The debate in Australia about China is intensifying and some of the optimism of a decade ago has dissipated. This is in part a result of Chinese actions, particularly concerning security, but also a result of shifts in US trade and economic policy towards China. Despite plenty of warning that China would become a major strategic and policy challenge, Australia is struggling to develop a framework that integrates different strands of policy to guide decision-making related to China in coming decades.

Policy is built on ideas about the world and how it works. A feature of the Australian policy environment is the separation of policy into different domains. In particular, there’s a strong separation between economic policy and security policy.

One example is Australian policy towards the United States. Both Coalition and Labor governments have avoided linking the security and economic relationships, particularly in the areas of trade and investment. They have argued that the security relationship should be understood and managed separately from the trade relationship and that neither should be made hostage to the other. With China policy, both governments have also tried to separate security policy from economic policy.

The changing strategic order makes this approach unsustainable, not least because China generally doesn’t operate this way. Much of the debate on China policy is about trying to strike the right balance between Australia’s economic and security interests. Almost every issue concerning China brings these competing imperatives into play. This has been amplified by major shifts in US policy towards China and an increased willingness by the US to use economic levers to challenge China.

As a consequence, the coming decades are likely to witness increasing economic nationalism, greater coercion using economic instruments, and reduced confidence in institutions that have underpinned the rules-based international order. In this environment there’s a need to develop a strategic policy framework that integrates economics and security.

This is not only an intellectual challenge. It is also an institutional one. The structure of policymaking in Australia doesn’t encourage a conceptual framework that integrates these imperatives. There’s little focus on economic considerations from Defence, and the Treasury’s contribution to the security debate is negligible. Coordination from the centre is weak, even if the Department of Foreign Affairs and Trade has worked to bridge the divide. The 2017 foreign policy white paper introduced some different ways of thinking about Australia’s strategic environment and the policy instruments available, but this has not yet resulted in significant change in the policymaking culture.

Perhaps the challenge runs deeper. Security and economic policy cultures embody profoundly different ways of thinking about the world. They look at the same environment and see different patterns and forces at play. They may not necessarily agree on what the strategic problems are or their significance and order of importance.

The exercise of power through the use of economic instruments is quite different from the exercise of power using coercive instruments of the state, such as armed forces. Decisions in either sphere will engage different interest groups. Time as both a strategic reality and a resource is viewed differently. Both policy cultures tend towards totalising frameworks, with the result that hubris can lead them to believe that they have the complete solution to almost all problems.

The tools of both economic and security policy are a means to an end. States will use the instruments available to them to seek advantage and will integrate these different instruments to do so—subject to some constraints. China exercises coercive power through the use of economic levers, as well as more traditional means of coercion such as its claims to disputed territories and militarisation in the South China Sea. The US is using tariffs to achieve strategic ends in its relations with countries around the world, particularly China.

Australia was able to sustain the separation of these domains because the rules-based order allowed it to. Policy development took place in a strategic order that was stable; the rules governing that order were either generally agreed upon or guaranteed by allied military power. The rules-based order allowed the establishment of institutions through which economic policy could be conducted. This has flowed back into the structure of Australia’s policy environment and the way policymaking is conducted.

Australia has been an active and successful participant in the international system to help build and sustain the rules-based order, but it is entering a time when that order is being challenged. Australia must work to preserve what can be preserved and adapt where change is inevitable. Canberra needs to develop conceptual frameworks that integrate different strands of policy to maximise Australia’s capacity to use instruments of national power to pursue national interests.

This suggests the need for a very different policymaking culture and the development of appropriate institutional arrangements to support it. A first step might be to establish a new unit in the Department of the Prime Minister and Cabinet that would focus on the geopolitics of economic power in the Indo-Pacific. More than a coordinating role, it would need a mandate to integrate across government, drawing on the strength of existing institutions to lead the development of policies and a supporting institutional culture to meet Australia’s needs in the new strategic order.