ECONOMY

Paris Is Shocked–Shocked!–Its Submarine Deal Fell Apart

Never mind the howls of outrage from Paris or the indignation of Beijing. Australia’s scuttling of a $65 billion French submarine contract in favor of yet stronger ties with the U.S and U.K. is significant but hardly earth-shattering. The true import of the contretemps is that it underscores long-standing problems with the economic and security allegiances that dominate the Asia-Pacific region. It may even open up a few opportunities.

The project to build a fleet of diesel-powered submarines for Australia, awarded to France in 2016, was deeply troubled. For years, Australian politicians complained about cost over-runs and delays. During that time, commercial and diplomatic ties between Australia and China worsened dramatically. Disappointment with the French deal grew so great that Australia said a few months ago it would give older boats a refit to prolong their life while waiting for the new ones. Not exactly a vote of confidence. Was anyone in Paris listening?

France’s foreign minister said Thursday that the country was “stabbed in the back” by the loss of the contract. Hours earlier, Australian Prime Minister Scott Morrison, U.S. President Joe Biden and British Prime Minister Boris Johnson announced Canberra will now acquire nuclear submarines from the U.S. and U.K., a big technological leap for the country that drew a swift rebuke from China.

The deal had been kept under wraps, so its announcement caused a splash. As recently as June, France seemed to think things were going well enough: President Emmanuel Macron was photographed putting his arms around Morrison during the premier’s visit to France. 

Canberra’s ties with Washington, close for 80 years, have become still more intimate. China tends to view Australia as a proxy for the U.S., but far easier to push around because its economy is much smaller. Australia is also more dependent on China’s purchases of wine, education services and minerals — and as a strategic player, it’s middling at best. Throw in Beijing’s military build up in the South China Sea, as well as the rifts that have opened up with the U.S., and you can see how Australia would be anxious. 

France is right to be disappointed, but I doubt it’s shocked. Perhaps the French felt the grumblings from Canberra were just part and parcel of domestic politics. If there were any doubts the gig was in jeopardy, the appointment of Peter Dutton as Australian defense minister in March should have put them to rest. A former police officer, Dutton made a name for himself as a hardline immigration minister. He arrived at the new job with a reputation as a culture warrior, an unabashedly pro-American stance on most issues and a fierce critic of China. In Dutton, the French should have seen a walking five-alarm fire.

Relations between Canberra and Washington have had their ups and downs, but always within a framework of Australian dependence, and the odd bout of paranoia that a powerful ally would abandon it. Using American technology to go nuclear in the defense industry is a leap, but not nearly so great as that of December 1941. With Japanese troops marching down the Malayan peninsula toward Singapore, then-prime minister John Curtin declared: “Without any inhibitions of any kind, I make it quite clear that Australia looks to America, free of any pangs as to our traditional links or kinship with Britain.”

The U.K. is an interesting ingredient in this naval fracas. Singapore, where I live, is full of reminders of British rule — and its failings. Once the U.K. was driven out by Japan, the country became almost irrelevant to security in the Asia-Pacific. It lingered a bit after the war, in a caretaker role and as part of arrangements to protect Malaysia and Singapore. Post-Brexit, the U.K. has been casting around for a role in Asia. Could piggy-backing with the U.S. and former colonies like Australia be the way to go?

It’s a stretch to say, as China does, that the submarine drama undermines regional peace. The incident does suggest, however, that not everyone is counting on this peace lasting. It’s ironic that Australia opted for the French instead of a competing bid from the Japanese, at least in part because it was worried about blowback from China. Selecting Japan would buttress regional ties, but best not to aggravate your biggest export customer, the thinking went. The latest diplomatic kerfuffle may have drawn some smiles in Tokyo, at least. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.

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