your Australia Inc. are of no regard? And if the lack of economic diversity and resilience is an issue, good reason to change it for the betterment of the nation/business, rather than remain stacked with &[email protected]%ed China.

      • interested partyMEMBER

        No guarantee on China starting anything. So far they have used cheque-book diplomacy where the US uses gunboat diplomacy.
        By default, with AUST being a US lapdog, we are sure to be involved in whatever misadventures the US stumble into next…..that is the only guarantee.

      • @Pirate
        so the preferences of the people of your Australia Inc. are of no regard?

        Not sure I understand, I support Australian Economic diversity (especially wrt export income) if only because Political Autonomy is only possible through Export Income diversity. Yet, within Australia, this position clearly puts me in the minority.
        All I’m saying is that it is delusional to believe you have choice when necessity dictates your every action. So just like any employee who’s skill set ties them to just only one possible employer, we must ultimately do our masters bidding. Dont like that reality, then you need to skill-up and ensure your considered valuable by more than one just other company/country.

  9. One sad thing I take from this is the the TPP is being pushed as a gesture to ensure military support from the US.
    One the one hand this means that the Liberals might not be so stupid as to think it’s in our interests or that the concession promised by the US will ever happen. On the other hand they will probably sign it anyway no matter how bad for our local economy to please their US Allies.

  10. Our biggest trading partner vs our great ally.
    The predicament for Australia is that in the event of hostilities breaking out it looks as though China is now in a dominant position as for conventional forces.In the event of conflict (Taiwan,Japan,Korean Peninsular) it will quickly escalate to a nuclear exchange.As Chairman Mao said to Nickita Kruschoff when Russia & China were facing off in the fifties,”China can afford to lose 300million people in a nuclear war. Can Russia?”
    Harbouring US military installations makes us a legitimate target. Once the shooting starts where does it stop. Consider this, Australia is a sparsely populated continent. Our population is gathered in 6 cities, all but one on the south or east coasts. The prevailing winds blow from west to east.
    For the price of 6 nukes 80% of our population gone , wind clears radiation ,A continent & all it’s minerals are up for grabs. Tempting ?They do not even need missiles,just put 6 bombs into 6 shipping containers & send to 6 cities. Our customs check 5% of arriving containers.
    We would do better to fend for ourselves & be neutral.
    Australia is the most vulnerable nation on Earth to a nuclear attack because you can remove the settled areas without irradiating the continent.

    • interested partyMEMBER

      “Our biggest trading partner vs our great ally.”

      “Our biggest trading partner/landlord vs our great ally”
      there….fixed it for you..

  11. felixthecatMEMBER

    Great points you make. A “realpolitik ” view on future possibilities. I always think of AUstralia like the old Greek colonies in Italy and the Black Sea. In the distant future no one will even realise that this place was originally colonised by the English. It’s place in the world suggests it will be an Asian country probably in thrall to a major power in Asia possibly China. Our policy elites have only managed to wind the clock forward by a thousand years so the possibility presents itself in the near future…. Well done fellas

  12. Controlling space will be the key going forward.
    Space people,….not some combats vehicle looking like a dead dog being circled by 1/2 dozen drones?
    Aus needs to put serious thought into this given our proximity to Asia.
    I think this is the key asset we could potentially, along with the us, use to ward off long term Asian influences.