The Fallout From The AUKUS Deal

22.09.2021

The AUKUS deal allowed Australia to cancel an order for diesel driven submarines from France by taking up a U.S. and British offer to eventually acquire nuclear driven submarines.

It is not clear at all that Australia will find the money to actually pay for nuclear submarines. These are 50-100% more expensive that conventional ones. Australia also wants to make sure that at least 60% of the price flows back to Australian manufacturing. But there are no companies in Australia who have experience with work on nuclear technology. It is also unlikely that the U.S. or UK would let Australia gain such capacity.

There is also little chance that any of the envisioned new boats will be ready before 2040. By then Taiwan will likely be under Beijing's control and the naval primacy of China in the South China Sea will only have grown. The so far declared time frame and purpose of those boats is thereby questionable.

That may well be because the real plan is a different one:

The short-term leasing of nuclear-powered submarines from the UK or the US is being considered by the Morrison government but the Coalition insists nuclear weapons won’t be based in Australia.
The finance minister, Simon Birmingham, and the defence minister, Peter Dutton, confirmed in seperate interviews on Sunday that leasing submarines from the Aukus allies could be a stop-gap solution until Australia takes delivery of its own – potentially in the 2040s.

“The short answer is yes,” Dutton said when asked on Sky News about leasing vessels.

Birmingham said leasing arrangements would not necessarily “increase the number of submarines and the capability across all of the partner nations” but would help with training and information sharing.

“Doing so may provide opportunities for us to train our sailors, provide the skills and knowledge in terms of how we operate,” he told the ABC.

[It would help] provide the platforms for us to upgrade the infrastructure in Perth, that will be necessary for the operation of these submarines. I expect we will see … lease arrangements or greater joint operations between our navies in the future that sees our sailors working more closely and indeed, potentially on UK and US vessels to get that skills and training and knowledge.”

Perth will thereby be build up into a base that is compatible with the likely permanent stationing of U.S. nuclear submarines. These carry nuclear weapons.

The 'leased' boats, or at least their propulsion parts, would of course be still manned by U.S. or British sailors. The Australians already have problems retaining crews for their existing submarines. The few that will be available for the 'leased' boats will not be enough to run them. The Australians would pay largely for the privilege of being guests on board of doubtlessly U.S. commanded submarines.

The Australian government also plans to buy a number of expensive stand off missiles and long range weapons from the U.S. This will further integrate its forces into U.S. plans for war on China.

As I wrote in a previous piece:

This is a huge but short term win for the U.S. with an also-ran booby price for Britain and a strategic loss of sovereignty and budget control for Australia.

The loss of Australian sovereignty, as far as it existed, is obvious. Its new plans, like previous anti-China moves, will also have bad economic consequences. Talks about a free trade agreement with the EU will now be halted:

"One of our member states has been treated in a way that is not acceptable, so we want to know what happened and why," [European Commission President Ursula] von der Leyen said, adding that the situation must be clarified "before you keep on going with business as usual."
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The European Union was Australia's third largest trading partner in 2020, according to the European Commission. Goods trade between the two amounted to €36 billion ($42 billion) that year while trade in services was worth €26 billion ($30 billion) in 2019.
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The threat to an EU trade deal comes at a time when Australia is looking to develop new export markets after relations with China, its largest trading partner, soured recently.

Australian coal, wine, barley and beef have all already been affected by trade tensions with China, and experts say that AUKUS has antagonized Beijing even further.

China is still Australia's largest trading partner. The main Australian export product to China is iron ore. But that trade is now also in deep trouble:

The price of iron ore, Australia’s biggest export, has continued to plunge as top customer China steps up moves to cut its steel output and reduce carbon emissions for the third straight month.

After hitting a record-breaking $US230 a tonne in May, the key steel-making material has had its value slashed in half and is now trading below $US110 a tonne, hammering the share prices of the ASX-listed mining heavyweights BHP, Rio Tinto and Fortescue.

There are additional reasons why China's need for iron ore, and therefore its price, will go down. The near crash of China's cash strapped property group Evergrande will bring a pause to China's building boom. China is also recycling more and more steel from old infrastructure and thereby needs less raw iron ore input even while it continues to build new factories. The iron ore China still needs will soon come from Africa:

The top focus for China’s diversification push is Guinea. An impoverished but mineral rich country in West Africa. A 110 km range of hills called Simandou is said to hold the world’s largest reserve of untapped high-quality iron ore.

The project to develop Simandou has been split into four blocks. China holds either a direct or indirect stake in every one of them. The area holds an estimated 2.4 billion tons of ore graded at over 65.5%.
“Extraction of Simandou’s iron ore reserves would transform the global market and catapult Guinea into an iron ore export powerhouse alongside Australia and Brazil,” Lauren Johnston, a research associate at the SOAS China Institute of the University of London, told Nikkei.

If China unlocks Simandou’s reserves and drives a drop in international iron ore prices, “it could see selective commodity markets increasingly driven by intra-developing country dynamics,” Johnston said.

China would find such waters easier to navigate than having to do business with Quad member Australia.

(The recent coup in Guinea is unlikely not change these plans.)

Australia's extraction boom fueled by China's rise is coming to an end. The country will have to cut its budget and will need to seek a new economic model.

But why did I call this a "huge but short term win" for the U.S.?

It is a win in that the U.S. has gained a submarine base in Australia and will get paid for using it. This looks well if the intent is to wage a cold war on China. It is doubtful that this is a necessary strategy and it is equally doubtful that it can be successful. The weapons manufacturers will of course still love it.

But it is a only a short term win in the sense that the U.S. will lose many of its current and potential future partners over it. It has degraded its QUAD partner India and Japan to second tier status. It has increased suspicion in Indonesia, Malaysia and even Singapore of eventual nefarious plans against them:

In particular, Indonesia and Malaysia have come out strongly against Australia’s plan to acquire a fleet of nuclear-powered submarines with the help of the US and Britain. Even Singapore, Australia’s most reliable ally in the region, has expressed concern.
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If anything, the Aukus move reinforced the widely held perception that Australia’s mantra of being “part of the region” is, in fact, “empty talk”. Australia has firmly signalled its intentions to put its Anglo allies in the US and Britain first.

A former British ambassador to France predicts trouble for NATO:

Peter Ricketts said Canberra's decision to abandon a contract with Paris for diesel-powered subs in favour of nuclear-powered ones from Washington drove a wedge between the allies and weakened the transatlantic alliance.
"I think this move certainly undermines French confidence in NATO and NATO allies, and therefore reinforces their feeling that they should be driving for European strategic autonomy," he told AFP.

"I think that can only be damaging to NATO, because NATO depends on trust. The repair work needs to begin urgently."

EU foreign ministers are due to discuss the new defence pact signed between the United States, Australia and Britain, on the sidelines of the UN General Assembly Monday.
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Ricketts, who was permanent representative to NATO in 2003-2006, said France would view the row as "a turning point" in relations with the United States and Britain.

"It's reinforced a feeling in Paris that I pick up that the Americans are increasingly turning their back on European security allies and focusing on their confrontation with China," he added.

France, Germany and other European countries want to be economic partners of China. They see the U.S. attempts to launch a new cold war as a completely unnecessary diversion from other problems. U.S. efforts to keep the Europeans 'in line' with its plans will become increasingly difficult.

Overall the U.S. has won a base and a small partner in its hopeless endeavor to subdue the four times larger China but has lost trust and support in huge parts of the rest of the world. It is a strategic error with long term consequences.