As talks of a new Cold War between the US and China intensified in the lead up to the G20 summit in Argentina this fortnight, countries in the Indo-Pacific region, as elsewhere, ruminated on how they should strategise for this era of great power competition and more importantly, on where they stand in the grand scheme of things.

The biggest takeaway from the summit was the thawing of the trade disputes between China and the US following a dinner between its leaders. The US announced a moratorium on raising tariffs from 10% to 25% for a period of 90 days to allow China time to correct the trade imbalance. In return, China agreed to purchase ‘a very substantial… amount of agricultural, energy, industrial, and other product from the United States.’ However, analysts see little hope for a sustained truce between the two powers, pointing out that tensions in the South China Sea and other areas could lead to a flare up.

In a major development that threatens to derail the thaw in relations already, Canada arrested the chief financial officer of Chinese telecom giant Huawei, Meng Wanzhou and could possibly extradite her to the US on charges of suspected violation of Iran sanctions. In retaliation, China has detained former Canadian diplomat and senior International Crisis Group advisor Michael Kovrig, and Canadian entrepreneur Michael Spavor. At the time of writing, it’s reported that Wanzhou has been granted bail but the fate of the Canadian nationals remains unclear. Experts highlight that these detentions point to a more assertive Chinese approach to dealing with international disputes under Xi Jinping.

In a first, Japan, India and the US held their first trilateral summit meeting at the sidelines of the G20 and called for a free and open regional order in the Indo-Pacific. The meeting was more symbolic than substantive and appeared to send a signal to Beijing as the three leaders reaffirmed their commitment to deepen trilateral cooperation, especially maritime security in the region. Indian prime minister Narendra Modi outlined five action points for the grouping- ‘connectivity, sustainable development, maritime security, disaster relief and freedom of navigation.’ Modi also held a bilateral meeting with Xi Jinping, to follow up on the ‘reset’ momentum of the Wuhan summit earlier this year.

US Defense Secretary James Mattis held his fourth meeting this year with his Indian counterpart Nirmala Sitharaman to iron out a few pending issues such as India’s purchase of S-400 air missile defence systems from Russia. Mattis remarked that the two sides will ‘work everything out’ when asked about the possibility of US sanctions on India. He also highlighted India’s crucial role in ensuring peace in Afghanistan.

Interestingly, barely a week after that meeting, Russian defence minister Sergei Shoigu is in India to finalise the S-400 deal and other defence matters. Also, while the Indian air force is currently conducting bilateral military exercises with the US airforce, the Indian navy is hosting its Russian counterpart for naval drills. Significantly, the Indian and Chinese armies’ annual ‘hand-in-hand’ goodwill military exercises have resumed after a year’s hiatus and are currently underway.

As I write this, Australian foreign minister Marise Payne is in Myanmar, where her meeting with its leader Aung San Suu Kyi is under the spotlight. Payne has been urged to assertively take up the Rohingya issue with Suu Kyi and to ‘step up and show leadership’. In her statement this week, Payne remarked that Australia ‘is committed to working with Myanmar and regional and other partners towards a long-term and durable solution to the crisis in Rakhine state.’

The US has joined the Asian Development Bank’s Pacific Region Infrastructure Facility (PRIF) initiative, joining ranks with Australia, New Zealand, Japan, the European Union and the European Investment Bank and the World Bank Group. It’s reported that the US is going to focus closely on Papua New Guinea and prioritise infrastructure development with aims to electrify almost 70% of rural PNG.

The Sri Lankan constitutional crisis has worsened in the past fortnight. Former prime minister Mahinda Rajapaksa’s abrupt reappointment as the country’s leader last month was met with resistance and he faced two no-confidence motions in the parliament which led President Maithripala Sirisena to dissolve the parliament. Sri Lanka’s supreme court has now passed a ruling declaring the dissolution to be unconstitutional. This week, sacked prime minister Ranil Wickremesinghe won a confidence vote in the parliament; however, president Sirisena is yet to concede to the top court’s decision leading to a possibility of an impeachment proceeding against him.

Closer home, the Australian government has decided to move its Israel embassy from Jerusalem to Tel Aviv, following Washington’s lead. The Morrison government is ‘cautiously optimistic’ that the move wouldn’t have an impact on the free trade deal in the offing with the Indonesian government, even though Jakarta has refused to sign any deal if Australia moved its embassy to Jerusalem.

Significance for Australia

Policy-makers, strategic analysts and academics in Australia have been debating Australia’s stakes in this new era of great power rivalry for quite some time now. This fortnight’s events have intensified these debates and led analysts to realistically ponder the cost of a conflict between the US and China for Australia.

The thaw in US-China trade dispute has brought some much-needed respite to Australian businesses. However, there’s clear recognition Down Under that ‘the deep structural trade tensions between the United States and China cannot be resolved in three months.’ Experts contend that Australia shouldn’t seek to contain China’s legitimate interests in the region but encourage its participation and co-optation within the rules-based order. Ultimately, there is a greater need for Canberra to assume a more pro-active role in regional leadership, symbolised in Australia’s new Pacific pivot.

China’s detention of Canadian nationals is cause for real worry in Canberra as it’s reflective of a more confrontational foreign policy from Beijing and doesn’t bode well for China-US relations. Australia should lobby China to secure the release of the Canadians and facilitate a mutually agreeable compromise between Washington and Beijing to defuse the crisis.

On another note, greater synergies among Australia’s ‘Quad’ partners is welcome development and Canberra would hope to capitalise on the current momentum in consolidating the four-way arrangement.

Canberra would be hoping for a favourable outcome from Marise Payne’s Myanmar visit in terms of facilitating the safe return and rehabilitation of the Rohingyas currently seeking refuge in Bangladesh.

Washington’s involvement in the PRIF initiative is a positive development from Canberra’s perspective as it reaffirms America’s recently expressed commitment to invest and ‘stay’ in the region. On the other hand, moving the embassy to Jerusalem, in spite of strategic advice to the contrary, is detrimental to Australian interests. Not only does it potentially scupper the Indonesian free trade agreement, it is an unnecessary source of friction with one of Canberra’s most important neighbours.

Aakriti Bachhawat is a Research Intern at the Australian Strategic Policy Institute, and Research Assistant at the Griffith Asia Institute.