In the third part of his piece for the Foreign Policy Rethink series, Geoff Raby examines how middle powers can navigate a world of competing great powers – and why Australia’s current approach is becoming more vulnerable.

China’s soft power took a bashing, especially in the West, when it flirted with what became known as ‘wolf warrior’ diplomacy. This marked the decisive break with Deng Xiaoping’s guiding maxim for conducting China’s foreign policy: bide your time, hide your strength. Wolf warrior diplomacy, with its confrontational style, reflected Xi Jinping’s view that China’s time had finally arrived. China could and must be more assertive internationally. The approach was attenuated, however, when it became obvious that it had been counterproductive.

China has since sought to recover its standing, starting with the Global South. In 2022, two major policy initiatives were announced to underpin Xi Jinping’s vision of a world order based on his principle of a ‘global community of shared future’. The Global Development Initiative (GDI) was launched in 2022. Intended to align with the UN’s Global Development Agenda, it serves to emphasise China’s relative strengths in digital and green technologies suitable for adoption by poorer countries. The Global Security Initiative (GSI), also introduced in 2022, is based on absolute sovereignty and non-interference, rejecting unilateralism and bloc-security alliances. In May 2023, the Global Civilisation Initiative (GCI) was announced. It emphasises diversity of civilisations and defines human rights as relative to a particular country’s conditions.

Beijing claims that over 100 countries have associated themselves with these initiatives. China has stepped up its bilateral training and technical assistance programs under them and linked them to the BRI. Reflecting Beijing’s broader ambitions, Africa has become a particular focus of attention.

This increasingly contested and competitive global order opens opportunities and challenges for middle powers.

Middle power diplomacy in a world of bounded orders

The shape of the new multipolar world of bounded orders has emerged more quickly than most would have expected. For middle powers, however, it presents a well-worn path to follow, requiring skilful and patient diplomacy.

For the Global South, several academics have been urging a policy of ‘Active Non-alignment’ (ANA): in a new era of great power competition, states can ‘hedge their bets’ or ‘play the field’, refusing or resisting to align themselves totally or even to a substantial degree with one or other of the great powers. In other words, middle powers have agency. On specific issues, they can align with one or other great power; they can also form coalitions around specific issues to attract great power support for their interests.

ASEAN has been quite explicit in not wanting to choose and, importantly, not wanting to be forced to choose between either of the great powers. Some ASEAN states, namely Cambodia and Laos, have clearly chosen China, but for the remainder, studied neutrality prevails. Singapore, which is perhaps the most pro-US in ASEAN, makes it clear that it wants continued US military presence in the region, while urging the US to adopt a more accommodating stance on China’s expanding power and influence.

Small states also have agency

Even small Pacific Island states have demonstrated agency in balancing their interests between an increasingly active China on one side and Australia and New Zealand, as proxies for the US, on the other. Many Pacific Island states have welcomed Chinese investment in infrastructure and prestige projects such as sports stadiums and parliamentary buildings, and technical support for policing and security. Australia has directly competed with China, making aid and training for security services contingent on Pacific governments not signing similar arrangements with states outside the Pacific community (namely China). But Vanuatu and the Solomon Islands have pushed back against this conditionality. They want to keep their dance cards open.

Europe is far less dependent on the Chinese market than either ASEAN or Australia. For instance, China as a share of Austria’s non-EU exports is of the order of 2.5-3.0 per cent, although China is Austria’s second largest non-European market. For the EU, China accounts for about 8.5 per cent of total exports but is the EU’s third largest export market. For the UK, China accounts for only 5-6 per cent of total exports. Accordingly, the EU and UK have much more freedom of manoeuvre than countries like Australia.

The EU is also much more important to China as a market and destination for FDI. EU imports from China are significant and causing increasing pressure on its key manufacturing sectors, such as autos.

Europe remains a major destination for Chinese FDI, in 2024 accounting for 19 per cent of global Chinese investment. It is, however, spread unevenly among EU member states, with investment in Germany and France falling in recent years, while investment in Hungary has risen strongly, highlighting the geoeconomics of Chinese investment. Even if the bulk of Chinese FDI going to Europe is from privately owned Chinese firms, decision-makers are nevertheless closely attuned to which countries are deemed by Beijing as being ‘friendly’ and those which are ‘hostile’.

Within the EU, differences between member states are deep. China has shown it can and will reward and punish states depending on how Beijing views their relative ‘friendliness’ towards it. Developing a coherent EU position will become increasingly problematic without a re-thinking of Europe’s approaches to China. The tenor of EU-China relations in a plural global order may become key to whether global governance devolves into rival hostile blocs, or evolves into a stable, negotiated pluralism.

For middle powers, geoeconomics – punitive trade measures, discriminatory investment, controls on technology – are a major challenge without a strong framework of multilateral rules and disciplines. Both the great powers exercise economic coercion for a variety of political ends: to influence and shape the international behaviour of other states, to satisfy vocal domestic political constituencies, or most commonly both. Middle powers, therefore, need to be prepared to offer greater mutual support to each other to blunt such behaviour by great powers to the extent that domestic politics permits.

For all middle powers, when dealing with China, it needs to be recognised that trade and investment instruments are a core part of China’s statecraft. Since the inauguration of Trump 2.0, the US has made economic coercion a major instrument of its statecraft too. With the US having seriously undermined WTO disciplines, China will feel even less constrained to seek to achieve its geopolitical objectives using economic means.

Australia, for example, was subjected to China’s economic coercion during the latter part of Trump 1.0 in retaliation for Australia’s call for an international investigation into the Chinese origin of Covid-19. This led to a collapse in the bilateral relationship. It came, however, after years of rising mutual mistrust between the countries.

Middle powers need to maintain maximum flexibility when negotiating between the great powers. Australia, however, is an example of how a middle power, by viewing the world in excessively binary terms, has increased its vulnerability and made itself less, not more, secure contrary to the intention of its current policies.

Australia is itself in a diplomatically tight spot when balancing its interests between the United States and China. Canberra has made it abundantly clear that it is and will remain closely aligned with the US, especially in its competition with China. Australia has under the current government and in response to what it asserts to be profound ‘changes in Australia’s security environment’, doubled down on its security relationship with the US. At the same time, it has stated publicly that it wants the economic relationship with China to grow, as the country is also home to a Chinese diaspora of some one million people.

The cornerstone of Australia’s security relationship with the United States has been the ANZUS Treaty (1951) which established Australia as a formal alliance partner of the US and has long been given much greater weight by Australia than for its American counterpart. It contains no more than an obligation to consult in the event of a military attack on either party. It does not contain anything like Article 5 of NATO with its mutual defence obligation. Australian conservatives have sought to present it in similar terms as Article 5, but without any support from the US, a reality borne out by Washington’s refusal to assist Australia under the auspices of ANZUS in various crises with Indonesia in the 1960s and 1990s.

Accordingly, Australia has long been anxious about how dependable the US would be in the event of a threat to Australia’s security. This has led successive governments on either side of politics to pay Australia’s dues to the USin the hope that in extremis the US will prove to be a reliable ally.

Australia’s economic wellbeing, on the other hand, is directly and materially dependent on access to China’s market. China accounts for about 30 per cent of Australia’s exports. For the time being, Australia has the luxury of China being heavily reliant on its iron ore and energy: Australia consistently supplies around 70 per cent of China’s sea-borne iron ore imports; is also the single largest supplier of LNG, accounting for over a third of Chinese imports annually; and the main source of metallurgical coal, accounting for about one fifth of China’s imports. In turn, Australia’s total exports with China are concentrated on these three commodities which account for 75-80 per cent of China-bound trade. Australia is therefore highly vulnerable to China’s efforts at long-term supply diversification.

Despite Australia’s strategic posture being distinctly at odds with its commercial exposure, by and large Australian governments have been able to manage both great power relations. Apart from when the conservative government of Prime Minister Scott Morrison oversaw a complete breakdown in the bilateral relationship, Australia’s trade with China has continued to grow apace with China’s economy.

Arguably, Australia has managed to juggle its relations with the great powers to advance its interests more by good fortune – China’s thirst for its resources – than skilful diplomacy. As China becomes less dependent on Australia’s resources, Canberra’s room to move in balancing relations between Beijing and Washington will become more constrained and Australia’s vulnerability to China’s use of economic measures to shape political outcomes it desires can be expected to increase.

Australia will need to find a way to reposition itself between the great powers. In this it can draw on the experiences of its regional neighbours and develop a more independent foreign policy than it has pursued over the past twenty years. At the same time, Europe might draw useful lessons from Australia for what not to do now that northern Atlanticism is receding.

Part 3 of this 4-Part series is republished from Global Neighbours.org, 13 February, 2026

Read Part 1 and Part 2 below

The return of great power relations: What can middle powers do? Part 1

As part of the Foreign Policy Rethink series, Geoff Raby examines how Trumps shift to great power politics is reshaping the global order and forcing middle powers to rethink their strategy.

The return of great power relations: a world of bounded orders Part 2

In the second part of his piece for the Foreign Policy Rethink series, Geoff Raby examines how China is constructing a competing global order and reshaping the institutions that underpin international relations.

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