Why US-China Rivalry Is a Gift for Australia's Economy 2026

In a new paper, economist John Edwards argues that the US-China competition is a gift for Australia, not a threat. The former top economic adviser to Paul Keating says Australians should chill out about China and recognize the unique advantages of their position.

Edwards, now a non-resident fellow at the Lowy Institute, published Overhaul: How Australia can adapt to a changing world economy. In it, he writes that the “vigorous competition and intermittent antagonism” between China and the US has long been “mostly a source of anxiety” for Australians. Yet he contends that this rivalry is actually a gift, and that Australia is well placed to become more prosperous over the next 25 years—if it plays its cards right.

Why the US-China Rivalry Is a Gift, Not a Threat

Edwards challenges the common view that Australia must choose between its security ally and its economic partner. He points out that both the US and China will remain the major economies in 25 years. “They’re not going to go away. It’s not a race between the two that either can win,” he says.

Australia’s peculiar position—a strong cultural and security relationship with the US and a strong economic relationship with China—should be seen as a great advantage. Rather than being anxious, Edwards argues that Australia should leverage these links to the two major global economies.

What Australia Needs to Overhaul

The paper’s title, Overhaul, signals that significant changes are needed. Edwards identifies several areas that require attention to make the most of the opportunities presented by US-China competition.

• Recognize the long-term reality: Accept that the US and China will remain dominant economic powers, and that neither will win a decisive race.
• Leverage dual relationships: Use the strong security ties with the US and economic ties with China as complementary assets, not conflicting loyalties.
• Reduce anxiety: Shift the public discourse from fear to strategic opportunity.
• Adapt to a changing world economy: Develop policies that enhance Australia’s competitiveness and resilience.
• Play cards right: Make strategic choices that maximize prosperity over the next 25 years.

The Economic Case for Optimism

Edwards’ argument is grounded in economic reality. China is Australia’s major economic partner, while the US is its traditional ally and security partner. Both relationships are vital. By maintaining strong links with both, Australia can benefit from the dynamism of the two largest economies.

He suggests that instead of viewing the rivalry as a zero-sum game, Australia should see it as an opportunity to diversify and strengthen its economic position. The competition between the US and China can drive innovation, create new markets, and open up opportunities for countries that are well-connected to both.

Balancing Security and Economic Interests

One of the key challenges for Australia is balancing its security interests with its economic interests. Edwards acknowledges this tension but argues that it is manageable. Australia’s strong cultural and security relationship with the US does not preclude a strong economic relationship with China.

In fact, he suggests that having such strong links with both major global economies is a unique advantage. It allows Australia to act as a bridge, facilitating dialogue and cooperation. This position can enhance Australia’s influence and prosperity. The background to this story is set out in Australia Economy Quiz: How Well Do You Know the RBA?. A related thread runs through Australia's Economy Quiz: Test Your RBA Knowledge Now. Earlier coverage in Slashing Migration: Economic Impact on Australia Living Standards shows how the argument developed.

What to Watch Next

Edwards’ paper is a call to action. It urges policymakers and the public to rethink their approach to the US-China competition. The key takeaway is that Australia should not fear the rivalry but embrace it as a gift. A closer look at the same subject appears in Australia's Economy Limps, RBA Should Pause Rate Hikes. Anyone following the wider picture can start with Australia's National Accounts Show Economy Slowing to 2.1% Growth. The same theme surfaces in Test Your Australia Economy Knowledge with the RBA Quiz, which takes a different angle.

As the global economy continues to evolve, Australia’s ability to adapt will determine its success. Edwards’ Overhaul provides a roadmap for how to do that. By recognizing the long-term dominance of the US and China, leveraging dual relationships, and reducing anxiety, Australia can position itself for a more prosperous future. Context on how this played out before sits in Australian Oil Refinery Plans Could Shield Economy from Middle. A companion piece, Australia Politics Live: Qantas Gift And Hanson's American Style, approaches the same subject from another angle.

FAQ