Pacific Polarity

For this episode, we spoke with the Honourable Gareth Evans, who served as Australia’s foreign minister from 1988 to 1996. Mr. Evans is a strong advocate for Australia pursuing a more independent foreign policy. In our conversation, we discussed how Australia should navigate the Asia-Pacific, between a less reliable U.S., and a more assertive China. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit pacificpolarity.substack.com

For this episode, we spoke with Victor Shih, Professor at UC San Diego’s School of Global Policy and Strategy. Dr. Shih is a leading expert on Chinese finance, political economy, and elite politics. In our conversation, we discussed China’s vision for international economic governance and the how Washington and Beijing are approaching the trade war today.Richard GrayWelcome to this episode of Pacific Polarity. Today we're speaking with Dr. Victor Schur, who's a professor at UC San Diego School of Global Policy and Strategy, where he is the Director of the 21st Century China Center and the Ho Miu Lam Chair in China and Pacific Relations. He's the author of two books : Factions and Finance in China: Elite Conflict and Inflation and, secondly, Coalitions of the Weak: Elite Politics in China from Mao’s Stratagem to the Rise of Xi.Dr. Shih is an expert on Chinese finance, political economy, and elite politics. He received his PhD from Harvard University. Dr. Shih, pleasure speaking with you.Victor ShihGreat to be here. Thanks for having me.Richard GrayTo start, we want to focus on the report you wrote with the Atlantic Council in 2022, how China would like to reshape international economic institutions. And in this report, you write that China's goal is to consolidate influence in global governance institutions from more nascent structures like BRICS to more incumbent ones like the G20, APEC, and the UN. This, in your view, would require mobilizing capital from Chinese development, banks, a higher utilization of the renminbi globally, and having China play a leadership role in new governments domains like AI and others.Since then, a lot has changed for Chinese economy, global politics, and domestically within the United States. In the years since, or from 2022 to 2025, in your view, how has Beijing's thinking changed on global economic governance? Has this view evolved due to changing global environments, internal dynamics, or a combination of both?Victor ShihI think it certainly has been modified, there are some minor adjustments. And more recently, of course, there's the big shock of US protectionism, which I think will change some things in a very major way. But we have yet to see totally systematic response from Beijing on the issue of global governance. Obviously, the response right now is just trade negotiations and counter tariffs, so on and so forth.The slower moving parts is, I think Beijing is probably a little bit less optimistic about renminbi internationalization today compared to a few years ago, just because the Chinese economy has slowed quite dramatically in the wake of the COVID lockdown, in the wake of the unnecessary crackdown in the real estate sector. As a result, the People's Bank of China has had to cut interest rates very aggressively, lower reserve requirement ratios very aggressively, which heightens the risk of capital outflows, which is something that Beijing is really afraid of. As such, renminbi internationalization, which by definition requires capital outflow, is probably not something that Beijing is going to pursue aggressively. Beijing was already very cautious about it, you know, back in 2022, 2021, but today probably even more so.In terms of Belt and Road investment, I think China's model has changed over time to focus less on infrastructure investment and more on subsidizing Chinese companies, both private sector firms and also SOEs, to invest in industrial production capacities overseas. That was already changing back in 2022. But I think it has accelerated in the wake of the first round of Trump tariffs, when a lot of Chinese companies voluntarily started to produce overseas in order to avoid the tariff. And obviously, with the latest round of tariff, Chinese companies are going to be really incentivized to set up production overseas.Although, no one can hide from U.S. protectionism, because now we have 10% tariff on every country on earth. But the danger, I think that the big power play that we potentially could see in the near future is a new global trading regime that is centered around China because of U.S. protectionism. and we can sort of talk about what that looks like.Jersey LeeFundamentally, do you think that the U.S. and the West more broadly is able to compete with China through industrial policies or is implementing industrial policies something for which a system like China has natural advantages?Victor ShihChina certainly has a lot of advantages when it comes to industrial policies. The primary advantage is that it controls the financial system. The government controls the financial system. That's made possible by capital control and state ownership of the banks. And as such, they control the flow of financing pretty much 100%. There is some kind of private sector capital flows in China, but as a ratio is quite low. So that's the biggest advantage.But the way that China allocates money is not very efficient. It's a lot more efficient in the US and outside of China in the capitalist countries, both in Asia and in Europe and other parts of the world. But the problem is that, because of protectionist policies of the US, it is now impossible for advanced capitalist countries, including Europe, Japan, Korea, and the United States to act in concert in any kind of sort of industrial or trade policies, certainly in trade policies, because according to the administration right now, once all the trade deals are signed and sealed, then no problem; I just don't think, I mean, I think so much ill will has been created that these other countries, even if they sign a trade deal with the US, there will still be a baseline 10% tariff, which is already like 10 times more than the tariff rates previously, because we had lived in this tariff free world, which some people find problematic.But still, a lot of ill will has been created. And so, whatever kind of coordinated industrial or competitive policies we will try to pursue with the other countries, because we live in a world of quid pro quo created by the current administration, our partners, our counterparties will ask for something in return back from us. Then everything becomes this very protracted negotiations item by item, policy by policy, even product by product.If you look at the trade deal with the United Kingdom that was that was revealed today, it's ridiculous. It's like planned economies, where the first hundred thousand cars has [10%] tariff. It's just insane, this is like the 1930s or whatever.In this world filled with trade friction, because in essence, that is what Donald Trump and his advisors would like to see, it will be incredibly costly to coordinate with other countries to pursue any kind of policies.Richard GrayLooking at some of the US responses to some of these shifts, particularly as we think about the rise of China and what that means for the macro global economy, there have been two efforts that have been brought forwards.One is one of the things that you mentioned in your report, the blockages of mid or senior Chinese leadership in places like the Bretton Woods institutions. The second is a shift away from multilateral trade to plurilateral institutions; it's a transition away from things like the WTO to the Trans-Pacific Partnership, now we're going from plurilateral to bilateral, and in some cases just insulating within the United States. It's sort of siphoning of trade from multilateral to all of these different phases, in combination with blocking China out of, at least previously, the multilateral institutions.How do you see those two things in combination with each other? As you think about China potentially blocking out the United States from the global economy, or rather the flip of this, other economies reorienting themselves into Chinese supply chains, into Chinese investments, the role that the U.S. plays here on an institutional level, on a trade level, it seems to be quite diminishing, in some ways intentionally, but in some ways maybe not so much.Victor ShihThe IMF should be kind of okay for a while, unless the U.S. goes ahead and does this crazy thing of withdrawing all additional help, financial subsidies to the IMF. Then we're just voluntarily withdrawing from that institution. But short of that, again, because of the limited scope of renminbi internationalization, institutions like the IMF and the Asian Development Bank will still primarily deal in U.S. dollars. Basically, money from Europe, from the United States, from Japan will still be crucial to these financial type institutions. And so I think the U.S. can continue to have a large say in these institutions.But there’s for example the UN. Of course, we can debate about the efficacy of the UN when it comes to different types of issues. The US is sort of voluntarily withdrawing, by reducing funding and China stepping up at the same time; for things like the WHO and the UN, China's voice is going to be louder. For the WHO, it's basically okay. You do have this anomaly like, oh, the WHO is going to side with China when it comes to investigating about the origin of COVID and stuff like that. But for continuing global health efforts, what really matters is the continual flow of money instead of specific direction, just because there are so many health issues that are widely recognized to be necessary to address.The AIIB, I think it's not in a very active period right now, just because initially there was this huge round of funding of various projects. The problem is the record has been a bit mixed, and in a world of higher interest rates, a lot of developing countries that borrowed not just from the AIIB, but also from other international financial institutions, are finding themselves incapable of repaying. Some of these countries like Argentina now needs big bailouts from the IMF, et cetera. So China is not going to expand too much in that either.What's interesting about trade is that trade-related institutions, and I can see perhaps that the Belt and Road Initiative, which is currently just a conference, can turn into a more formal trade regime of some sort. The problem for all the countries that trade with China is that many of them are running trade deficits with China. And the reason is because China is so good at making so many different things. So either Chinese companies will have to relocate production massively to Belt and Road countries, some of which is of course happening, but it's not happening enough such that countries are beginning to run trade surpluses vis-a-vis China. That, as far as I know, is still relatively rare. There could be one or two exceptions. I'm not entirely sure.Until that happens on a bigger scale, you have this conundrum where it's fine that China can export all this stuff to these countries. But then countries like Sri Lanka and Pakistan run into these big trade deficits, big budgetary deficits, and they go bankrupt. They can't repay. When they can't repay, the bailout comes from these U.S. and Europe-dominated financial institutions like the IMF and Asian Development Bank. So you still need the Westerners to come in to bail out. But I can see if the Chinese leadership in the medium term, they have a longer time horizon, they should encourage Chinese companies to massively invest production in these third-party developing countries such that it's sort of okay for China to run trade deficits with these countries. If we move toward that kind of world, then I can see China being the center of a trade network, which has very little to do with the United States.What China can do is, in a sense, what Japan has done, but on a much larger scale, which is China can sell the high-tech stuff to these developing countries, but overallChina still runs like a small trade deficit with these other countries as it imports all the labor-intensive goods, like shoes and clothing and furniture, et cetera, from these other countries. That would be a very self-sustaining and beneficial global trading order for China. And it would be quite bad for the United States, because essentially that trading system can completely cut off the U.S., and [China] will do basically fine; it may not have the fastest smartphones or whatever, but it will basically have everything else.Richard GrayAs an extension of this, as we think about some of this coalition building, of different supply chain integrations, one of the really interesting questions is to follow the Indonesia ascension into BRICS, and sort of juxtapose that with their attempt to join the OECD. This is demonstrative of the different ways in which the US and China have viewed some of this institution building.On the Chinese side, it's very low barrier to entry, very quick motion, and then deal with whatever problems or deliverables you want to have on the back end. Whereas on the US side, it seems to focus very much on the front-end entry requirements. Once different countries join, then there's a slow ascension.How do you think about that play, especially when it comes to elite politics in different countries where, say if you're the Cambodians, your focus in some ways isn't necessarily to get the deliverable project, even though that's something you probably do care about, but also to have the domestic clout of saying that you are a member, not a participant or an observer or a guest, but a full-fledged member of an institution that these perceived other large countries are part of. And so, is there an asymmetry in how the United States is approaching some of these coalition buildings and what elite politicians actually care about?Victor ShihYeah, there's definitely very different styles. I'm by no means the biggest expert in international institutions. But my observation is that the Western originated institutions, they were basically formed by a bunch of lawyers. And lawyers, of course, they're very obsessed with drawing up documents that will think of differentcontingencies in the future and have the ability to deal with different contingencies in the future. The barriers to entry is quite high because countries that want to join these institutions will have to be comfortable with sometimes a thousand page long documents, which mentions a whole long list of contingencies, and will constrain countries’ ability to act in these different scenarios. But of course, once you join, thenyou will get all these benefits and so on and so forth.Whereas for China, I think it comes back to the fact that China increasingly is amanufacturing powerhouse, but it's increasingly also a technology powerhouse so that, as long as China knows that it has a way of introducing pain to countries that act against their interests in the future, they're okay with having very low barriers and say, just come in, join the club, no problem. But if you do act against China, we will punish you in some sense. And the punishment can be, as we've seen with a lot of different countries, not buying raw material and agricultural export from certain countries anymore.Australia, of course, has been punished several times by China in that manner. It could be not allowing Chinese companies to invest in these countries; increasingly as Chinese technology companies run the telecom and IT infrastructure of some of these countries, the Chinese government can even go as far as just shutting down all telephone service, all internet service from countries. And I think for China, as long as it has that ability to impose pain, why should they drop a thousand-page long document and have people sign on a piece of paper? That's just not necessary from the perspective of the Chinese government.Jersey LeeA quick follow up on that. Part of Trump's approach is to the American leverage, in this case the American consumer, to get concessions from other countries. What you just described is how China has traditionally been able to play this game of perhaps more subtle leveraging of its investments or its various capabilities. So generally, how do you view the way Trump and China are playing the politics of using their leverages?Victor ShihThe import restrictions, which China tried to do, it didn't really work well for China either. You have this funny phenomenon where China is like, I will not buy any more Australian lobsters. And then suddenly Australian lobster export to Hong Kong goes up 500% or something like that. You had these people who would rent these speed boats to smuggle lobsters into mainland China from Hong Kong. For commodities, it doesn't work. Just like today, even though China has imposed these very high tariffs…so soybean tariff rates came down a little bit, it's no longer 125%, but it's still quite a bit higher than previously. What I hear from my channel check is that basically American soybeans are still being sold to Asia, just not China. It's all going to Singapore, Vietnam. And guess what? In Singapore and Vietnam, these clever people are mixing up the soybeans from different countries and shipping it to China and calling it whatever country of origin. Stuff like that will ultimately defeat this kind of stuff.I think a more powerful tool of the Chinese government is cutting off loans, cutting off investment. And to the extent that Huawei and other Chinese IT companies have installed critical infrastructure in these countries, just shutting down telephone service, internet service, those are real tools that are very difficult for countries to circumvent. I think China increasingly has the ability to impose that kind of pain on more and more countries.Richard GrayWe're recording this on May 8th, two days before Bessent and Greer are going to be meeting with Chinese Vice Premier He Lifeng in Switzerland. In thinking about this, I guess there are two pieces of this that are somewhat interesting.The first is the negotiations themselves. There's been a lot of talk about the asymmetry between Washington and Beijing, that Trump wants to do things top down, whereas in Beijing, it's more consensus based, doing it within the bureaucracy and then going from the bottom up; as Trump and Xi would eventually meet, it’s with a deliverable already produced.The second end of this is just the mechanisms of what concessions might be produced. It seems like the idea of what the off ramp would be is kind of unclear. It seems like the Chinese probably want to remove some of these export controls,especially the AI Diffusion Act. It seems like the Trump administration probably won't do that. It seems like one of the things that the Chinese could do that's very easy is to just buy more American products, which would be pretty painless for them, but not exactly what the Trump administration is looking for. I guess in terms of the physical deliverables, these are very small concessions that would be put forward in a way that mirrors the situation that you mentioned, between the US-UK trade relationship, but stacked on top of it, like bureaucratic difference and politicization of the relationship. I guess as you think about these factors compounding on top of each other, what are they going to talk about? Will any of it be successful? And is this just the start of nothing, or how do you view it?Victor ShihFirst of all, I don't know what the U.S. government is thinking, but my observation is that they don't have a completely clear idea of exactly what it is that they want to get out of it. Of course, in a very abstract sense, Peter Navarro and people like that are like, oh, we want to restore America as it was in 1950s. That just will never happen for a number of reasons. Even if China were to stop exporting to the U.S, basically these tariffs will make that a reality, it still isn't going to make the U.S. as it was in 1950s, mainly because people don't want to work in factories anymore. So then it's like, what is it that you want from China?There's a vague sense of creating a more even playing field. One concrete thing that Ithink the US government should ask for, but I don't know if it is indeed on the radar screen, is that China right now has this very complicated regime of export tax rebates to industrial firms, and the net result is that industrial firms pay extremely low taxes.Their taxes paid relative to their sales is something like 3%. They're basically paying 3% tax on all the trillions of dollars of stuff that they make.One thing that would be good for the Chinese government in the medium term—of course, the Chinese government doesn't think of it as a good thing, but I think in a medium term, it is a good thing because there's this big debt problem in China—is for them to eliminate a lot of these tax subsidies over time. And to the extent that the U.S.can track what these tax subsidies are, the U.S. should demand a timetable for the removal of export tax rebates. That is still going to end with a trade deficit on the part of the U.S. vis-a-vis China, but it's quite possible that the degree of trade deficit will be shrunken, this uneven playing field is largely eliminated.Of course, China will never agree to a complete elimination of these export tax subsidies. For the strategic sectors, they will continue to get some kind of subsidies. But China has already shown that it is willing to remove tax subsidies from some sectors, like the highly polluting sectors. All we have to do is ask for them to, according to a relatively shorter timetable, remove the rest of the tax subsidies. That will generate more tax receipts for China, which will make its fiscal situation more sustainable. And it could potentially make the playing field a little bit more even for the U.S.But if the US side asks China to buy a trillion dollars’ worth of US Treasury with 0% yield, that just will never work. The Chinese government will never, ever agree to that. And as you said, if what we ask is like, oh, you have to buy $100 billion worth of US oil and gas, China will agree to that easily. But that's not going to have any kind of long-term impact at all. We'll still at the end of the purchasing, will still run these huge trade deficits vis-a-vis China and other Asian countries. So I hope the process is a little bit more deliberate and more predictable so that China can consider these proposals and consider whether or not they will agree to them.Jersey LeeSo this kind of gets into China's calculus for its approach towards what America is trying to do. Because obviously, we can kind of all see how Trump's thinking took place throughout his campaign and going back a few years. And the Trump administration's initial calculus, and what you can say was a miscalculation, was that they expected the Chinese to just roll over, because apparently the U.S. has huge leverage as the world's biggest consumer market. But the Chinese didn't, to the surprise of some in the current administration.Lots of Western media reporting has generally said that China is not going to roll over, but hasn't gone into it too much. Based on your insights into Chinese domestic politics, what do you think pushed the Chinese leadership to adapt this kind of approach of standing up to America? Do you see the politics of this changing soon and what might cause it? We were talking about Scott Bessent and He Lifeng meeting very soon. From the Chinese side, what are the politics that might lead to them making some concessions and what type of concessions down the road?Victor ShihFirst of all, China was quite prepared for this in the first place. I know that after the first round of tariffs in 2018, China already studied very carefully the implications of nightmare scenarios, which actually came true, of extremely high tariff levels from the U.S., how that would impact the supply chains, and they identify these various bottlenecks, what they call 卡脖子, bottleneck product that China has to buy from the West, and that the U.S. can impose export restrictions on. And the Chinese government systematically tried to overcome these bottlenecks.We know that they're not successful in all cases. In the case of semiconductor, is Chinese government is maybe 30% successful, 70% not that successful. But in a lot of other technologies and parts and so on and so forth, China has been very successful in having domestic produced parts, replacing Western parts and equipment.The other thing the Chinese government tried to do was to encourage Chinese companies to invest overseas, to evade the tariffs. I think the US, especially people like Peter Navarro, probably anticipated it, and therefore there's this global universal tariff rates on everybody. But one thing I think people don't realize, the reason why China is standing so firm, is that because of the tax rebates and the tax subsidies, the Chinese government does not depend on industrial firms' taxes to survive. The Chinese government collects a lot of taxes, but mainly from individuals, from service sector firms like real estate, like restaurants and so on and so forth. They don't collect a lot of taxes from industrial firms, so even if 10,000 companies go bankrupt, it's not going to be a big hit on Chinese tax revenue. They'll still collect the same amount of taxes as they did before.The other factor is that unemployment insurance payment in China is extremely low, something like $200 a month per worker; even if you have 5 million people unemployed, it's a few billion renminbi, it's not a big deal for the Chinese budget. And they actually anticipated it to a large extent, by announcing even before Liberation Day that deficit spending this year is gonna be 2% as a share of GDP, higher than last year. So the fiscal impact, basically China's signaling that, well, we can just not do anything, not make any concessions for months. Let's see how you deal with it.And the thing that China really want—again, the US first has to make clear what it wants before China can think about what concessions it is willing to make—I think things like relaxing some of this technology restrictions against China on AI chips and other things will facilitate the process. But what we ask for also has to be reasonable and clearly articulated. If we don't even know what we want, or it’s something that’s just silly and impossible, like buying a trillion dollars’ worth of 0% bonds, that just will never work.But if we want some kind of timetable for the systematic removal of export tax subsidies, I think that's something that's very transparent. China, of course, will not agree immediately. There will still be a very prolonged process of negotiation. But at least we have a path toward some kind of resolution.I just don't know how much of a plan the US has, but I can tell you that China has thought about a lot of different kinds of contingencies. It probably already has multiple counter proposals, depending on what the US is asking from China. It seems that the Chinese side is much, much more prepared at this point.Richard GrayHow do you think about the role of household spending here? Obviously, China, relative to OECD countries, has a pretty low share of household spending as a proportion of GDP. They've recognized this as a sort of long-term goal. The two sessions, there was a fiscal expansion. Some argued that it wasn't enough.Others would say it was a starting point of a larger program. One of the reasons why China does have these trade deficits is because of that low household spending. Of course, there'll be a deficit if people aren't spending money and they're just manufacturing. How do you think about the political reality of a fiscal expansion, both in terms of Chinese balancing books, but also the politics in terms of potentially being an olive branch to the United States, which is not just buying more products from the top down, but building up that consumer confidence from the bottom up and whether or not that's even possible?Victor ShihThere's a couple of policies that will, in the short-term, boost household consumption. There are subsidies where, if you have an old TV, and you want to buy a new TV, there's some subsidies for that. But I think that is very short-term policies. Because of the anticipated extra fiscal spending from the trade shock, the Chinese government is very conservative in terms of expanding welfare provision this year; if you look at the budget proposal for this year, anti-poverty spending has increased by two dollars per person per year, something like that; it's like, oh wow, that's great, that's really going to boost consumption, two bucks more. But that's because the Chinese government is digging in to prepare for a potentially prolonged trade conflict with the US.In general, I think you're right, the Chinese government has a very production-oriented way of thinking, it's constantly thinking about how do we make Chinese products more competitive, in terms of technology, in terms of features, but also in terms of costs. But to keep costs down, you do have to have what sociologists call a labor repressive regime, which is you do everything you can to prevent wages from rising too fast. At the same time, you don't spend too much money on social welfare, because that is just going to encourage people to exit the job market, thereby raising wages. I don't think these fundamental policy orientations have changed. As a result, I'm not so optimistic about boosting domestic consumption in the near future.Jersey LeeLooking beyond the current trade war, from the Chinese elite standpoint, there are two clear major milestones or points of risk. Number one, there's the question of Taiwan. And number two, this may be before or after that, there's a question of leadership succession. So how do you see these issues developing in the context of Chinese domestic politics?Victor ShihOh, God, if only I knew. Taiwan, I don't know, I'm not an expert. I think China is waiting for some certainty about what the U.S. would do. If it were to invade, if they can be very sure that the U.S. is not going to intervene, then there's some incentive to go for it. And by the way, I would say that the trade war doesn't help, because one of the big costs for China of invading Taiwan is that the U.S. would impose trade sanctions on China. But the tariff rates that we see today is a de facto trade sanction. So that part of the cost is already manifested. So China doesn't have to, in a sense, worry about that cost anymore because it has happened. That actually on the margin heightens China's incentives for invading Taiwan. And it's really not that helpful.On the succession, I don't think it's going to be in the near horizon. I mean, Xi Jinping is pretty healthy. He clearly wants to be the ruler of China for life. There's going to be a 15 to 20 year long process potentially, but of course, as he gets older, his ability to make decisions, because he's a human being just like everyone else, is going to deteriorate. What Chairman Mao did, this is of course the subject of my book,Coalitions of the Weak, was to appoint people who politically so weak or compromised, that they can't possibly challenge his power. I do see signs that Xi Jinping is increasingly pursuing that. And even some signs that he might be relying more on family members, like bringing his daughter to Vietnam with him in a recent state visit. So we'll see how that plays out, but I think increasingly he will need to pursue some kind of strategy to make sure that no one tries to usurp his power as he gets older and as his health is not as good as it is today.Richard GrayWell, thank you so much, Dr. Shih. It's been lovely speaking with you, and thanks for your time.Victor ShihGreat talking to you guys. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit pacificpolarity.substack.com

In this conversation with Steven Okun, we discuss the evolving relationships economic relationship between Washington and Southeast Asia. During his career in and out of government, Steve has worked on policy issues on both sides of the Pacific. Today, as the founder of APAC Advisors, he counsels clients on sustainability and public affairs strategy. Richard GrayHello, everyone. Welcome to Pacific Clarity. Today we're talking with Steve Okun. Steve's career spans government service, consulting, and social impact. A seasoned Democratic presidential campaigner, Steve received a political appointment to the U.S. Department of Transportation where he was deputy general counsel.Thereafter, he entered the world of public affairs in Singapore, working for KKR and UPS. Today, he's the founder of APAC Advisors, where he counsels clients on sustainability and public affairs strategy. Steve maintains an active presence in the American expat community, having served as governor of AmCham Singapore and chair of AmChams of the Indo-Pacific.Steve, pleasure speaking with you.Steven OkunGreat to be with both of you.Richard GraySo we wanted to start this conversation thinking about the lattice work of existing trade frameworks in Southeast Asia and how they relate to US and China economic entanglement with the region. And so, Steve, as Americans, for better or worse, IPEF is kind of de facto dead at this point. However, the region is in many ways still very interconnected with a lot of these multilateral frameworks, whether it's the Comprehensive and Progressive Trans-Pacific Partnership, the China ASEAN Free Trade Agreement, and the Regional Comprehensive Economic Partnership. And, while original offerings of the TPP and IPEF were meant to be a countervailing force by the US against China's economic role in the region, these organizational remnants seem to be more connectivity between Southeast Asian and Indo-Pacific states as opposed to the US and the region writ large.In some ways, this has led to more economic engagement within ASEAN, although that's had limited success, but more so investment from Japan and South Korea into countries like Vietnam where they're maintaining pretty significant corporate footholds. And so, looking at the trends of all of these things, and particularly now as we think about the aftermath of the Liberation Day, tariffs, there's a renewed conversations about things like the CPTPP and RCEP integration, and the role that the Europeans might have as diversification of commerce and of supply chains.Taking into account all these different factors, how do you think about the developments happening in this period? Are the trends as simple as the US disengaging and other players increasing their engagement? Is there more complexity of this ecosystem?Steven OkunLet's break it down into four components, and then we'll figure out where the world is going to head next.If you think from a Southeast Asia perspective, the U.S. is the most important country in certain ways, historically had been from a trade, an investment perspective; China's now increasing, but the U.S. remains one of the most important markets, if not the most important market for everybody in Southeast Asia from an investment perspective, so what is the FDI coming in, which is critical, of course, and then a trade perspective, both a trade in goods, which is what you get from Southeast Asia to the U.S., but where the U.S. dominates is trade and services, which, of course, President Trump doesn't care about, although he should, right? So trade in services, trade in goods, incredibly important between each of the 10 countries, some more than others, and the United States.Now let's bring in China, which is increasingly almost as important, if not as important, as the United States, depending on the country in Southeast Asia. China is now, from a bilateral perspective, very much a focus both for trade in goods, less so for trade in services, and certainly increasingly for FDI.Now, what is it that the countries in Southeast Asia want to do and have been doing, and what Donald Trump, I think, Richard, to your question, may accelerate? Well, first, you need to get the countries in Southeast Asia to trade with one another, right? And so that's intra-ASEAN, that's trade between all of the 10 countries or some subset of them. They're OK when it comes to having increasing that intra-ASEAN trade, when you have things like an ASEAN single window, so you can have customs that's going to be user-friendly between the different countries in Southeast Asia.So you try and foster intra-ASEAN trade, and that has been going on. But there's only so much investment here. There's only so much manufacturing here. There's only so much domestic consumption here. You still have to sell somewhere else. But you do have this increase in intra-ASEAN trade.Can you replace the United States with intra-ASEAN trade? And those are things like the CPTPP, as you mentioned, where you have countries like Malaysia and Vietnam and Singapore and Japan and Australia and New Zealand being members. So you then can have intra-Asia trade, and then you also have China overlapping on that through another trade agreement, not nearly as comprehensive as the CPTPP, but the Regional Comprehensive Economic Partnership. So that's China, Japan, Korea, Australia, New Zealand, and the 10 countries now in Southeast Asia. So you have all of these dynamics, you have U.S. bilateral trade, you have China bilateral trade, you have intra-ASEAN trade, you have intra-Asia trade.And all of this is evolving in President Trump and what he has been doing, through his actions on Liberation Day, is to show the countries here, you have to come up with some rules-based system. You can't rely on the United States anymore. Now, they are also very concerned about China. So they're concerned about the U.S. and the tariffs that the U.S. is putting on. They're concerned about China. They are very nervous about all of these Chinese goods, which had been going to the United States, now need a new market. Well, in a trade term, these goods, if they get dumped into Southeast Asia, that harms the Southeast Asia manufacturing base, that harms Southeast Asia employment. So a lot of dynamics that we can try and unpack, but you have to think of it in all of those areas, not just that Trump is doing this, how are other countries going to react? Because there's too many other moving pieces to think about.Richard GrayAs an extension of this question, what would be like your case for why some level of US economic multilateralism is important? So obviously one of this would be supply chains, perhaps you need that connectivity, and so having some level of FTA is beneficial on that end. But if you were trying to say, this is why IPEF or at least like pillar two, which was focused on supply chains is important, what would like your main case for that be?Steven OkunWell, there's two cases. In one case, you'll make from just a trade perspective. And this is what you call the spaghetti bowl of bilateral FTAs. They're impossible for businesses to use because if you have a U.S.-Singapore FTA or a U.S.-Singapore bilateral trade agreement, you have a U.S.-Vietnam FTA trade agreement, and then you have a US-Japan trade agreement, then those agreements don't mix, intertwine with one another. Well, then how are you going to be setting up supply chains? How are you going to be taking advantage of these FTAs when you've got just a spaghetti bowl? It's literally impossible, and it's certainly impossible for SMEs to do. It's hard enough for huge multinationals to take advantage of a bilateral spaghetti bowl of agreements. That's why having a plurilateral agreement like the TPP or a plurilateral agreement like IPEF or RCEP for that matter, let alone the multilateral frameworks like a WTO. That's what businesses need.What the Trump administration has decided from a trade perspective is that the United States is worse off when it is in a plurilateral or multilateral framework. And the reason that is the case is because the US is the biggest, strongest, most powerful country, economy, military in the world. And anytime the US negotiates bilaterally, the U.S. is in a more powerful position; the U.S. has all the leverage, or as Donald Trump would say, the U.S. has all the cards. So you want to be in a bilateral negotiation because then you get a better deal. That is the America first philosophy. That does not work in an era of globalization and modern supply chains. And so that is one reason.The second reason is a geopolitical reason. If the US sees China as its greatest competitor, which of course it is, the US should be working with partners and allies who also see China as a competitor. Maybe in a different way than the United States does, but they see it as a competitor too. Every president, other than Donald Trump, works with partners and allies from a geopolitical perspective. And so when you go bilateral, when you hit Vietnam with massive tariffs, when you hit Singapore with tariffs, a country that you have a trade surplus with if you're the United States, you are going to lose geopolitical advantage by not working with partners in allies.That is the frustration I would say with the Trump administration, is that their America First bilateral approach doesn't advantage companies, businesses, or the United States, or the United States' economy from a trade perspective or a geopolitical perspective.Jersey LeeSo let me try to slightly make, I suppose, the Trump administration's case for them. Part of what they're doing right now, holding potential high reciprocal tariffs over the heads of many of the countries in Southeast Asia that run trade surpluses against America, is that they are threatening them to curb imports from China. There's some reporting that they specifically asked the European countries, including the UK, that you're either with us or you're with China.Part of the calculus or the justification is that this is intended to deal with the issue of transshipments, particularly in the case of Southeast Asia, which occurred mostly as a result of Trump's initial tariffs on China during his first administration. And Trump had said even before his re-election that he wanted to tackle this issue of transshipments. So would this be the kind of hard decoupling that you have argued against? And how should the U.S. deal with the real issue of transshipments, in your view?Steven OkunOkay, so the question is from a transshipment perspective, and obviously we're only talking about China, Jersey, as you said, what is the good that you are concerned about when it comes to China? And if you have a tariff on a Chinese good, you can make that tariff, you know, China plus one.So fine, if you say we don't want to have Chinese electric vehicles coming into the United States because these Chinese electric vehicles have been subsidized, because the government has protected Chinese domestic electric vehicles from competition, which has enabled them to become as good as these cars are, and there's no question these are world class cars that the Chinese are producing; but if they've done so because of unfair advantages, then you put the tariffs on those cars, whether they come from China or if they come from China through Vietnam or through Mexico or wherever else you want. If that's your issue, then tariff those cars. And you have a full justification to do that.To blanket reciprocal tariffs, whatever reciprocal means, but to have a universal tariff on top of reciprocal tariffs without a justification, that is what the issue is. So by all means, if you want to protect US manufacturing from unfair China competition, you can do that. There are ways to do that. The Trump administration did that in its first term. The Biden administration did that in his one term. The Trump administration could be doing that and is doing that to some degree in its second term. But not putting a 10% universal tariff on the world, that is not going to address that problem. And it's going to cause more economic harm than otherwise.And what we can get into, there are issues in other countries beyond the transshipment issues. There are non-tariff barriers that should be addressed; I mean, just because Peter Navarro says something doesn't make it wrong. So I agree that there are significant issues across Asia with non-tariff barriers. And by all means, the Trump administration should address those. The Biden administration should address those. The Obama administration should have addressed those. They tried to do it. The Obama administration tried to do it through TPP. The Biden administration did it in a less fulsome way in IPEF. Now let's see if the Trump administration does it. And we hope they do it. Speaking on behalf of the business community writ large, and not just the US business community, all of the business community wants to see these non-tariff barriers addressed.Jersey LeeMore broadly for Southeast Asia, it seems like there are no good choices. On the one hand, as you mentioned, a significant part of the economy is built on a China plus one strategy. And this sometimes leads into transshipments. On the other hand, as you mentioned earlier, they don't want there to be a flow of goods that were displaced, Chinese exports that were displaced from the American market to destroy their own domestic industries. So faced with a potential forced choice that Trump is apparently raising right now, what choice could they make? And how do you think this could develop if it ends up being this forced choice?Steven OkunWell, Jersey, that's what we're all watching to see what happens, you know, in the coming weeks and months, because it's not just what Washington is going to do. It is what is Beijing going to do. And now we have to watch both of those.Look, we already see tariffs from Southeast Asia onto China to protect their domestic manufacturing. Thailand has imposed tariffs. Indonesia has imposed tariffs. Russia has imposed tariffs on China. They don't want the Chinese automobiles coming into Russia to decimate the Russian domestic auto market because they need that for national security reasons, the same as the US needs a strong auto manufacturing sector for national security. So we need to watch what are the countries here going to do if China shifts its exports from the United States to Southeast Asia and other countries. So that's one thing we're watching.We have already seen the Malaysian government say to the Chinese government, do not put investment into Malaysia if it is just to avoid U.S. tariffs, we don't want that; if you want to put Chinese investment into Malaysia, that is going to play by Malaysianrules, that is going to hire Malaysian citizens, that is going to put money into the Malaysian economy, of course, you're welcome, but if you're doing it for tariff avoidance, we don't want it. I was very surprised when the Malaysian vice minister for trade said that publicly.So you now are seeing that the countries in Southeast Asia recognize that they don't want to see just a flood coming in from China, either from a transshipment perspective or from a goods perspective. And we're all watching to see how this plays out. Now, the countries in ASEAN have said, we need to come together, it's better if we negotiate together as one versus the U.S. It would certainly be true if that were the case, it'd be true against China.ASEAN has never shown any capability to be a player from a geopolitical perspective. So can Donald Trump do the impossible and bring ASEAN together? I'm not holding my breath, but we'll see if there can be some type of collective action, both to Trump and to Xi Jinping.Richard GrayIn March, the Singaporeans sounded the alarm that there were chips going from Singapore in servers that had those video chips internalized, and that those lacked compliance with the Biden administration's AI Diffusion Act, went through Malaysia and probably to China.Now, as of this past week, the Singaporeans seem to be trying to add more compliance mechanisms in working with the Trump administration to increase their leverage position in the tariff negotiations. As a broad sense, what do you make of these leakages of U.S. export controls? How are corporates thinking about this? And what even is the objective of the administration if this is one of their focal points?Steven OkunRichard, this gets to a broader change from a trade perspective. I used to say, in my career going back into government in the 90s, that I used to work at the intersection of business and government. And now I say I work at the collision of business and government. And you just described that collision. And it's because in the old days, if you looked at trade in goods, you had national security on one side, and it was very clear you could not trade in items that would harm the US national security; most countries have this, but we'll just use the US. So you would have export controls on military equipment. You couldn't sell military equipment to the Chinese. You couldn't sell it to the Russians, or whoever right.So military, no good; everything else was okay, with this very little category in themiddle called dual use goods, and these were goods that could be used both for civilian purposes and military purposes, and you need to make sure that, if you're selling a dual use good, it would only be used for civilian purposes. For example, a helicopter could be used both for military purposes, but it could be used for putting out forest fires. It could be used for search and rescue. So you would say it's okay to do it for one, but not the other. So that dual use was kind of a complicated area, but it was a pretty narrow area of what would be considered dual use.Now, national security and trade are almost completely intertwined, especially on technology. There's no question, AI, how do you know if the AI is being used for civilian purposes or for military purposes? Facial recognition, drones, all of the things that go into making those drones in AI, you need semiconductors, you need certain chips, all of that is now national security. It now becomes much more difficult for businesses and governments to know what is a product that you can't send to a country, in this case, like China.What happened here in Singapore, and this is obviously a very public example, is you had these Nvidia chips go into a Dell server. The Dell server then comes here to Singapore. It then goes from Singapore to Malaysia. And then, as you say, presumably on to China. And so now the businesses, the government say, the US company sold it to a Singapore company. It was a licensed Singapore company. The Singapore company sells it to a Malaysian company, which is permitted. Who's responsible for it going from Malaysia to China? And the answer is kind of, now it's everybody. So the amount of due diligence you now need to do in terms of your supply chain is much more than you ever needed to do in the past. Just because somebody has a Singapore business license, will the U.S. consider that to be a Singapore company? Maybe, maybe not. If the company has a Malaysian business license, will Singapore and the U.S. consider that to be a Malaysian company? You can't rely on that anymore. You now need to go and look behind it. And then who are they selling to?This is why IPEF wasn't necessarily designed for this. IPEF was the Indo-Pacific Economic Framework, and this was the Biden administration, which would not go as far as having a trade agreement, because trade is now a four-letter word in the United States, but would try and bring the like-minded countries together to focus on supply chain resilience. A lot of this came out of COVID, and we can talk about the breakdowns in supply chain on COVID, but it's equally applicable in a national security perspective. And so you want to have governments like Singapore, Malaysia,and the United States all talking to one another, with their businesses, when you are in an era of national security and trade being intertwined. And that's not happening right now. And so every government and business is going to have to become much more intertwined, into knowing exactly who and what is in their supply chain and your trade costs, your compliance costs, your due diligence.Jersey LeeTaking the broad view on what's going on, despite how terribly Trump has prosecuted this trade war, which you've argued a lot over the past months and also you argued a bit earlier in our conversation, you've also said that America likely still has an advantage or at least it's a wash. You know, even if America antagonizes all its allies, it would still be kind of a wash between whether it or China comes out on top. If that's so, why hasn't perhaps a more competent previous administration tried to decisively “win” competition with China with this kind of massive approach, as opposed to the more specifically targeted approach that, you know, there's been some frustration that it's not really doing enough, or engaging with the problem of China in a systemic enough manner.Steven OkunGreat question. And to answer, you've got to go back to the early 2000s, basically. I'm not I'll keep it brief. But you've got to understand the history to know how we got here. So the U.S. position on China starting, I mean, maybe you don't want to start with Nixon and Carter who opened up China, President Carter formally did. But if you look at it, certainly President Clinton and maybe President Bush before him, but President Clinton onward, the view was that our policy towards China is going to be engage and accommodate; we are going to engage with China, we are going to bring them, invite them into the global rules-based system that we've all been following, that has been developed post-World War II. In particular, we want China into the WTO, and that we're going to bring them in as we engage with them. And we accommodate their rise. We are not going to expect them to follow all the rules immediately, because certainly in the 90s, China was a poor country and had a lot of people in poverty and did not have the systems in place and the businesses in place to fully follow the rules as they were written back then. So we will accommodate China. We'll accommodate their rise. And as they grow, they will become more like us and they will follow our rules.That didn't happen. Now, you can argue that that was never going to happen. And the Americans in the West and the Japanese were always wrong to begin with, that was never China's plan. Or you could argue that China was on that path, and, let's say in 2012 or so, China diverted off of that path.It doesn't matter why the Americans were wrong, either because they were always wrong or because China changed. China changed. That's what counts. And what happened was the Americans were late to the game on this. Everybody was late to the game on this. And you saw in particular in 2015, when China came out with its Made in China 2025 plan, and they said, we are going to use the power of the state and we are going to use state subsidies and we are going to protect our domestic market. We are going to create the champions of the 21st century on the key sectors, tech, AI, renewables, electric vehicles. pharma, all of those areas. And China was extraordinarily successful. They didn't accomplish everything they tried to do to dominate the 21st century key sectors, but they came close. And in some sectors, they did succeed.That is what is now trying to be addressed. President Obama recognized this, started to recognize this, and he shifted away from accommodate and engage. And this is where TPP came in. This was how he was going to address what China has done, is that we are going to work with like-minded partners. We're going to not allow China to trade with us until they change. And that is what the TPP was all about. It got caught up in U.S. domestic politics. Even though it was signed by the United States, President Trump pulled out on day three in his first term.Now, President Trump understood what was happening in China and he went much harder than President Obama did. And he went direct and he went with tariffs and export controls. And then President Biden kept up what President Trump was doing. And he upped the tariffs. He didn't take anything down that President Trump had put on, President Biden kept what President Trump did.What Trump is doing very differently in Trump 2.0, is the tariffs that are going on China are at astronomically high levels, levels that have never been seen literally ever; forget going back to the 1920s, ever. And that way he is doing tariffs is having a great damage on the U.S. economy. But he's not only going after China on tariffs. He's going after the entire world with tariffs. He is going after tariffs on islands that only have penguins, okay? Everybody is getting hit with these tariffs. And that is where there is going to be such a pushback from other governments and businesses eventually are going to say this is not what is in the US interest. And that's where we are right now. And so we'll see if President Trump course corrects, and goes back to the focus mostly on China where it belongs, and hopefully on some non-tariff barriers in the rest of the world, or whether this keeps up and we end up in a global recession. And we also then have to see what China does, which is then going to have other knock-on effects.Richard GraySpeaking of recession, when you arrived in Singapore in 2003, Southeast Asia was approximately six years out from the 1997 Asian financial crisis and would face the 2007-2008 global financial crisis just four years later. Then the world faced economic shocks from COVID and now with reciprocal tariffs. Based on your experience now within Southeast Asia, what do you think about the region's resiliency? What has it learned in 1997 and 2007 and 2019 and perhaps now in 2025? What were those key lessons and what do you think are the remaining challenges to further booster that resiliency?Steven OkunObviously you have 10 different governments, some of whom learned different lessons. But I think one of the lessons that they've learned is that liberalizing when it comes to investment, when it comes to trade, is going to help their economies. What they have tried to do and what they are doing is shifting from being an export driven economy, to having your own domestic market, to having domestic consumption, to serving your own people, not just exporting so that you're so subject to external shocks. There's been a lot of great businesses that have been created in SoutheastAsia, for Southeast Asia, for particular businesses, companies. I would say that is one of the lessons that has been learned.The other thing is that it's also just demographically speaking, a very good time for Southeast Asia. A lot of people talk about the BRICS, you know, Brazil, Russia, India, China, and if you want to add S, in South Africa. Well, in this part of the world, we talk about the VIP countries, Vietnam, Indonesia, Philippines. What do the VIP countries have in common? They have large populations, close to 100 million between each of the three. Because you have such a large population, you can have a domestic market. These are young countries. This is not China, which is aging. It is not Japan, which is beyond aging in a way. They are going to have young people who are just now entering into the workforce, who are going to build a new middle class.So you have a great demographic dividend that is about to pay off in these countries.And you can see that governance has been improving in these countries, in terms of transparency, in terms of rule of law, in terms of attacking corruption. Now, they have ways to go on this, right? All of these governments, and arguably, the United States has a way to go on transparency and rule of law now. But they are moving forward. And so it is an exciting time in Southeast Asia, especially when you look at the VIP countries, obviously you look at Singapore, which is gone from when I got here from being, you could argue, a sub-regional hub, and then has gone to becoming a regional hub. I'd argue that Singapore is a global hub right now. And so you've got that global hub here in Singapore. You've got the VIP countries. You've got others that are developing. Myanmar is a disaster, so we kind of put that one off to the side. But there is still excitement and opportunity here.Jersey LeeSo a little bit on your current job at APAC Advisors. Part of your role involves ESG. Over the past few years across the Pacific, the idea of ESG investing has been all the rage in China, it's been all the rage here in Australia and until recently, America. Now it seems to be going the other way.An example of this: I hold a certificate in ESG investing from the CFA Institute, but the name of the certificate was just changed, literally last month, April the 1st, into “Sustainable Investing Certificate”. This seems to fit into a broader pattern of global retreat from the concept of ESG. Do you see this as a specific response to Trump's return, or reflective of a broader and enduring change in the industry's understanding of this concept? And for Southeast Asia specifically, why is ESG an important tool for corporate operations?Steven OkunThe answer is both. It is for both of those reasons. I'll start with what ESG was supposed to be and had been. I was the first person in global private equity to work on ESG in Asia. And that was not my foresight. That was when I joined KKR in 2011. As the head of public affairs for Asia, they said, you're going to work in three areas. You're going to work in government relations, public policy, communications, and ESG. I had to Google ESG. I had no idea what ESG meant in 2011. And most people didn't.ESG is, had been, should have remained a financial term. ESG is about making money. That is what ESG is about. ESG is about how you reduce risk and create value. Sometimes you do both at the same time. Sometimes it's one, sometimes the other. And so, what do you do as an investor or as in a business? You ask yourself, how does my business impact the environment? How does my business impact my employees, my customers, my broader stakeholders? How is my business governed both internally and in dealing with government? How, in a material way, look at each factor in those three categories, and if that impacts my bottom line, either from a risk perspective or an opportunity perspective, then I need to focus on it, because I need to protect my business. I need to make money. I need to make a return for my shareholders, whatever the case may be.So it was always about that, or it should have been always about that. That is what ESG was. Now, ESG got broadened out into a policy term. ESG never was a policy. It was financial. People conflated ESG with policy goals, and they would say a business should be making people's lives better. No, a business should be about making money. If they can do that and make people's lives better, that is a way to make money. That is different. But not all businesses are out there to have a social impact; some are. You need to look at ESG from a financial impact only. Every business impacts the environment, their workers, and customers, and this can impact how the business generates revenue ESG is not there to achieve a social or policy goal – a business incorporates ESG to reduce risk or create value from a financial perspective. ESG is misunderstood as a framework to achieve a policy objective – that is why the blowback to ESG occurred.The other issue that we had is that people got away from explaining why an ESG factor impacted the bottom line. And an illustration of this is diversity in quotas. If you say, 50% of our board has to be women, or if you say, 50% of our senior management has to be women, the answer would be, well, why is that? What are you trying to achieve with that? And then you start getting into quotas, and then you start saying, we're just hiring somebody because of their gender, not because they're good at their job.Instead of saying that, if you were to say, our board needs to be reflective of our customers, we need to make sure that our board is reflective of who is buying our product or our service, we need to make sure that our board is representative of our employees. And if it happens that the people who are making 70 percent of the decisions are women, of who's going to buy your product or service, you better have a lot of women on your board. You're not smart financially if you don't know how your customers are thinking. So instead of saying a quota, instead say, we need to have a diverse board that matches our customer base or matches our employees, you can't argue with that. And so that's what the shift now is.ESG writ large, we lost a little bit of sight that this is about the bottom line. This is about businesses. This is about for-profit businesses. Look, government should be doing policy. NGOs can be doing policy. If you're an impact investor and you want to be doing policy, that's fine.But if you're a business, focus on the bottom line and acting responsibly. So, Jersey, when you told me your story, I figured your certificate was either going to change to being a sustainability professional or a responsible investing professional, because that's what we've always been when we talk about ESG.Richard GraySteve, to close our conversation today, I want to go back to the beginning of your career when you were a campaigner in three successive campaigns for Clinton and Gore twice and then Gore-Lieberman in the third roundabout. While we're still three years out from the 2028 election, what would your Asia policy recommendations be for a 2028 Democratic campaign?Steven OkunWay too soon right to figure out; we don't know so much. First of all, I would say let everybody possible campaign on the Democratic side, we need to see who's the best,so please run. If I’m a democrat, you know, AOC, if you want to run, get into the race; Pete Buttigieg, if you want to run, get into the race; Governor Pritzker, if you want to run, get into the race; Governor Whitmer, Governor Moore, there are so many potential good candidates.So one, you don't know who's going to be good until they run. And then you will see who is going to be a good candidate or not a good candidate. And this really hurt Vice President Harris last time that she never had the opportunity to really run. I think it would have made her a much stronger candidate. And we can blame Joe Biden for that. But that's another story. So one, you don't know who's good until people run,you’ve got to get as many people to run as possible. And also, your arguments get stronger as you run against one another. And I think you know, President Obama became such a strong candidate because he had such a tough race against Secretary Clinton, then Senator Clinton, right? That is what really made him a good candidate,you had two different candidates. You've got to put them into that pressure cooker of a presidential campaign, and then you see what arguments the American people will buy.So way too early to figure out who the right person is or even, and then the other thing we don't know, where the world is going to be two years from now. Is the US economy going to be in a depression? God, I hope not. Is it going to be in a recession? Is the US economy going to be very strong? Is Donald Trump right in that his plans are all going to work and turn around? What's the economy going to look like? What are the American people going to think about immigration? Are we going to still have wars going on in Ukraine with Russia, with its unlawful attacks and continuing to slaughter Ukrainians? What's going to happen in Gaza? Are we going to have peace in Asia? All of those things, until you know what that situation is, it will be impossible to say this would be the right candidate.Do we want somebody with more of a foreign policy experience? Do we need someone with a domestic experience? Do we want a strong economic experience? Who knows? So just get everybody in, see what works, see who's the best, and then let's watch what happens, at least in the midterms, which are still too far away to predict.Richard GrayAll right, great. Well, thank you so much, Stu. It's been lovely speaking with you.Steven OkunRichard, great to talk to you again; Jersey, great to meet you. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit pacificpolarity.substack.com

What is China’s grand strategy? What are the PRC’s principles in foreign affairs, and how does it’s government structure inform matters of decision-making? These are some of the questions we attempted to answer on this episode of Pacific Polarity with retired Senior Colonel Zhou Bo. During his career in the People’s Liberation Army, Zhou engaged extensively with foreign counterparts and was a consistent participant at the Shangri-La Dialogue. Today, as a senior fellow at Tsinghua University’s Centre for International Security and Strategy (CISS), he continues to share China’s perspectives on security issues with the world. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit pacificpolarity.substack.com

In this episode, veteran Australian diplomat Richard Broinowski reflects on Australia’s historical discomfort with its geographic position in Asia and the strategic shift that began in the post-Vietnam War era toward deeper engagement with the region. Drawing on his experience as ambassador to Vietnam and other Asian nations, Broinowski discusses the challenges and missed opportunities in Australia’s regional diplomacy, critiques the AUKUS agreement as limiting Australia's strategic autonomy, and calls for a more pragmatic and constructive relationship with China. He also highlights the importance of nuanced diplomacy amid the intensifying U.S.–China rivalry and reflects on the broader regional dynamics involving ASEAN, Japan, Korea, and Iran. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit pacificpolarity.substack.com

A summary of our conversation is available here.Note: Our conversation took place on the eve of Trump’s “Liberation Day.” Due to Patrick’s connectivity issues, the conversation was conducted via phone call, leading to less than ideal audio quality. The transcript below has been cleaned up and can be referred to for a more polished version of our conversation.Jersey LeeToday we're delighted to be talking with Patrick Buchan. So Patrick, could you briefly give us a bit on your background?Patrick BuchanThanks, it's great to be on your podcast. I'm a keen listener to the podcast, and I think you guys do a great job; it's also good to be working with my old outfit, CSIS. My career has been varied across foreign policy. I'm currently working here, in Australia, we've got our big federal election, so I'm working in the campaign for the Liberal Party; today I speak to you not as a member of the Liberal Party, but as a former member of CSIS.I, like many people of my generation, we grew up in the era when Australia was making its great political and diplomatic entries into Asia. I went to university in the late 1990s where I studied politics and very much focused on those big geostrategic shifts from the Post Cold War era as Australia engaged into Asia, particularly into Southeast Asia, but also deepening our relationships with countries, particularly Japan, which by that stage was our largest trading partner, and also newer countries that we hadn't so much engaged with, like South Korea and so on. But Indonesia was very much the focus of my background. From there I went to the Department of Defence in Canberra, where of course, promptly having studied Indonesia and focused on Indonesian strategic issues, they put me on the Iraq desk.Jersey LeeFrom there, you later moved to the US to work in the Pentagon and then to CSIS, as you mentioned. Is that right?Patrick BuchanWell, that's exactly right. I did time at the Department of Defense where I worked on numerous policy teams and issues from Iraq to counter terrorism to ballistic missile defence, a lot on the US alliance engagement.I worked at the department of Prime Minister and cabinet, where I did work on Southeast Asia, and then in 2014 I went to Washington, where I arrived in the Pentagon, into the office of the Secretary of Defense during the Obama administration. And from there I worked on great power relations, so very much focused on China. At that point, I guess the issues regarding US China relations were not as profound as they are now; we were trying to work out at that point what the US relationship with China is, and what it is not. We were still in the great era of the Global war on terrorism, and those of us working on China and great power relations were still sort of sitting in the 2nd row of policy, as the Obama administration was very much struggling with how to bring the global War on Terror to its finality.Jersey LeeSince you've worked both in the Australian and American defense departments, could you give us a bit of a comparison between the two, and what it's like to work in the two?Patrick BuchanObviously the United States system is so much bigger. I think the key thing that I found at the start was, as an Australian official, your focus was very much twofold: it was on the US Alliance and on South East Asia. Once I got to the Pentagon, I had to broaden my horizon, to realize that all of the world's foreign and defense policy problems could only be solved here, that is in the Pentagon or at the White House. So I found myself very much having to lift my gaze. And that did take me a little while, because, again, as an Australian policy practitioner, your whole focus is just primarily focused on the US and Southeast Asia.Jersey LeeWith Australia facing a new and more challenging era, could Australians have something to learn from this American broader vision?Patrick BuchanCertainly, there's no question that that the world is going through a great geostrategic shift. One of the things I would note with U.S. policy in Asia, and what Australian policy practitioners and politicians can learn from, is that most of the Trump administration is very much focused on bilateral engagement, it doesn't do multilateralism. One of the things I think the Australians have done so well for so long, in the post Second World War era, is doing its business through associations such as ASEAN, and now the Quad, but its bilateral engagement has also been world class, in its diplomacy and the way it does its defense diplomacy. So I think we're actually quite well set.We haven't put all of our eggs in the basket, like many Europeans have, where their primary focus has been working through multilateral systems, be it NATO or be it EU. I think for Australian policy practitioners, that sense of experience and long-term way of doing business bilaterally, which is very much how the Trump administration likes to do its business, sets us up quite well.Of course, if you're an Australian practitioner, you are certainly not sitting at the top of the great power tree, so there's always going to be a key difference in the way you do business. But I personally think that the Australian system is very well placed to manage this new order that we're seeing.That said, I actually don't think that the breakdown in some of the systems we're seeing, in the way the Americans have done business in Europe, is as impactful as it is here in Asia. And again, the reason I say that is because the American hubs and spokes model in Asia is very much geared towards bilateralism. So what we're seeing in Europe, with Washington very much—whether they're dismantling it or not, I'll leave that for others to comment—but we're very much seeing NATO fade to a point where it really has to have a long think about how it wants to reinvent itself.Jersey LeeRight now, there's a live debate in Australia on AUKUS, that's been brought back by recent moves by the Trump administration, primarily in Europe; people are again debating on whether we should even have AUKUS. That's a parallel debate to what's going on in Europe, where a lot of people are questioning the wisdom of relying on American F-35s, whether there's a potential Pentagon kill switch or some other way in which Americans could use their leverage against European defence; this has really negatively impacted the American Defense Industrial complex. For Australia, given that one of AUKUS's primary selling points has been that it's going to be a sovereign Australian capability going forward, is there some way for Australia to make it even more sovereign, in terms of the system operations, the maintenance and the components manufacturing, such that regardless of what happens to the alliance with America, Australia will have submarines that are fully its own?Patrick BuchanI know there's a lot of debate around, in certain sections of the media and in the commentariat, regarding AUKUS and at the heart of it Australia's sovereignty. What I would add to that is what's called full knowledge and concurrence, FK&C. FK&C came about in the early 1960s, during the Menzies Liberal Government of Australia, when the United States proposed very sensitive facilities such as Pine Gap, at the heart of Australia and the United States’ most sensitive areas of alliance cooperation. Full knowledge and concurrence was an Australian caveat which was that no US activities could occur without the full knowledge and concurrence of Australian officials and the Australian government.That mentality has seeped through the entire Australian defense system establishment, and is very well understood with the Americans. So some of these lines I do hear about AUKUS undermining Australian sovereignty, I'm just not sure I buy that. Additionally, when you look at Australia's most sensitive capabilities, be they aircraft, be they ships, be they satellite systems, the reality is that the overwhelming majority of those systems are US systems anyway, so I'm just not sure I buy this; I know it's a very cute media headline, but I'm not sure I buy this.The other thing I would add to that is, when you look at our AUKUS partnership, these are Australia's most long-held, trusted defence, political and diplomatic relationships with the United States and the British going back, in the US case more than a century, and in the British case far longer. I'm just not sure that the risk of Australia “losing sovereignty” is actually there. Of course we need to monitor that. But I take the view that the risk of a loss of sovereignty, so to speak, is a little bit overblown.Jersey LeeLet’s continue to discuss the alliance with the US. In terms of intelligence sharing, the big recent news has been the Signal leak, which I'm sure you're aware of, and there's some discussion about its implications for the future of Five Eyes intelligence cooperation, given the way America is treating intelligence that comes from its allies. For example, there's been reporting that information from the Signal leak implicated and exposed Israeli intelligence. There's also been some discussion in Washington that's semi-serious, of Canada possibly getting kicked out of the Five Eyes due to the general situation between the new administration and Canada. So what do you think of the future of Five Eyes cooperation?Patrick BuchanThe first thing I'd say on the Signal leak, look, it was sloppy, there's no other way to put that. I appreciate, having been in that world myself, that it can be difficult at times, based on using highly classified systems, to communicate, particularly those at the political level with each other, without having to jump on their classified systems, what we refer to as high side systems. In that age-old problem of the need for secrecy versus the need for speed and the decision-making cycle, people can get lax, and clearly that happened here. Whether these are fireable or dismissible offenses as well, I'll leave that for others, and ultimately that's going to be something that President Trump would have to decide.Based on what I have seen in the media and what the Atlantic has published of the full Signal chat leak, I wouldn't say that any great national technical means of intelligence gathering was compromised. I saw Secretary Hegseth's comments about what the strike package looked like, so clearly this was sloppy, there's no way to get around that, no two ways about it. But to draw a bow and say that it somehow compromises Five Eyes intelligence cooperation, I'm not sure about that. History’s littered with leaks; to quote Donald Rumsfeld, that's a known unknown, it's always going to happen. There are going to be leaks in intelligence gathering, of the national security business, there always will be, always has been.The key is how damaging are those [leaks]; in my assessment this doesn't appear extremely damaging at all, but politically very sloppy.You talk about there being word around some of the Washington media establishment, about Canada being kicked out of Five Eyes. In the early 1980s, when New Zealand made its decision regarding US visiting nuclear ships to New Zealand (note: banning visits), the United States suspended the ANZUS alliance and its legal alliance obligations to New Zealand; Five Eyes was never impacted. So when you're dealing in this business at the political level, you have to silo relationships. The Americans in the Reagan administration siloed that component of their disagreement with New Zealand, because they made the assessment that the Five Eyes relationship was far more beneficial. I think the same will be happening here.Obviously, the Canadians and the United States are going through a very turbulent period in their bilateral relationship. I'm certainly no expert in Canada US relations, but I reckon you'd have to go back to the early days of the Second World War to have seen their relationship in such a tawdry state, obviously with the tariffs, and then the tit-for-tat in the media between President Trump and the Prime Minister of Canada. But I wouldn't foresee a circumstance, based on open source information and the media that I'm reading, that that any serious people would be talking about keeping Canada out of Five Eyes simply because it's not in the US interests to do so, that's the first point of call. And we've seen this before, with New Zealand and the ANZUS disagreement. So I would dismiss that as inside the Beltway chitchat.Jersey LeeYou mentioned tariffs, which were imposed on Canada, obviously there's also tariffs against Australia, despite Australia's trade deficit with America. There’s also the April 2nd “Liberation Day” of global tariffs on every country, presumably including Australia. I'd just like to get your general thoughts on the new global trade framework that the Trump administration brings in, and what it means for Australia and for the Pacific region. We've seen America for example in 2017 walking away from the TPP, which was basically a multilateral trade framework that was arguably designed to keep China out and be a part of America's framework for a pivot to Asia. What do you think of this new approach by the Trump administration to trade and its possible impact on Australia?Patrick BuchanThis is a personal position, perhaps not a position of my party or others, but my personal position would come down to the fact that tariffs have been a very much a part of the international economic order for a long time. I think the last 20 years in international economies and international political movement has seen tariffs coming down. We have now become accustomed to what is not the norm, that is free trade. I support free trade.What we're seeing from the Trump administration now has to be seen through a strategic prism. It's not just an America First economic model. I have enough faith in the national security establishment in Washington that many would see this as a way to deny potential adversaries access to key technology. I think we have to read it through that through that prism. But again, I would remind people that this great era of free trade we've seen in the post-Cold War environment is not the norm, tariffs have been the norm for the last couple of 100 years.Under the current tariff regime that the administration's announced, there has been a marginal impact on Australian exports, particularly in Australia's aluminum and steel industries. I think the key is how does the Australian Government and its officials ensure that there's no further imposition of tariffs in other key exports for Australia, and I think the second thing is to ensure that our other key trading partners, be it China, be it South Korea, be it Japan, that we ensure that tariff imposition “contagion” doesn't spread between other key export markets. Secondly, this administration has only got another 3 1/2 years left to run. Perhaps this is not the new normal. This is just a blip on the radar. So my view is we'd have to wait and see.Jersey LeeIn regards to China, there's been more than a decade old debate in Australia about balancing trade ties with China, and security and other economic ties with America. Over the past decade both relations have been subject to some degree of turbulence and uncertainty. How should Australia manage these two important relations? Also, is there a “third way”, is this kind of a “false choice”, as people like to say?Patrick BuchanYeah, exactly. That's the great strategic question of Australia's day, and has probably been in the public mind for 10 years, but I know from my own experience, [it’s been] in the mind of Canberra officials for 15 to 20 years: how does Australia walk that high wire act of its strategic, political, military and cultural relationship with the United States, versus its key economic relationship with China. That's the key issue of the day, and I think we saw very interestingly in the Turnbull government in Australia, that they managed to take hard, principled stances.So the exclusion of Huawei from Australia's 5G network was an example of that: without damaging the economic relationship, whilst also understanding that the United States remains our key strategic and military alliance partner. This so-called balancing act is not new, the Australian political elite have been doing this for 15, 20 years and doing a pretty good job, with the Australian governments, particularly under the former Liberal government, doing a very good job in taking principled values based national interest stances on where they disagreed with China and cooperated where they needed to, particularly in the area of the economy. Going back to those dark days of COVID, then it was the Australian government under Prime Minister Morrison, who led the charge at the World Health Organization.So this concept of being able to balance without making a third choice: I know people like Professor Hugh White, who's a very well-known Australian international relations scholar, he talks about a third way. I think that's a bit of a false choice in my opinion. I think we can continue to have a productive economic relationship with China, and a productive, deep and broad national security alliance with the United States. Of course, if the balloon goes up—and we all hope that it won't, and through sound and prudent planning and diplomacy, we can avoid that, that is the international system can—if that did occur, that's a very different proposition. But in this current phase of where we are at as a global system, from the Australian point of view, I think that relationship can be continued to be balanced.Jersey LeeYou mentioned former Prime Minister Morrison during COVID leading the charge at WHO; many people would argue that as a result of this, in the years from 2020 to 2022, economic relations with China were in fact adversely impacted. What do you think those few years showed us: any issues with how we were either messaging or how we were managing this balance?Patrick BuchanYeah, and even earlier [as well]. If you go back to 2013, in the Abbott government, Australia took a strong stance—in a largely forgotten episode in Chinese strategic behaviour, when they declared the Air Identification Defence zone, Australia came out very strongly early on. So I think we've seen that strategic instinct by the Australian government to take stances on its own, or in consultation or at least solidarity with our allies, but where it needed to, it came out hard and early. Huawei, under the Turnbull government, was the real standout where Australia came out strong, hard and early. I believe that will continue, where Australia does call out Chinese behaviour, that it sees not in its own strategic interests, or where it sees that a values-based argument needs to be made to constrain Chinese strategic aggressive behaviour, they will continue to do so. And I applaud them for that.Jersey LeeWhat if Australia takes this strong stance, and China retaliates in a way that they did from 2020 to 2022?Patrick BuchanI think Australia rode that out very well, and I think China was surprised about that. Australia was formally issued a list of demands by China, which the Australian government did not kowtow or crumple under. The Australian government rode through those tariff impositions that that the Chinese government placed on Australian imports. From memory, coal and the seafood market was impacted by that. They rode that out and I think China was quite taken aback by that. And we've seen the warming of relations—well, maybe that’s overstating—but we've certainly seen a cooling down of the rhetoric between the Australian Government and the Chinese government. From my reading of the situation, China were quite taken aback, and they realised that what was once called Wolf Warrior diplomacy, which was a very popular phrase thrown about by the media 5 or so years ago, didn't work. I think China is adjusting its diplomatic engagement behaviour, learning lessons, in many ways largely on the leadership stance that the Australian government took under Prime Minister Turnbull and under Prime Minister Morrison.Jersey LeeBased on your judgment, you think that China wouldn't attempt something like that again, because at the time, there's lots of reporting in Australian media of agricultural producers and other big exporters to China, they were really suffering during those years.Patrick BuchanYes, they were suffering, but certainly not on their knees. And the reality is there are other enormous markets opening up for Australian exporters; when I think about that, I think of the potential of India, I think of the potential of Indonesia. A Chinese assessment would have been made that, OK, this is clearly not working and Australians do have other options.A few years ago, when I worked in Washington, we used to speak of decoupling, this potential that the United States will decouple and delink its integrated economy with China, and some of the Australian scholarly and media types picked that up as well. Obviously that hasn't come to pass, and to be frank, I hope it does not. What I think the last few years did illustrate to the hard heads in Beijing was that there are other options, that China's economic centrality to the global system is not as powerful or as essential as perhaps they estimated it was.Jersey LeeRecently we also saw a different aspect of the relationship between China and Australia, when China sent a flotilla to do a circumnavigation of Australia.Patrick BuchanAnd occurring now with the Chinese surveillance vessel.Jersey LeeYes, so you can already see a slight repeat of that. Do you think that this is a glimpse into the future for Australia, with a more assertive China and a more uncertain US, and how should Australia deal with more such visits by China?Patrick BuchanIn your question on my view of the future, I guess I'd quote a former US secretary of defence, who famously said that, when it comes to predictions in international relations, the only thing we get right is we always get it wrong. So I'm not a big believer in making grand predictions on the future, because in my experience, throughout my career working in this business, is that all the big changes that I was told were going to happen did not happen. That's the first thing I'd say, and often you have to deal with events as they as they come, because once you get into that prediction game, it gets very difficult.China's provocative behaviour by sending a flotilla circumnavigating Australia a couple of months ago, one of the things I noted in my current work in domestic politics was how many voters raised that with us out on the campaign trail as an area of concern, and I just don't think that previously many Australians thought about China in those regards. So from a Chinese diplomatic perspective, if it was intended to intimidate Australians, based on people I’ve spoken to in the street, it didn't work.Secondly, the Australian system did come together quite well to manage that, and we saw China's flotilla move away. As a bit of a hawk, I would like to have seen a bit more of a robust response from the Australian Government on it. And then of course, we've got this surveillance ship circumnavigating Australia in the middle of a federal election campaign, and I just think those sorts of behaviours don't work, and only run counter to China’s interests; if it is seeking to improve its relationship with Australia, that's not going to do it. And if it seeks to intimidate Australia, I don't think that's going to do it either.Jersey LeeYou mentioned that you'd like to see a more robust response; given Australia's current capabilities, especially because a lot of reporting during that circumnavigation was that Australia’s Navy was in pretty poor shape, what do you think a more robust would ideally be, given the fact that what the Chinese Navy did is legal under international law?Patrick BuchanMaybe it is legal under in international law; many things are legal under international law, but that doesn't mean that they accorded with international norms of good behaviour. I think that was an example of something that did not conform to norms of good behaviour, especially after Beijing had opened up a diplomatic channel to Australia in the last couple of years, and I don't think it was a good way to go about it. But equally it misunderstood the Australian mood.What I do think would have been a more robust response was to put a larger military presence there to shadow those vessels, both air and naval assets, and to have come out very strongly. And I'm sure it was done, that our diplomats in Beijing made very strong representations to the Chinese Government, but I would have liked to have seen Australian assets deployed, much like you see the United States and the British doing with Russian incursions in the northern hemisphere, when you see Russian aircraft trying to penetrate British or American or US airspace, particularly in Alaska. So I would like to have seen something like that; had I been advising the senior leadership, or been a senior leader myself, that would have been the response I would have taken.Jersey LeeIn your previous response, you had discussed Australia's ties and Australia’s need to build more ties with countries, especially Indonesia, which was your original background. That's something that almost everyone in Australia agrees it need to do more of, especially people in either the foreign affairs or defense or other such departments. However, beyond the recently signed defense pact, it seems that Australia has been talking about building ties with Indonesia for decades, and not much has really happened on that front. Why has that been the case, and what do you think could be done to change the trajectory, or at least to build on the Defense Pact and expand it to other realms of cooperation?Patrick BuchanNow you raise an excellent point. All my life we've been told Indonesia is the next big key relationship in a strategic sense, and in fact, I wrote my thesis on that. What I would say to that question is twofold. The first thing is, it's not through a want of Australia's engagement and its own desires. That's a largely a bipartisan thing in Australia from both Liberal governments and Labor governments, strongly pushing for a deeper relationship with Indonesia, and credit to both sides, they both have feathers in their cap in that regard.But the important thing to remember, deep in the psyche of the Indonesian political elite runs the strain of the non-alignment. I'm sure many of your listeners are well aware of that post-War, post-colonial, non-aligned movement, of which President Sukarno and President Suharto were key leaders of. I think among the Javanese elite, that strain of sovereign independence and its non-alignment runs very deep. So it’s very difficult for that mindset of such an enormous country to move.I think the second thing I'd point to is that Indonesia is a country of 17,000 islands, one of the most ethnically and culturally and linguistically diverse countries in the world. Keeping that country together, from a security perspective, is extremely challenging. If you're sitting at the heart of Indonesia's political establishment, your first priority, down to your 50th priority, is how do I keep Indonesia together? We've seen so many times in Indonesian post-independence history where that's been really challenging; whether it was in the 1965 coup, the Timor crisis, so we see that the Indonesians have got to focus primarily on Indonesian sovereignty, on keeping Indonesia together, therefore their international relations suffer as a result of that, and that's understandable.Jersey LeeYou mentioned that Indonesia has a particular non-alignment mentality, but that's pretty much the same for most other ASEAN countries—there's a few notable exceptions. Given that ASEAN is Australia’s closest and biggest partner—and India also has a long history of non-alignment—all of these powers in Australia's neighborhood, other than China, which is a bit further away, are mostly non-aligned to some extent. Given that's the case of Australia's neighborhood, how should Australia go about this? You could also mention the US as well in their Pacific strategy.Patrick BuchanYeah, that's right. I would point to India and say that under the current BJP, the political incumbents, non-alignment doesn't run as deep as it does in their political opponents, the Congress party. And we are seeing India, compared to its non-aligned movement partners, moving at a more rapid pace in terms of taking its place on the international stage. So that's the first thing I would say there. When you make a comparison between Indonesia and India… if you could remind me of the second part of your question?Jersey LeeThe second part is basically, you mentioned India, but that's the same for ASEAN as well; also I asked about how the US might engage as well, given that non-alignment is the regional mood, they like to talk about ASEAN centrality, and don't really appreciate potentially having to choose sides between China and the US.Patrick BuchanObviously, Indonesia's focus as a foreign policy actor remains very much through the ASEAN way, the ASEAN model, and ASEAN centrality. We have seen that frayed a little bit. Certain countries in ASEAN, who we won't name on such a reputable podcast as this, have behaved questionably; I do question whether great external power actors have influenced their decision calculus, so I'll leave it at that.In terms of the United States and the way it maneuvers through the non-aligned movement or even multilateralism in Asia-Pacific, I'd get back to the point that I made earlier, that the way the post-World War Two US Alliance structure was designed in Asia, was very much on that hub and spokes model. It is much easier for the Americans to do political strategic business in the Indo-Pacific, when it comes to security and foreign policy because of that. That hubs and spokes model, that bilateral relationship, whether it's with the Japanese, whether it's with the South Koreans, the Thais, the Australians, the model that exists in Europe through a multilateral prism does not exist in the Indo-Pacific for a myriad of reasons, geography being a large one. The Americans feel far more comfortable as a great power in doing relationship management bilaterally, and they're very good at it. They make mistake, but from my experience in the Pentagon, sitting in many bilateral meetings with key bilateral security partners, the Koreans, the Australians, the Japanese, the Americans do it very well, so I will give them credit on that.Jersey LeeIn terms of economics or other aspects of cooperation, what can US and Australia offer them? For example, you see Indonesia joining BRICS and also Malaysia and Thailand expressing interest. Is that something that might be a concerning development? Could US and Australia offer more in the way of economic benefits to entice Southeast Asia, to have a better relationship?Patrick BuchanThe first thing I'd say to that is any economic relationship is and always will be built on mutual interest. That is, you've got to have something that one party wants to buy, and that another party wants to sell. Sometimes that is limited when it comes to separating an economic relationship with a strategic relationship.The second way you can avoid it is don't go putting tariffs on people, is another good way of ensuring that countries bilaterally can grow their mutual economic interests and trade. What the Australians and the Americans can offer is lowering any barriers to market entry. Again, you've got to do that based on your own self self-interest first and foremost, as any government should. I think it’s those two issues that I pointed to: don't do tariffs and ensure that markets have got goods and services that they seek to sell to the other.Jersey LeeWe had previously mentioned that Australia faces a challenging environment, especially in terms of security. But there's also economic challenges, particularly flatlining productivity, which everyone's been talking about in the current election. What do you think should be done to boost productivity?Patrick BuchanAgain speaking and from a personal perspective, I would argue and that much of it does begin with empowering employers to make labor decisions based on need; it is critically important that we have a strong employee employer relationship through a social contract. Obviously we've seen certain unions exploit that here in Australia; a notorious union, the CFMEU, is one that is often pointed to, but if we want to improve productivity in Australia, you have to improve the conditions in which productivity can grow, and so that does start with continued deregulation of labour markets.I think we have also seen in the post-COVID era—that came as such a cultural and strategic and economic shock to shock to people, and I think we still haven't recovered from that in many ways as a society—the imposition of strong regulations on what people could and couldn't do.I would argue labour market reform, particularly ensuring that people have that direct relationship between employers and employers without third parties, be they unions or interest groups being in the way of that relationship, is certainly one way that you can start to generate productivity and labor productivity particularly.Jersey LeeYou've also been to the US recently. Across the West, there's a broader feeling that productivity growth is falling behind, especially compared to countries like China, and that it's just making any potential competition with China that much more difficult, if you are unable to make anything, and you also see the difficulties in trying to reshore manufacturing by the US. Could you briefly comment broadly on this general Western phenomenon?Patrick BuchanI think that's a historical byproduct of societies reaching economic comfort, reaching an economic plane and where people don't have to perform manual labor for long hours, for low pay. Through free market ideology, through political liberalisation over 100 or more years, Western societies have reached a certain point. Now if we look at developing economies, let's take China as an example, and also a command economy through a centrally controlled one-party system, through a carrot and stick approach, it does make it far easier to ensure you've got higher levels of productivity. But ultimately that will reach a plane where that's no longer the case. That would be my response to your question.Jersey LeeSo far, most of what we've discussed has a somewhat pessimistic outlook. From where you stand, what makes you most optimistic in the Pacific region? And I suppose do you have any other concerns that hasn't been raised yet?Patrick BuchanYeah, I am an eternal optimist and I am a big believer that ultimately the United States, after it has exhausted all other options, always does do the right thing. That's point one. Point two, I think that the United States, even under this administration, recognises China, China’s rise and whether to cooperate or compete with China is the central strategic issue of the day, and I am confident that wise heads always do prevail. I'm not minimising the risk that something could go wrong. But I've heard certain commentators putting percentage likelihood risk of conflict with China. That's just ludicrous. Again, all of the big strategic assessments over the last 100 years are always wrong. So my view is that ultimately we may see something like a Cold War 2 between the United States and China. We may see a world in which we have a bifurcated economic system, not as integrated between the US and China as it is now, or indeed two blocs may occur as well, but I don't put an immediate conflict between the United States and China as likely.Jersey LeeHow do you think Australia should navigate a potential bifurcation as you say?Patrick BuchanI think they're doing a pretty good job at the moment. That is, continuing its strategic relationship with the United States—and its economic one well, one of the things I think people forget is the United States is the largest foreign direct investor in Australia, it's not a very well understood fact. Also walking that line with our economic relationship with China.However, ultimately—and here's the hard headed political analysis—the decision on that will be largely out of Australia's hands, as it will be out of the hands of the vast majority of countries in this world, because ultimately the great powers will set the tone in which the world order will be shaped. What I do hope is that those great powers realize that the post-Cold War system that was created, the so-called rules-based order, has served the interests of all nations whilst minimising the risk of war, has served all nations in the best way possible. So yes, adjust the system, but maintain that system in which the great powers aren't going to war with each other every second or third generation, that would be my assessment.Jersey LeeAs you say, ultimately this decision is in the hands of the great powers and not in the hands of most countries. But could other countries—for example, there's talk of Australia teaming up with Japan, Korea, the Philippines, other countries in the region to build up a bloc, so that even if America leaves, there's still a credible counterbalance against China. Do you think that's enough to change or deter great power behavior?Patrick BuchanPerhaps deter, but not an ultimate decision factor in the end, and this is a personal view. In the end, the great nuclear powers are the ones that ultimately determine the international system. So, keeping the United States engaged in Asia in the Pacific should be the first and foremost and paramount strategic ambition of all those nations you just mentioned. But again, I'm not a pessimist on this. This sort of Chicken little argument that Americans are about to cut and run from the Indo-Pacific—perhaps some would argue that that we're seeing elements of that behaviour in Europe—I just don't personally see it. Why? Because the United States has far too much strategic and economic interests in the region to do so. It would have to be a very significant strategic shock event that the United States would undertake such a decision.Jersey LeeI guess you don't think Australia should prepare a Plan B just in case that shock does come to pass somehow?Patrick BuchanOh, no. I never said they shouldn't have a Plan B, and I'm confident that the Canberra based officials do consider that, based on my experience in that world. But I don't think there's any sort of Plan B sitting on a shelf, that is a guideline to that, but certainly those discussions are being had and even today as we speak, former Prime Minister Turnbull has hosted with foreign and defence policy experts in Canberra a discussion on this exact topic, on AUKUS. I think that's a healthy thing to do. It's healthy in a democracy to have debate. But I don't believe there's some sort of Plan B sitting there. But sure, any strategic or foreign policy analyst worth his or her weight sits there and does consider all the options. That's just a good logical way to go.Jersey LeeYou've worked all your life in defense, international affairs, national security, etc. How does that translate into running a political campaign? Could I run a political campaign tomorrow?Patrick BuchanYes, it does prepare you in many ways; in other ways, perhaps it doesn't. But additionally I've been involved in Liberal Party politics for some time, so I can fuse both of my experiences together. I have enjoyed speaking with you today because I am very much focused on hyper local political issues; it is nice to get back to my primary and first love, which is foreign policy.Jersey LeeFinally, you mentioned a few times some big predictions that people made didn't come to pass. What's one that stands out to you?Patrick BuchanOne that stands out to me is, if you look the 1988 U.S. National intelligence estimate, where all the agencies the United States system come together, none of them picked that in less than a year, the Berlin Wall was coming down, and the Soviet Union would cease to exist in three years. Another one is that no one picked Saddam invading Kuwait. No one picked that Osama bin Laden and his cohort would crash aircraft into the Pentagon, into the World Trade Centre. Those are three big ones where no one predicted, the so-called Black Swan events.So the only consistent that foreign and defence policymakers can rely on is: one, demographics, which do take a long time to change, so that is one predictor for behaviour, it can rely on. The second is to be always aware that a Black Swan event will happen and the whole game will change on you. Even in my time in the Pentagon, as we're set there focused largely on China and Indo-Pacific, the ISIS event came out of absolutely nowhere. The fall of Afghanistan, how quick and rapidly that occurred took everyone by surprise. So the lesson for practitioners out there, or those in your audience who may be considering a career in that, is always be aware of the Black Swan event, the event you don't see coming, and actually it's good life lesson as well. Many events in your life hit you from the left side, and you never saw it coming. So that's the one constant.Jersey LeeYeah, that's definitely great life advice. Thank you, Patrick, for coming on Pacific Polarity, and we really greatly appreciate hearing your thoughts and your insights on these great and important topics in Australia and around the Pacific.Patrick BuchanThanks, Jersey. I really enjoyed being on your program. To all of your listeners, particularly younger people, I do strongly encourage you to—the systems, the foreign policy and defence systems, whether you're in the United States or wherever you are, your country does need you. We need the best and the brightest going into government, or going into academia, or going into think tanks, to be able to provide advice to our national leaders at a time when the world is in a very precarious strategic situation, and I can also promise you it's a hell of a ride. It's fascinating to be involved in it. So I encourage as many people as possible, if that is your love, do go for it because it's a very rewarding career experience.Thanks for reading Pacific Polarity! Subscribe for free to receive new posts and support my work. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit pacificpolarity.substack.com

Europe’s status on the world stage is increasingly precarious, with an emboldened Russia, a damaged — if not decaying — trans-Atlantic relationship, and significant military and energy dependencies. This week, Richard Gray and Jersey Lee discuss the options Europe is currently faced with, how it might approach a "pivot to Asia", and the tradeoffs of such an “eastward” shift. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit pacificpolarity.substack.com

Since the end of the Vietnam Wars, Southeast Asian states have opened, prospered, and strengthened relations with each other and states abroad. But, as the U.S.-China relationship continues to escalate, the Myanmar civil war continues unabated, and President Trump de-prioritizes multilateral institutions, ASEAN will face unique stressors. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit pacificpolarity.substack.com

Australia is a steadfast ally of the United States, but its relationship with the U.S. is not without limits. In this first episode of Pacific Polarity, Richard and Jersey discuss the state of play in U.S.-Australia relations. They cover historic convergence and divergence between the two states, the role of China in defining their relations, and the ways in which the Australian Labor government might approach President Trump’s second term. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit pacificpolarity.substack.com