The Taiwan test

Russia is massing troops on the borders of the Ukraine at the same time the Chinese are increasing their unauthorised flights of military aircraft into Taiwanese airspace.

With a self-obsessed US ruled by a near-senile gerontocracy driven by barely post-pubescent revolutionaries like Alexandra Ocasio-Cortez, it's natural that the two great, nuclear-armed mercantilist nations would push against it to see whether they can both achieve long-cherished aims of regaining territory they feel is theirs.

It is hardly likely to be coincidental that both these situations are occurring at exactly the same time.

Both situations require deterrence to be exercised simultaneously, and it will take more than the US on its own. It requires a holistic approach that incorporates not just a military but a diplomatic and economic response. Australia has little role to play in the Ukraine, but it has a major interest in what happens in Taiwan and leverage through its membership of regional bodies such as the Quad.

Much of the key to Chinese influence is China's position as the largest nation by population and the second largest by economic output, floating almost alone as a mercantilist nation in a sea of more or less free trade. At the same time the drive for nationalism and territorial aggression is driven by the fragility of the hold of the ruling oligarchy on the populace, which apart from continuing economic growth, requires an emotional focus for its citizens.

Russia is a large country, but with a population of 142.8 million citizens nowhere near the size of China. Compared to China it is richer per capita, but it only has an economy the size of Australia's, so it doesn't have the economic leverage China has. It is also overly exposed to exporting oil and gas.

Where it gets its power is as a kind of international junk-yard dog, prepared to get into fights, sending its soldiers to kill or be killed, wherever it thinks this will aid its ruling clique's interests. It also has the second largest nuclear arsenal in the world, adding heft to its bite. This martial nationalism helps to keep the populace under control.

Both countries offer challenges to a military response, but can be cut off at the knees by economic deterrence, which is where Australia can play a key role in our region. As a respected middle-power, with the diplomatic muscle to engage persuasively with a range of other countries, we have strong levers we can apply to China.

Our economic leverage comes as an exporter of raw materials to China. While China can easily substitute for some of these, it can't for others, and diplomatic initiatives can block off some of these other avenues for substitution as well. It may not be palatable to stop iron ore shipments to China, and it will certainly have a destructive effect on the wealth of a number of Australians, but when dealing with a mercantilist government you need to use mercantilist strategies, as they will just exploit free trade to their own advantage.

One way of looking at war is as aggression by logistics. In general, while individual battles can be won by strategic genius, wars are won by the economically stronger entity. The Allies won the Second World War not so much because of their generals, but because the might of the Anglosphere - the USA and the British Empire - coupled with the USSR, was simply too numerous and economically powerful for the combined Germans, Italians and Japanese.

In 1939 Germany plus her Axis allies represented 19.5% of the world population, while the UK and hers represented 37.7%. Likewise, the Axis had around 16.4% of world GDP, while the Allies had more than 44.7%. Today China on its own represents 18.47% of world population, while the US represents only 4.25%, but China lacks significant allies, apart from Russia (1.87% of world population), and its economy, while huge, is still only 18.5% of global GDP.

So, depending on how alliances line up, it is arguably in a better position than Hitler, but it lacks access to the natural resources which could give it ultimate superiority.

The USA has been careless in allowing the Chinese to almost monopolise the world supply of rare earths, but China has been negligent in becoming dependant on Australia and Brazil for its iron ore imports.

Australia needs to make plain to the Chinese that the freedom of Taiwan is non-negotiable, and that it will use all its economic levers to damage the Chinese economy if it tries to take Taiwan by force. It also needs to step up diplomatic efforts, particularly through resource rich countries, to apply equal pressure. It's not easy, because Chinese pressure has so far ensured that only a small handful of countries recognise Taiwan as a separate country.

However, were Taiwan to fall to China, given the defence assurances the US has made to it, the balance of power in the Indo-Pacific would definitively shift in China's direction, and the USA would be confirmed as in decline. This would be devastating not just for the security of Australia, but for that of our neighbours as well.

We have briefly lived in a unipolar world where the USA reigned supreme. The US is relatively weaker, but it doesn't mean that China should, or will, become the dominant pole. We are once more entering a world where alliances between more equal powers will determine how the world is governed. Taiwan is the first test of how that world might work out.