Australia, explained.
Australia's Prime Minister Anthony Albanese flew into Jakarta this month to sign a defence treaty with Indonesia (Yasuyoshi Chiba/AFP via Getty Images)
Australia ranks second in defence networks but ninth in economic capability – and the region has noticed.
Subscribe to The Informer for monthly expert analysis, and to Events for advance notice of visiting world leaders and distinguished guests.
You may unsubscribe from Lowy Institute newsletters at any time. For information on our privacy practices and how to unsubscribe, see our Privacy Policy.
To succeed in Southeast Asia, Australia must balance security and tradeTo succeed in Southeast Asia, Australia must balance security and trade
Australia has chalked up several wins in Southeast Asia, signing a new security treaty with Indonesia and negotiating an upgraded defence agreement with the Philippines, expected to be signed this year. The moves enhance efforts to ensure peace in the region. But success in the security realm cannot overshadow the importance of progressing regional prosperity, and Australia has lagged on engagement with Southeast Asia’s priorities: economic development and climate change.
This imbalance is reflected in the Lowy Institute’s Asia Power Index, which saw Australia’s ranking drop to sixth in Asia (behind Russia) in 2025. The index revealed that Australia scores best in defence networks, where it ranks second after the United States, whereas it ranks ninth for economic capability.
The Albanese government’s efforts to spur Australian investment in Southeast Asia saw the launch of its regional economic strategy in 2023. The results have been mixed. While the government announced a $2 billion financing facility to support Australian investment in Southeast Asia in March 2024, outbound investment to the region remains low. In 2024, only Singapore, where Australia invested $78 billion (less than 2% of total investment that year), ranked in the top 20 investment destinations. Beyond Singapore, less than 1% of Australia’s total overseas investment went to Southeast Asia.
Labor should take the chance to focus on two critical economic interests for the region – green energy and development assistance.
Australia’s trade with Southeast Asia has grown in nominal terms but continued to hover around 14% of its total overseas trade. Despite recognising that “our economic future lies with Southeast Asia,” the government acknowledges that Australia’s trade and investment in the region “have not kept pace with Southeast Asia's economic growth over the past 20 years.” The Association of Southeast Asian Nations might be collectively Australia’s second largest trading partner, yet Australia was only Southeast Asia’s eighth largest trading partner in 2022, trailing China, the United States, the European Union, Japan, South Korea, and India.
Australia’s comparatively lacklustre economic presence in Southeast Asia has done little to boost Canberra’s reputation and influence in the region. According to the most recent ISEAS-Yusof Ishak Institute of elite opinion in Southeast Asia, only 8% of respondents identify Australia as a “preferred and trusted strategic partner” for ASEAN to hedge against US-China rivalry, behind the European Union (36%), Japan (nearly 30%) and India (14%).
As US President Donald Trump has increasingly disrupted the international order, new challenges and opportunities loom for Canberra. Given current global uncertainties, it was wise of the Albanese government to hold off on joining Trump’s Board of Peace, a murky venture lacking a clear purpose. Australia has worked hard over the last two decades to undo its reputation as America’s “deputy sheriff” in the region. A more independent foreign policy helps these efforts.
But Labor should take the chance to focus on two critical economic interests for the region – green energy and development assistance.
Australia can become a vital partner in Southeast Asia’s green energy transition. Recent agreements with Vietnam and Singapore have shown Australia’s role in supporting both countries’ efforts to shift toward renewable energy sources. Australia can also help Vietnam to develop its domestic semiconductor industry, central to Hanoi’s goal of becoming a high-income advanced economy by 2045. Both Australia and Vietnam are rich in critical mineral resources and have a shared interest in decoupling from China’s supply chain dominance in this sector.
Australia can also position itself as a preferred development partner across the region as the region grapples with massive climate adaptation and infrastructure needs. Following the Trump administration’s elimination of US overseas assistance, the Albanese government redirected more than $100 million in foreign aid to Southeast Asia and the Pacific.
That increase was not uniform across the region, however. Funding for ASEAN and the Mekong subregion has already declined from $102 million in 2023-24 to $95.7 million in 2025-26. Development funding will face greater constraints as Australia experiences political pressure to increase its defence budget.
Security cannot be allowed to overshadow the story Australia tells in Southeast Asia. While the military fanfare that accompanies treaty signings makes for great pictures in the moment, enduring economic ties can bolster regional relations, too.
About the author
Hunter Marston
Dr Hunter Marston is the Director of the Southeast Asia Program at the Lowy Institute and Project Lead for the Asia Power Index.
The most-pressing world events explained by Lowy Institute experts and global contributors, in your inbox, every Thursday.
You may unsubscribe from The Interpreter at any time. For information on our privacy practices and how to unsubscribe, see our Privacy Policy.
