The China factor in Australia-US relations

share_windows  This article appeared in The Diplomat on October 23 2025.

As Australian Prime Minister Anthony Albanese looked on, US President Donald Trump said he doesn’t expect a conflict with China. ‘We’ll be just fine with China. China doesn’t want to do that,’ he told reporters during a press conference with Albanese at the White House on October 21. 

Trump was also asked whether AUKUS – the trilateral security pact between Australia, the United Kingdom, and the United States – is meant as a deterrent against Beijing. He replied, ‘Yeah, I do, I think it is, but I don’t think we’re going to need it.’

Referring to President Xi Jinping, Trump added, ‘I think we’re going to get along very well as it pertains to Taiwan and others. That doesn’t mean it’s not the apple of his eye… but I don’t see anything happening. We have a very good trade relationship.’ He also stressed US strength, describing it as ‘the strongest military power by far. It’s not even close,’ before again returning to commerce: ‘I think we’ll end up with a very strong trade deal.’

Trump’s comments rest on a consequential assumption: that US global military superiority translates straightforwardly into a favourable regional balance. Recent research suggests that assumption deserves scrutiny. A 2024 peer-reviewed study by economist Peter E. Robertson, using defence sector purchasing power parity estimates based on Stockholm International Peace Research Institute data, found that China’s ‘real’ defence budget in 2021 was about 59 percent of US spending, far higher than market exchange rate comparisons suggest. More strikingly, China’s real spending on equipment has grown by roughly 10 percent per year since 2000, several points faster than the United States.

The US military still commands unmatched global reach, yet the margin of advantage over China is no longer as assured as it once seemed. For Australia, the question is not whether the alliance remains strong, but whether US confidence accurately reflects the evolving balance and the risks that come with it.

For Albanese, the White House visit carried high political stakes. After months of criticism over delays in securing a meeting with Trump, he emerged with two tangible outcomes: the US president’s affirmation that AUKUS is proceeding ‘full steam ahead,’ and a new critical minerals framework committing both governments to fund projects worth roughly US$8.5 billion.

These outcomes projected alignment. Yet Trump’s remarks acknowledging AUKUS as a deterrent against China – while suggesting it might never be needed – conveyed a more complex signal. For Canberra, which views AUKUS as a core part of its long-term deterrence strategy, this underscored a deeper question about how Washington defines competition and risk. It suggests that while AUKUS endures in form and intent, its operational focus may evolve under a Trump administration more attuned to bilateral bargaining than sustained strategic competition. 

Beijing’s official reaction to the Albanese-Trump meeting has thus far been relatively restrained. A Foreign Ministry spokesperson reiterated China’s opposition to AUKUS, calling it a move that ‘creates bloc confrontation.’ Chinese state media coverage for the most part emphasized China’s dominance in critical minerals processing capacity, downplaying the Australia-US deal. With a potential Trump-Xi meeting approaching at the APEC summit in South Korea, Beijing appears to be managing friction carefully, avoiding gestures that might galvanize allied coordination.

But operational tensions remain. Two days before the meeting, a Chinese fighter jet released flares near an Australian surveillance aircraft over the South China Sea, an incident Canberra termed ’unsafe and unprofessional.’ The episode underscored that even amid diplomatic restraint, coercive signalling continues.

That restraint also reflects the current asymmetry in global supply chains, where China remains the central node in critical minerals processing. The new Australia-US critical minerals framework aims to address that imbalance but shifting the global supply base is a long game. Even with new funding, both countries face formidable barriers in the short to medium term. Chinese companies control more than 90 percent of global rare earth processing capacity, giving it leverage over costs and supply chains.

As technology expert Marina Zhang observed earlier this month, ‘Even if the US and all its allies make processing rare earths a national project, I would say that it will take at least five years to catch up with China.’ The Australia-US framework’s immediate significance therefore lies more in signalling than in production. By designating critical minerals as a shared strategic priority and drawing Japan into early projects, Canberra and Washington are seeking to seed a long-term network of ‘trusted’ processors. But success will depend on whether coordination and subsidies can overcome China’s entrenched cost advantage. Without that, diversification risks remaining politically resonant but commercially fragile.

A broader question looms over these efforts: what happens if Washington and Beijing reach the ‘very strong trade deal’ Trump predicts? A renewed China-US economic thaw could ease supply chain pressures but also dampen momentum for allied diversification.

For now, the reaffirmation of AUKUS and progress on critical minerals cooperation, along with Beijing’s restrained response, projects an image of stability. That stability, however, rests on uncertain ground. Trump’s forthcoming meeting with Xi will test whether his optimism about improving trade relations with China leads to policy shifts. A thaw could slow diversification efforts and soften the rationale for allied deterrence; renewed friction could deepen coordination but heighten economic exposure. Either way, Australia’s strategic footing remains shaped by decisions made elsewhere.