The Middle Power Dilemma: Can Australia Chart An Independent Foreign Policy Path?

In an increasingly unstable global order, Australia finds itself wedged between two giants. On one side is China—its largest trading partner and a dominant economic force in the region. On the other is the United States—its most important security ally and strategic partner. For a country often described as a “middle power,” the pressure to choose sides is mounting. The question now confronting Canberra is not simply one of diplomacy or ideology, but of national survival: can Australia pursue an independent foreign policy without alienating either Beijing or Washington?

Economic Ties with China: Deep but Risk-Laden

Over the past two decades, China has become the cornerstone of Australia's export economy. As of 2025, more than 30% of Australian goods exports—ranging from iron ore and natural gas to agricultural produce and higher education—are bound for Chinese markets. This trade relationship has underpinned Australian prosperity, shielding the country from past global downturns.

But the downside of such deep dependence has become increasingly clear. When bilateral relations soured in 2020 following Australia’s call for an independent COVID-19 inquiry, Beijing responded with a series of unofficial trade sanctions—targeting wine, barley, beef, coal, and more. These punitive measures highlighted Australia's vulnerability to economic coercion and exposed the fragility of a single-market reliance.

Moreover, China’s own economic trajectory is no longer assured. Slowing growth, demographic headwinds, and an overleveraged property sector threaten its long-term demand for Australian resources. Faced with these uncertainties, Canberra has sought to diversify its trade portfolio through agreements with India, the UK, and the EU. However, these efforts have yielded limited success. No alternative partner can match China’s scale or immediacy, meaning economic decoupling remains more of a strategic aspiration than a short-term reality.

Security Ties with the US: Deepening but Potentially Costly

If trade is Australia’s Achilles' heel with China, security is its strongest bond with the United States. The US-Australia alliance dates back to the post-WWII era and has been institutionalized through frameworks like ANZUS and Five Eyes. In recent years, this partnership has deepened significantly—culminating in the 2021 AUKUS agreement, under which Australia will acquire nuclear-powered submarines with American and British support.

This shift marks a significant escalation in Australia’s strategic posture. The country is now seen as a critical node in US military planning in the Indo-Pacific, with American forces increasing their rotational presence in northern Australia and joint exercises intensifying in frequency and scope. While these moves are framed as necessary deterrents to Chinese aggression—particularly regarding Taiwan—they also raise the stakes for Australia.

If US-China tensions escalate into open conflict, Australia may find itself drawn into a confrontation with enormous economic and military costs. Critics argue that Canberra risks surrendering too much autonomy by embedding itself too deeply in Washington’s strategic agenda. Others contend that, in a region increasingly dominated by China, closer US alignment is the only viable option.

Public Opinion and Political Tensions

This strategic tightrope has not gone unnoticed domestically. Within Australia, there is growing debate about the wisdom of hardening defense ties with the US at the expense of a functional relationship with China. The business community, particularly in mining and education, has voiced concern about the long-term fallout of an overly confrontational approach to Beijing. At the same time, security hawks within the defense establishment and political opposition argue that Australia must prepare for an era of permanent tension and be willing to shoulder the burdens of deterrence.

The governing Labor Party has attempted to balance these pressures, adopting a pragmatic tone toward China while continuing to advance AUKUS and other US-aligned initiatives. Prime Minister Anthony Albanese’s administration has worked to stabilize ties with Beijing through high-level diplomacy, but its underlying strategic posture remains firmly pro-US. This balancing act has, so far, held—but the strain is evident.

Efforts Toward Strategic Autonomy

Recognizing the risks of overdependence on either partner, Canberra has begun exploring pathways to strategic autonomy. This involves more than just diversifying trade or upgrading defense—it requires a comprehensive rethinking of Australia's role in the region.

On the economic front, Australia is investing in critical minerals, clean energy, and advanced manufacturing to reduce reliance on Chinese supply chains. In defense, it is boosting its own industrial base to increase resilience and reduce reliance on imported hardware. A $50 billion sovereign capability fund has been proposed to support innovation and national resilience.

Regionally, Australia is expanding its engagement beyond the traditional US-China binary. It is strengthening ties with ASEAN, deepening cooperation with Quad members (India, Japan, and the US), and asserting a stronger diplomatic presence in the Pacific Islands. These moves are designed to position Australia not as a proxy power, but as a stabilizing force with its own agency.

Constraints on True Independence

Yet aspirations of strategic autonomy must be tempered by realism. Australia’s economic and military scale places clear limits on its ability to act entirely independently. While it can recalibrate exposure and hedge risks, it cannot insulate itself fully from the gravitational pull of the US-China rivalry.

Geography, too, imposes constraints. As a Pacific nation with expansive maritime territory and limited population, Australia lacks the mass to project power in the way larger states can. Its alliances, particularly with the US, provide essential deterrence—but also reduce its margin for maneuver in times of crisis.

Additionally, efforts to "de-risk" from China have exposed a structural dilemma: diversification strategies often come with higher costs and slower returns, while geopolitical pressure points—such as a potential Taiwan conflict—could force binary decisions that no amount of hedging can avoid.

Conclusion: The Realistic Path Forward

In the end, Australia’s path is unlikely to be one of complete independence—but neither must it be one of binary alignment. The most realistic and sustainable strategy lies in measured independence: deepening regional relationships, selectively investing in sovereign capabilities, and managing the US alliance without becoming a pawn in great power conflict.

For now, the balancing act continues. But as both China and the US grow more assertive—and less predictable—the pressure on Australia to define a more self-directed role in global affairs will only grow. Whether Canberra can rise to that challenge without losing its footing on either side remains one of the defining questions of its foreign policy in the decade ahead.

Author: Gerardine Lucero